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[1989] HCA 6
High Court of Australia
1987-09-02
Toohey JJ, Pincus J, Wilson J, Gummow JJ
Original judgment source is linked above.
These proceedings began in November 1984 and the appellant claimed damages in respect of a period beginning in January 1984 and sought injunctive relief. Between the filing of the appellant's application and the commencement of the hearing on 3 August 1987, s. 46 was amended by the Trade Practices Revision Act 1986 Cth, the relevant provisions of which came into force on 1 June 1986. Consequently, the appellant's claim for damages is governed by both versions of the Act, but its entitlement to an injunction is controlled by the Act as it presently stands: see Trade Practices Commission v. Milreis Pty. Ltd. [No. 2] [4] . Section 46, so far as material, now provides:
(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.
(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.
Section 46 must be read with s. 4E, which provides: For the purposes of this Act, "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. 1. (1978) 32 F.L.R. 234, at p. 241.
The analysis of a s. 46 claim necessarily begins with a description of the market in which the defendant is thought to have a substantial degree of power. In identifying the relevant market, it must be borne in mind that the object is to discover the degree of the defendant's market power. Defining the market and evaluating the degree of power in that market are part of the same process, and it is for the sake of simplicity of analysis that the two are separated. Accordingly, if the defendant is vertically integrated, the relevant market for determining degree of market power will be at the product level which is the source of that power: see the discussion of market power below. After identifying the appropriate product level, it is necessary to describe accurately the parameters of the market in which the defendant's product competes: too narrow a description of the market will create the appearance of more market power than in fact exists; too broad a description will create the appearance of less market power than there is.
Section 4E directs that a market is to be described to include not just the defendant's product but also those which are "substitutable for, or otherwise competitive with", the defendant's product. This process of defining a market by substitution involves both including products which compete with the defendant's and excluding those which because of differentiating characteristics do not compete. In Hoffmann-La Roche v. Commission ("Roche") [5] the Court of Justice of the European Communities said [6] :
The concept of the relevant market implies that there can be effective competition between the products which form part of it and this presupposes that there is a sufficient degree of interchangeability between all the products forming part of the same market in so far as a specific use of such products is concerned. Conversely, in determining in United Brands v. Commission ("United Brands") [7] whether other fruits should be excluded from the market which bananas served, the European Court said [8] : For the banana to be regarded as forming a market which is sufficiently differentiated from other fruit markets it must be possible for it to be singled out by such special features distinguishing it from other fruits that it is only to a limited extent interchangeable with them and is only exposed to their competition in a way that is hardly perceptible. See also Re Queensland Co-operative Milling Association Ltd. [9] (explaining that the defining feature of a market is substitution). 1. [1979] 1 E.C.R. 461; 3 C.M.L.R. 211. 2. [1979] 1 E.C.R., at p. 516; 3 C.M.L.R., at p. 272. 3. [1978] 1 E.C.R. 207; 1 C.M.L.R. 429. 4. [1978] 1 E.C.R., at p. 227; 1 C.M.L.R., at pp. 482-483. 5. (1976) 25 F.L.R. 169, at pp. 190-191; 8 A.L.R. 481, at p. 517.
After the market has been delimited, the question is whether the defendant has "a substantial degree of power" within that market. Market power can be defined as 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: see Fuller, "Article 86 E.E.C.: Economic Analysis of the Existence of a Dominant Position", European Law Reports, vol. 4 (1979) 423, at p. 428. Section 46(3), which was added in 1986 by the Trade Practices Revision Act, provides that in determining the degree of market power a court should consider "the extent to which the conduct of [the defendant] in that market is constrained by the conduct of competitors, or potential competitors ".
The Explanatory Memorandum accompanying the Trade Practices Revision Act stated (par. 46) that s. 46(3) was designed to achieve an approach similar to that adopted by the European Court in determining market power for purposes of Art. 86 of the E.E.C. Treaty. The Memorandum mentioned Europemballage and Continental Can v. Commission ("Continental Can") [10] , United Brands and Roche , the last two being cases to which we have already referred. In Continental Can the European Court recognized [11] the necessity of considering potential competition in determining the degree of market power:
a dominant position in the market for light metal containers for canned meat and fish cannot be decisive, in so far as it is not proved that competitors in other fields of the market for light metal containers cannot by a mere adaptation, enter this market, with sufficient strength to form a serious counter-weight. 1. [1973] 1 E.C.R. 215; 12 C.M.L.R. 199. 2. [1973] 1 E.C.R., at p. 248; 12 C.M.L.R., at p. 227.
Courts have often looked to market share to determine degree of market power: see, e.g., American Tobacco Co. v. United States [12] ; United States v. Grinnell Corp. [13] ("The existence of such [monopoly] power ordinarily may be inferred from the predominant share of the market."); United States v. Aluminium Co. of America [14] per Judge Learned Hand. But as s. 46(3) and the passage from Continental Can which we just quoted suggest, a large market share does not necessarily mean that there is a substantial degree of market power. To borrow the words from Reed J.'s opinion for the Court in United States v. Columbia Steel Co. [15] , "[t]he relative effect of percentage command of a market varies with the setting in which that factor is placed."
A large market share may well be evidence of market power (see Roche [16] ), but the ease with which competitors would be able to enter the market must also be considered. It is only when for some reason it is not rational or possible for new entrants to participate in the market that a firm can have market power: see Continental Can [17] . There must be barriers to entry. As Professor F. M. Scherer has written, "significant entry barriers are the sine qua non of monopoly and oligopoly, for sellers have little or no enduring power over price when entry barriers are nonexistent": Scherer, Industrial Market Structure and Economic Performance, 2nd ed. (1980), p. 11. Barriers to entry may be legal barriers - patent rights, exclusive government licences and tariffs for example. Barriers to entry may also be a result of large "economies of scale". Where the economies of scale in a market are such that the minimum size for an efficient firm is very large relative to the size of the market, it may be that potential competitors will be dissuaded from entering the market by the apprehension that only one firm would survive.
Another indicator of market power suggested by the European Court which is relevant to the case at hand is vertical integration: United Brands [18] . It is true enough that vertical integration sometimes accompanies a substantial degree of market power, but its presence does not necessarily mean that a substantial degree of power exists. There may be legitimate reasons for a firm vertically integrating - quality control of raw materials for example. Nevertheless, Fuller observes, "[v]ertical integration nearly always accompanies monopoly, not because it raises barriers to entry, but because it gives the monopolist greater power to extract more favourable prices from its customers" (p. 440). The reason for this is that vertical integration may help a monopolist distinguish between customers whose demand is less and more elastic. Where consumers are able to trade amongst themselves, the monopolist cannot discriminate. By integrating vertically it may be possible for a monopolist to prevent this inter-trading. For example, power companies usually own distribution systems. This enables them to discriminate in pricing between residential and commercial users. Therefore, although vertical integration does not by itself mean that a firm has a substantial degree of market power, it may well be the means by which the firm capitalizes on that market power.
Once it is established that a firm has a substantial degree of market power, the issue is whether it has "take[n] advantage" of that power for the purpose of "substantially damaging a competitor", "preventing the entry" of a competitor into a market, or "preventing a person from engaging in competitive conduct" in a market: s. 46(1)(a), (b) and (c). Pincus J. suggested that the phrase "take advantage" requires that the defendant be doing something "reprehensible". His Honour also used the phrases "[competition] deserving of criticism" and "predatory or unfair", apparently as equivalents for "reprehensible". It is unclear precisely what the phrases are supposed to mean, but they suggest some notion of hostile intent. For our part, we have difficulty in seeing why an additional, unexpressed and ill-defined standard should be implanted in the section. The phrase "take advantage" in s. 46(1) does not require a hostile intent inquiry - nowhere is such standard specified. And it is significant that s. 46(1) already contains an anti-competitive purpose element. It stipulates that an infringement may be found only where the market power is taken advantage of for a purpose proscribed in par. (a), (b) or (c). It is these purpose provisions which define what uses of market power constitute misuses.
It is perhaps not surprising that lawyers would be tempted to incorporate an element of intent into the statutory tort of a s. 46 infringement given the importance of intent in tort law. But there is a fundamental difference between the usual tort and a s. 46 violation. In the ordinary tort case, a tortfeasor's intent may well be relevant to his dangerousness - if he intends to hurt another he is more likely to cause injury than if he is not trying to hurt the other. If the purpose of s. 46 were the economic well-being of competitors, then a similar implication of intent might well be appropriate: see Olympia Equipment Leasing v. Western Union Telegraph [19] .
But the object of s. 46 is to protect the interests of consumers, the operation of the section being predicated on the assumption that competition is a means to that end. Competition by its very nature is deliberate and ruthless. Competitors jockey for sales, the more effective competitors injuring the less effective by taking sales away. Competitors almost always try to "injure" each other in this way. This competition has never been a tort (see Keeble v. Hickeringill [20] ) and these injuries are the inevitable consequence of the competition s. 46 is designed to foster. In fact, the purpose provisions in s. 46(1) are cast in such a way as to prohibit conduct designed to threaten that competition - for example, s. 46(1)(c) prohibits a firm with a substantial degree of market power from using that power to deter or prevent a rival from competing in a market. The question is simply whether a firm with a substantial degree of market power has used that power for a purpose proscribed in the section, thereby undermining competition, and the addition of a hostile intent inquiry would be superfluous and confusing.
The Full Court held that the relevant market for establishing market power was the market for Y-bar and, as none had been sold, there was no such market. But the issue whether there is a market for Y-bar is of little significance in determining the degree of B.H.P.'s power. Pincus J. found that once a rolling mill is in operation it is relatively easy to convert production from one shape of steel to another. Consequently, any market power B.H.P. has with regard to Y-bar would be dependent on power in the market for steel and steel products.
Pincus J. found that B.H.P. is in a position to control and has a substantial degree of power in the steel and steel product market. B.H.P. is one of Australia's two steel producers, and, as Pincus J. found, there are significant barriers to entry. Pincus J. did not identify what those barriers to entry were except to note that among them was the high cost of setting up a rolling mill. Economists, with their faith in the efficiency of capital markets and the rational behaviour of businessmen, would question the conclusion that high capital costs could constitute a barrier to entry. But it may be that the high capital costs of the steel industry, the presence of an established and overwhelmingly large producer in a protected market, and large economies of scale may together be sufficient to constitute effective barriers to entry.
To be taken in conjunction with the finding of significant barriers to entry is the evidence already mentioned of B.H.P.'s market share in the production of steel and steel products. Pincus J.'s holding that B.H.P. was in a position to control and that it possesses a substantial degree of power in the market for steel and steel products is clearly supported by the evidence.
In effectively refusing to supply Y-bar to the appellant, B.H.P. is taking advantage of its substantial market power. It is only by virtue of its control of the market and the absence of other suppliers that B.H.P. can afford, in a commercial sense, to withhold Y-bar from the appellant. If B.H.P. lacked that market power - in other words, if it were operating in a competitive market - it is highly unlikely that it would stand by, without any effort to compete, and allow the appellant to secure its supply of Y-bar from a competitor.
The question remains whether B.H.P., in taking advantage of its substantial market power, has done so for a purpose described in par. (a), (b) or (c) of s. 46. Pincus J. held that it did. His Honour found that B.H.P.'s refusal to supply Y-bar to the appellant was for the purpose of preventing the latter's entry into a market: see s. 46(1)(b). By this his Honour must be taken to have referred to the respondents' preventing the appellant from entering the market for star picket fence posts. This conclusion that the effective refusal to sell was for an impermissible purpose was supported by the fact that B.H.P. did not offer a legitimate reason for the effective refusal to sell and the evidence that the Y-bar was the only product of B.H.P.'s rolling mills not offered for sale. Pincus J. referred to the fact that in every steel product line where B.H.P. experienced some competition, it sold that product, but in the case of Y-bar, a product which it alone produced, it refused to sell.
Although Pincus J.'s finding of an impermissible purpose with regard to excluding the appellant from the star picket post market is adequate to support the finding of an infringement of the section, that market is not the most informative one on which to focus. Pincus J. accepted that "there are great advantages accruing to B.H.P. as a participant in the rural fencing market, by virtue of its being the sole domestic supplier of star pickets" and that "[t]hose advantages extend well beyond being relatively free from price competition in selling star pickets". The evidence regarding the importance to B.H.P. of being the only supplier of the full range of rural fencing products indicates that it is in the market for rural fencing products where those advantages lie and where B.H.P.'s market power is being extended. Pincus J.'s finding of an impermissible purpose remains applicable, however, because star picket posts are a constituent element of the product which competes in the rural fencing market. So, although it is sufficient to describe the infringement in terms of s. 46(1)(b), preventing the entry of a rival into a market, it would be more apt to describe that purpose in terms of s. 46(1)(c), "deterring or preventing a person from engaging in competitive conduct" in a market. The appellant has made out each element of its claim against B.H.P.
It remains to be mentioned that the Trade Practices Commission appeared by counsel on the hearing of the appeal and sought to intervene. The Court reserved its decision on that application. For the reasons given by Toohey J. we would refuse the application.
For the foregoing reasons we would allow the appeal and remit the matter to the Federal Court for a determination of the appellant's entitlement to damages and injunctive relief.
The background of this appeal, the detailed facts and the directly relevant provisions of the Trade Practices Act 1974 Cth ("the Act") are set out in other judgments. I turn at once to the first of the questions which arise for consideration in this Court. That question is one of statutory construction. It is whether the words "take advantage of power" in s. 46(1) of the Act (in the forms which that section has taken since 1977) not only designate the use (whether active or passive) of power or a position of power but also import an additional element to the effect that there will be no contravention of the sub-section unless the particular use of power (for one or other of the proscribed purposes) is reprehensible or unfair.
The starting point of a consideration of that first question is the fact that the essential notions with which s. 46 is concerned and the objective which the section is designed to achieve are economic and not moral ones. The notions are those of markets, market power, competitors in a market and competition. The objective is the protection and advancement of a competitive environment and competitive conduct by precluding advantage being taken of "a substantial degree of power in a market" for any of the proscribed purposes. If the substantial degree of market power exists and is "take[n] advantage of" for one or other of those purposes, it is not to the point that that degree of market power was acquired by praiseworthy means (e.g. hard work, efficiency, product quality and service) or that the anti-competitive purpose is inspired by altruistic or even patriotic motives (e.g. to avoid the consequences to the small trader of irrational and extreme price competition or to protect local standards and employment). That is, of course, unless the words "take advantage of power" introduce a need for some distinct examination of the morality or social acceptability of the conduct involved. In my view, they do not.
It is true that the words "take advantage of" can be used with an adverse moral implication. This is particularly the case where the words are used with another person as their object. Of themselves, however, the words "take advantage of power" are morally indifferent. As a matter of language, a Parliament can "take advantage" of its legislative power to make good laws; a government can "take advantage" of its executive power to protect and benefit the community; a trading corporation can "take advantage" of its trading power to advance trade and competition to the benefit of its shareholders, its employees and those with whom it deals; an ordinary person can "take advantage" of such power as he possesses to achieve objectives which are praiseworthy and socially desirable. Read in context, the words "take advantage of power" are simply inadequate to superimpose upon the economic notions and objectives which s. 46(1) reflects some indefinite moral or public purpose qualification requiring circumstances where the active or passive use of the relevant market power for one or other of the designated anti-competitive purposes is morally or socially undesirable.
The second question involved in the appeal is a kaleidoscope of law and fact: the effect of the relevant statutory provisions and the inferences to be drawn from largely uncontested facts. Plainly enough, the first respondent ("B.H.P.") has a substantial degree of power in a number of possibly relevant markets. The question is whether it has "take[n] advantage of [its] power" in any such market for any of the anti-competitive purposes specified in s. 46(1). The purposes which are of particular relevance are "preventing the entry of a person into that or any other market" (s. 46(1)(b)) and "deterring or preventing a person from engaging in competitive conduct in that or any other market" (s. 46(1)(c)).
In the case of an alleged contravention of the provisions of s. 46(1), there will ordinarily be little point in attempting to define relevant markets without first identifying precisely what it is that is said to have been done in contravention of the section. The present case, with its variety of arguable markets, is no exception. Here, B.H.P. has refused, otherwise than at an unrealistically high price, to supply the appellant ("Q.W.I.") with a steel product ("Y-bar") produced by B.H.P.'s rolling mills. Ordinarily, B.H.P. sells the various products from those mills to any manufacturer who desires to purchase them. Y-bar is the only exception. The explanation of B.H.P.'s effective refusal to supply Y-bar to Q.W.I. is that there is no other local producer or wholesaler of Y-bar and B.H.P. desires to prevent Q.W.I. from manufacturing and selling star picket fencing posts (produced from Y-bar) in competition with the second respondent ("A.W.I."), which is a wholly owned subsidiary of B.H.P.
Section 4E confines "market" for the purposes of the Act to "a market in Australia" and provides that, when the word "market" is used in relation to any goods or services, it "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". Section 46(4) provides that a reference in s. 46 to a market is a reference to a market for goods or services. The Act does not otherwise seek to define what is meant by the word "market". That is not surprising since the word is not susceptible of precise comprehensive definition when used as an abstract noun in an economic context. The most that can be said is that "market" should, in the context of the Act, be understood in the sense of an area of potential close competition in particular goods and/or services and their substitutes (cf. Re G. & M. Stephens Cartage Contractors Pty. Ltd. [21] ).
The identification of relevant markets and the definition of market structures and boundaries for the purposes of determining whether B.H.P.'s refusal to supply Y-bar to Q.W.I. contravened s. 46(1) involves value judgments about which there is some room for legitimate differences 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. While actual competition must exist and be assessed in the context of a market, a market can exist if there be the potential for close competition even though none in fact exists. A market will continue to exist even though dealings in it be temporarily dormant or suspended. Indeed, for the purposes of the Act, a market may exist for particular existing goods at a particular level if there exists a demand for (and the potential for competition between traders in) such goods at that level, notwithstanding that there is no supplier of, nor trade in, those goods at a given time - because, for example, one party is unwilling to enter any transaction at the price or on the conditions set by the other. It is, however, unnecessary to pursue that question for the purposes of the present appeal.
As has been indicated, there are various arguable "markets" which, if they be found to exist, might be relevant for the purposes of the present case. The Full Court of the Federal Court concluded that one of those arguable markets, the market for raw Y-bar, did not exist in this country. I do not agree with that conclusion. Notwithstanding some expert economic evidence on the hearing, I am unable to accept the proposition that the fact that A.W.I. is a wholly owned subsidiary of B.H.P. means that sales of Y-bar by B.H.P. to A.W.I. must, for the purposes of market identification and definition, be treated as if they simply did not exist as sales or purchases. B.H.P.'s ownership of the issued shares in the capital of A.W.I. may mean that actual competition in the market for Y-bar is effectively stifled. The two companies are, however, separate entities with different employees, distinct obligations and responsibilities (e.g. to creditors and employees) and, to some extent, varying objectives. Notwithstanding the economist's tendency to see them as part of one "firm", it would be as unreal to completely disregard the distinction between them for the purposes of market identification as it would be to treat them as independent. Be that as it may, the evidence establishes a local market for Y-bar in the relevant sense even if the distinction between B.H.P. and A.W.I. be ignored. While B.H.P. does not sell to other than A.W.I., it is a potential seller to purchasers other than A.W.I. in that market in that it is prepared to sell Y-bar albeit at an excessive price. That being so, there is a local market for Y-bar in the relevant sense in that there is an arm's length potential purchaser (Q.W.I.) and potential vendor. The fact that there are no local arm's length sales is only because the potential vendor's price is unrealistically high.
It was, however, forcefully submitted on behalf of B.H.P. that this Court should not rely upon the separate identity of B.H.P. and A.W.I. as a basis for concluding that there was a market for Y-bar. No reliance had been placed on the separate identity of the two companies at first instance and evidence was led and the case was conducted on the basis that the two companies should properly be treated as one. Since I have come to the conclusion that the question whether B.H.P.'s conduct contravened s. 46(1) of the Act must be answered in the affirmative regardless of whether a distinct market for Y-bar is identified as a relevant market, the preferable course is, in the light of that submission, to disregard the market for Y-bar. If that be done, the relevant markets to which regard should primarily be paid are, in my view, the market in which producers sell steel and steel products from the rolling mills ("the steel market") and the market in which manufacturers sell star picket fence posts.
It is unnecessary to seek to identify the precise structure and boundaries of what should be seen, for the purposes of the present case, as what I have described as "the steel market". Regardless of the more precise definition of that market, B.H.P. has a substantial degree of power in it. It is responsible for the production of 97 per cent of the steel produced in Australia and supplies 85 per cent of the domestic market for steel and steel products. There is no present threat from imports. The only other Australian producer of steel is Smorgon which is responsible for only 3 per cent of local production and which represents no real threat to B.H.P.'s dominance of the entire local trade in steel and steel products. As has been said, B.H.P. is prepared to sell to outsiders any of the products from its rolling mills with the exception of Y-bar. It has, on some occasions in the past, sold Y-bar to overseas purchasers. Its refusal to supply Y-bar to Q.W.I. otherwise than at an unrealistic price was for the purpose of preventing Q.W.I. from becoming a manufacturer or wholesaler of star pickets. That purpose could only be, and has only been, achieved by such a refusal of supply by virtue of B.H.P.'s substantial power in all sections of the Australian steel market as the dominant supplier of steel and steel products. In refusing supply in order to achieve that purpose, B.H.P. has clearly taken advantage of that substantial power in that market. If that purpose be one of those specified in s. 46(1) of the Act, B.H.P.'s conduct constituted a contravention of that sub-section.
As has been said, B.H.P.'s purpose in refusing supply to Q.W.I. was to prevent Q.W.I. competing with A.W.I. as a manufacturer and wholesaler of star pickets. That purpose was a substantial one: see s. 4F of the Act. Regardless of how one defines the market in which manufacturers of star pickets sell their products, that was a s. 46(1) proscribed purpose. If that market be very narrowly defined as the market in which producers sell star picket fence posts, B.H.P.'s purpose in refusing supply was, in the words of s. 46(1)(b), that of "preventing the entry of [Q.W.I.] into" that market. On any other acceptable definition of that market (e.g. the market for metal post and wire fences or the market for rural fencing), the purpose of B.H.P.'s refusal was, in the words of s. 46(1)(c), that of "deterring or preventing [Q.W.I.] from engaging in competitive conduct in" that market. That being so, the evidence established that B.H.P.'s conduct in effectively refusing to sell Y-bar to Q.W.I. in the period after the 1986 amendments to s. 46 of the Act contravened the provisions of the present s. 46(1). Since B.H.P. was, at all relevant times, "in a position substantially to control" the Australian steel market, its effective refusal of supply prior to those 1986 amendments contravened the provisions of s. 46(1) in its then form.
The Trade Practices Commission has effectively drawn the Court's attention to the matters which it considered should be raised. That being so, no real point would be served by granting it leave to intervene at this stage.
I agree with the orders proposed by the Chief Justice and Wilson J.
I agree generally with the reasons for judgment of Deane J. and would add the following comments.
Section 46 of the Trade Practices Act 1974 Cth in its present form prohibits a corporation that has a substantial degree of market power in a market for goods or services from taking advantage of that market power for certain purposes. The section throws up two basic questions. The first asks what degree of market power is required. The second asks what constitutes taking advantage of market power.
Lying behind both of those questions is the concept of the market, a concept which is sometimes dealt with in a more complex manner than is necessary. A market is an area in which the exchange of goods or services between buyer and seller is negotiated. It is sometimes referred to as the sphere within which price is determined and that serves to focus attention upon the way in which the market facilitates exchange by employing price as the mechanism to reconcile competing demands for resources: see Stigler and Sherwin, The Extent of the Market, Journal of Law and Economics, vol. 28 (1985) 555, at p. 555 . In setting the limits of a market the emphasis has historically been placed upon what is referred to as the "demand side", but more recently the "supply side" has also come to be regarded as significant. The basic test involves the ascertainment of the cross-elasticities of both supply and demand, that is to say, the extent to which the supply of or demand for a product responds to a change in the price of another product. Cross-elasticities of supply and demand reveal the degree to which one product may be substituted for another, an important consideration in any definition of a market. This is reflected in s. 4E of the Trade Practices Act which provides:
For the purposes of this Act, "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. (My emphasis.) Important as they are, elasticities and the notion of substitution provide no complete solution to the definition of a market. A question of degree is involved - at what point do different goods become closely enough linked in supply or demand to be included in the one market - which precludes any dogmatic answer: see Times-Picayune v. United States [22] . The process is an inexact one as may be illustrated by reference to the concept of a sub-market which has been employed from time to time. In Re Queensland Co-operative Milling Association Ltd. [23] , the Trade Practices Tribunal observed: The distinction between markets and sub-markets can be merely one of degree. Sub-markets are the more narrowly defined, typically registering some discontinuity in substitution possibilities. Where the defining feature of a market is the existence of close substitutes (whether in demand or supply), the defining feature of a sub-market is the existence of still closer and more immediate substitutes. Sub-markets may be especially useful in registering the short-run effects of change; but they may be misleading if used uncritically to assess long run competitive effects. 1. (1953) 345 U.S. 594, at p. 612, n. 31. 2. (1976) 25 F.L.R. 169, at pp. 190-191; 8 A.L.R. 481, at p. 517.
Too rigid an approach in defining a market is apt to lead to unrealistic results. In this case the submission was made that, Australian Wire Industries Pty. Ltd. ("A.W.I.") and The Broken Hill Proprietary Co. Ltd. ("B.H.P.") being treated as one, there was no market for Y-bar. But the existence or non-existence of sales of a product cannot conclude whether a market exists or not. It must be sufficient to constitute a market that there is a product for exchange, regardless of whether exchange or negotiation for exchange has actually taken place.
In truth, the need to define the relevant market arises only because the extent of market power cannot be assessed otherwise than by reference to a market. The term "market power" is ordinarily taken to be a reference to the power to raise price by restricting output in a sustainable manner. See Landes and Posner, Market Power in Antitrust Cases, Harvard Law Review, vol. 94 (1981) 937, at p. 937 ; Sullivan, Antitrust (1977), p. 30; Areeda and Turner, Antitrust Law (1978), vol. II, p. 322; Easterbrook, The Limits of Antitrust, Texas Law Review, vol. 63 (1984) 1, at p. 20 ; Fuller, Article 86 E.E.C.: Economic Analysis of the Existence of a Dominant Position, European Law Reports, vol. 4 (1979) 423, at p. 428 . But market power has aspects other than influence upon the market price. It may be manifested by practices directed at excluding competition such as exclusive dealing, tying arrangements, predatory pricing or refusal to deal: see Standard Oil Co. v. United States [24] ; United States v. E. I. Du Pont De Nemours & Co. [25] ; 54 Am. Jur. 2d, Monopolies, s35. The ability to engage persistently in these practices may be as indicative of market power as the ability to influence prices. Thus Kaysen and Turner define market power as follows:
A firm possesses market power when it can behave persistently in a manner different from the behaviour that a competitive market would enforce on a firm facing otherwise similar cost and demand conditions. (Kaysen and Turner, Antitrust Policy (1959), p. 75) See also Re Queensland Co-operative Milling Association Ltd. [26] . Market power is thus the advantage which flows from monopoly or near monopoly and consistently with that notion s. 46(3) of the Trade Practices Act provides: 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.
In this case the definition of the relevant market poses no great problem because B.H.P. clearly has a substantial degree of market power however widely the market is drawn. Even if the relevant market be the market in steel products, B.H.P. has only one competitor in Australia, Smorgon Consolidated Industries Pty. Ltd., which has a mere 3 per cent of the market and, according to the evidence, tends to adopt prices at the level set by B.H.P. The evidence at first instance did not establish that there was any real threat from imports. Moreover, the learned trial judge, Pincus J., found that "[t]here are significant barriers to the entry of a new domestic rod and bar manufacturer, including the very high cost of setting up a rod and bar mill".
The existence of barriers to entry may be conclusive in determining the relevant market and the degree of market power in it. In the context of s. 46, the existence of significant barriers to entry into a market carries with it market power on the part of those operating within the market. Market power follows as a natural consequence of barriers to entry which are also a prerequisite to the establishment and maintenance of a monopoly: see Nicholson, Microeconomic Theory, 3rd ed. (1985), p. 417; Robinson, Monopoly (1941), pp. 40 et seq.; Varian, Microeconomic Analysis, 2nd ed. (1984), p. 91; Scherer, Industrial Market Structure and Economic Performance, 2nd ed. (1980), pp. 11, 252. The identification of barriers to entry helps both to define the relevant market and to establish the existence of market power. There is, of course, vigorous debate in economic circles about what constitutes a barrier to entry into a market. There are those who would and those who would not accept that the high cost of entry constitutes a barrier. Compare Bain, Barriers to New Competition (1956); Bain, Industrial Organization, 2nd ed. (1968), with Stigler, The Organization of Industry (1968). However, it is less important to arrive at a precise meaning than to recognize the assistance given by the identification of conditions, in the nature of barriers to entry, for the purpose of defining the relevant market, measuring the extent of market power and determining whether that power has been exercised.
The difficulty in determining what conduct constitutes taking advantage of market power and what conduct does not, stems inevitably from the need to distinguish between monopolistic practices, which are prohibited, and vigorous competition, which is not. Both here and in the United States the search continues for a satisfactory basis upon which to make the distinction. For the most part, all that emerges are synonyms which are not particularly helpful. Words such as "normal methods of industrial development", "honestly industrial", "anti-competitive", "predatory" or "exclusionary conduct" merely beg the question: see Standard Oil Co. v. United States; United States v. Aluminium Co. of America [27] ; United States v. United Shoe Machinery Corporation [28] ; Aspen Skiing Co. v. Aspen Highlands Skiing Corp. [29] ; Areeda, Monopolization, Mergers and Markets: A Century Past and the Future, California Law Review, vol. 75 (1987) 959, at pp. 961-963 . Nor is it helpful to categorize conduct, as has been done, by determining whether it is the exercise of some contractual or other right: see Top Performance Motors Pty. Ltd. v. Ira Berk (Queensland) Pty. Ltd. [30] ; Ah Toy J. Pty. Ltd. v. Thiess Toyota Pty. Ltd. [31] ; see also Warman International Ltd. v. Envirotech Australia Pty. Ltd. [32] ; Williams v. Papersave Pty. Ltd. [33] . The fact that action is taken pursuant to the terms of a contract has no necessary bearing upon whether it is the exercise of market power in contravention of s. 46.
For the reasons given by Deane J. I am of the view that the words "take advantage of" do not have moral overtones in the context of s. 46. That being so, there can be no real doubt that B.H.P. took advantage of its market power in this case. It used that power in a manner made possible only by the absence of competitive conditions. Inferences in this regard can be drawn from the fact that B.H.P. could not have refused to supply Y-bar to Q.W.I. if it had been subject to competition in the supply of that product. B.H.P. supplies all its other steel products without restriction and its practice with regard to Y-bar was not in accordance with its normal behaviour. If there had been a competitor supplying Y-bar, B.H.P.'s refusal to supply it to Q.W.I. would have eroded its position in the steel products market without protecting A.W.I.'s position in the fencing materials market. Moreover, the existence of barriers to entry into the steel products market must inevitably, upon the findings of the trial judge, have influenced B.H.P. in the course which it took.
I would allow the appeal. I agree with the orders proposed by the Chief Justice and Wilson J.
The appellant, Queensland Wire Industries Pty. Ltd. ("Q.W.I."), made a claim against the respondents, The Broken Hill Proprietary Co. Ltd. ("B.H.P.") and Australian Wire Industries Pty. Ltd. ("A.W.I."), pursuant to provisions of the Trade Practices Act 1974 Cth ("the Act"). It alleged that they had contravened s. 46 of the Act, once the "monopolization" and now the "misuse of market power" provision, by their refusal to supply Y-bar, a steel product. It sought an injunction and damages, the former pursuant to s. 80 of the Act and the latter pursuant to s. 82. Its claim was dismissed by Pincus J. in the Federal Court [34] ; an appeal to the Full Court of the Federal Court (Bowen C.J., Morling and Gummow JJ.) was in turn dismissed [35] .
Section 46 was repealed and re-enacted by Act No. 81 of 1977 which came into force on 1 July 1977. The section was later amended by Act No. 17 of 1986 which took effect from 1 June 1986. The changes and their implications for the present appeal are discussed later in these reasons. In considering whether there was a breach of s. 46 sounding in damages, it is necessary to have regard to the section as it stood before 1 June 1986 and as it stood thereafter, for damages are claimed in respect of the period from January 1984 until June 1987. Both Pincus J. and the Full Court were of the view that Q.W.I.'s entitlement to an injunction depended upon the operation of s. 46 in its present form: see Trade Practices Commission v. Milreis Pty. Ltd. [No. 2] [36] . That view was not challenged before us.
At the centre of the dispute is the steel star picket, the most popular form of rural fence post in this country. Australia's iron and steel industry is largely in the hands of B.H.P. The evidence before Pincus J. was that the company accounts for about 97 per cent of Australia's total steel output and that it supplies about 85 per cent of the country's requirements for steel and steel products. B.H.P. is the only domestic producer of star pickets and there is no significant importer to compete with it. Q.W.I.'s principal business is the manufacture of rural fencing. It competes with B.H.P. in the sale of rural fencing, mainly in Queensland and in northern New South Wales. The primary judge found that Q.W.I.'s ability to compete with B.H.P. in that business is significantly limited by its inability to obtain Y-bar which is a product of rolling mills and is the "feed" from which star pickets are made. His Honour held: "An important advantage of B.H.P.'s star picket monopoly is that it is able to offer to its distributors a full range of rural fencing products. Preservation of that advantage is one of the reasons for its refusal, subject to some exceptions , to sell anyone Y-bar."
B.H.P. has been manufacturing Y-bar since the 1920s. A.W.I. was incorporated in 1921 and since 1925 it has been a wholly owned subsidiary of B.H.P. A.W.I. manufactures star pickets at Newcastle in New South Wales; B.H.P. does so at Hamilton in Queensland. Both plants use Y-bar produced by B.H.P. at Newcastle. Some fence posts made from B.H.P. Y-bar are produced at Kwinana in Western Australia, at the plant of another wholly owned B.H.P. subsidiary. Y-bar has been exported to a wholly owned B.H.P. subsidiary in New Zealand for the manufacture of fence posts. Small quantities of Y-bar have also been exported to a Papua New Guinea corporation which once was a wholly owned subsidiary of B.H.P. but in which B.H.P. now has a 40 per cent interest.
Q.W.I. is able to buy steel fence posts from B.H.P. in accordance with that company's published price list but it cannot sell those posts to major distributors profitably. It cannot offer fence posts at a competitive price, particularly to the major distributors. This in turn has affected its sales of wire. His Honour said that there was no dispute that there had been a "constructive refusal" on the part of B.H.P. to sell Y-bar to Q.W.I. He elaborated that comment in the following way:
I use the expression "constructive refusal" as descriptive of an offer to sell at an uncompetitive price; B.H.P. is prepared to sell to [Q.W.I.] at a price which, relatively to B.H.P.'s other rolled products, is excessively high. I find that it is designed to be so; that is, the offer made by B.H.P. was pitched at a level which B.H.P. knew would make it impossible of acceptance, because [Q.W.I.] could not manufacture star picket from Y-bar purchased at that price and sell it competitively. Q.W.I.'s wish is to obtain Y-bar rather than fence posts and it is that wish which prompted the making of the application which is the subject of this appeal. In the course of interlocutory proceedings, the solicitors for B.H.P. and A.W.I. wrote to the solicitors for Q.W.I. in these words: A.W.I.'s policy throughout that period [a reference to 1981 and subsequent years] was either to refuse supply of steel Y-bar or to offer to supply steel Y-bar at an uncompetitive price because it wished to preserve the business of the manufacture and wholesale sale of fence posts conducted by it in association with B.H.P., there being no market for the supply for any purpose of steel Y-bar to other manufacturers.
Against this background it is necessary to consider s. 46 of the Act, both as first enacted and as later amended. In its original form, s. 46(1) read:
A corporation that is in a position substantially to control a market for goods or services shall not take advantage of the power in relation to that market that it has by virtue of being in that position -
(a) to eliminate or substantially to damage a competitor in that market or in another market;
(b) to prevent the entry of a person into that market or into another market; or
(c) to deter or prevent a person from engaging in competitive behaviour in that market or in another market.
A corporation that is in a position substantially to control a market for goods or services shall not take advantage of the power in relation to that market that it has by virtue of being in that position for the purpose of -
(a) eliminating or substantially damaging a person, being a competitor in that market or in any other market of the corporation or of a body corporate related to the corporation;
(b) preventing the entry of a person into that market or into any other market; or
(c) deterring or preventing a person from engaging in competitive conduct in that market or in any other market.
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.
It can be seen that, while the paragraphs of sub-s. (1) remain much the same, the opening words of the sub-section have been altered. In 1977 the qualification "for the purpose of" was introduced. In 1986 reference to having "a substantial degree of power in a market" replaced being "in a position substantially to control a market".
Before this Court there was much debate as to the meaning of market in s. 46 and the identification of that market in the present case. In its statement of claim Q.W.I. alleged the existence of six markets, each for the supply of particular goods. Pincus J. expressed those markets in the following way:
In setting them out I shall use the word "steel" for "steel and steel products". The markets alleged relate to the supply of -
(b) steel to manufacturers for use in making fence posts;
(c) Y-bar to manufacturers for use in making fence posts;
(d) steel wire and steel fence posts by wholesalers to retailers;
The first three markets were said to be markets in Australia, the last three to be markets in Queensland and New South Wales.
B.H.P. admitted the existence of the markets particularized in pars (e) and (f) but denied the existence of any other of those markets. In opening the present respondents' case before Pincus J., their counsel formulated the relevant markets as twofold - one for the supply of steel and steel products in Australia and the other for the supply of rural fencing materials in Australia. By direction of the primary judge, the pleadings were amended so that breaches of s. 46 were pleaded and denied in relation to those markets also. At the end of his judgment Pincus J. summarized his conclusions in these terms:
(3) It has refused to supply Y-bar to the applicant, thereby preventing the applicant from competing with it in the star picket market.
(4) Its refusal is not, in my opinion, an abuse of its market power.
His Honour did not, in this summary, identify the "relevant markets" with any precision. In his reasons he said that it was the market for the supply of rural fencing materials in Australia which "better accords with commercial ideas of the meaning of the word "market" ". Notwithstanding the submission made to this Court by counsel for Q.W.I., his Honour appears not to have accepted the notion of a market for the supply of steel and steel products and for the reason that it was only "substitutability at the supply end" that could justify finding such a market. His Honour thought that this view of substitutability was not warranted by the definition of market in the Act. By implication he rejected the markets originally postulated by Q.W.I. in its statement of claim or at any rate treated them as irrelevant. The reference in par. (3) of the summary to "the star picket market" is rather puzzling for no market in those terms had been pleaded by Q.W.I. Nevertheless his Honour had earlier commented that "there has never been any substantial importation of star pickets", adding "B.H.P. has always had the market very largely to itself". The use of the plural in par. (1) of the summary is by no means clear. It may be taken as a reference to the market for the supply of rural fencing materials and the market for star pickets. But his Honour appears to have singled out the star picket market as the market in which B.H.P. had prevented Q.W.I. from engaging in competitive conduct rather than the market in which it was dominant. It may be that, while not accepting the first of the markets proffered by B.H.P., his Honour nevertheless included it in his summary as one of the "relevant markets" in which B.H.P. was dominant. I say this because, having dealt with both markets proffered by B.H.P., he continued: But on either view the applicant must succeed on the first issue raised by s. 46; B.H.P. was, as I find, at all times material to this suit, in a position substantially to control each of those markets and had a substantial degree of power in each of those markets.
The uncertainty stems from the fact that the definition of market did not "loom very large" before Pincus J. because, he thought, "it must have seemed improbable that the relevant market could be so defined as to lead to a conclusion that B.H.P.'s position was not dominant in it". The basis for his dismissal of Q.W.I.'s claim lay in the construction he placed upon the words "take advantage of" in s. 46. In effect his Honour treated those words as requiring a misuse of power, something which he said Q.W.I. had failed to establish.
The Full Court dismissed Q.W.I.'s appeal for rather different reasons than those which led the primary judge to his conclusion. In the view of the Full Court, the evidence showed that there was a market for star picket fencing and that B.H.P. had acted with the purpose of preventing Q.W.I. competing with it in that market. It did so by denying to Q.W.I. the feed for the manufacture of star picket fencing, namely Y-bar. The Court added: "The question for the purposes of s. 46 then becomes whether, in so denying supply, B.H.P. was taking advantage of power in relation to a market in the Y-bar." But, said the Court, there had never been a market for Y-bar which had been sold by B.H.P. only to its subsidiary A.W.I. Therefore there was nothing to attract the operation of s. 46 of the Act. In consequence it was unnecessary to deal with the construction placed by Pincus J. on the words "take advantage of".
Because of the way in which the matter was argued before this Court, regard must be had to the approach taken both by the primary judge and by the Full Court.
Q.W.I.'s attack on the judgment of the Full Court began with the argument that, in view of the markets found by Pincus J., the Full Court erred in approaching the matter by reference to the existence or non-existence of a market in Y-bar. Alternatively, it was said, the Full Court erred in its view that there was no market in Y-bar. As to the former, Q.W.I. submitted that Pincus J. having found one or more relevant markets, it was enough for it to show that B.H.P. was denying Y-bar to it for an anti-competitive purpose. This, it was said, warranted a conclusion that B.H.P. was taking advantage of its power contrary to s. 46. As to the alternative argument, Q.W.I.'s submission was that the Full Court misunderstood the concept of market, it being sufficient that there was a potentiality for dealings in Y-bar and that, at least on the demand side, there were no substitutional possibilities for Y-bar.
The respondents' answer was in these terms. There was no evidence of misuse of power on the part of B.H.P. or A.W.I. At all times B.H.P. supplied Q.W.I. with star picket fencing. What Q.W.I. wanted was not merely cheaper fence posts but in effect for B.H.P. to make available to it part of the latter's business of manufacturing steel fence posts. The claim was in truth one for divestiture. There was, as Pincus J. accepted, no discrimination against Q.W.I. in any "substantial sense" in B.H.P.'s conduct for it had never sold Y-bar in Australia. It had always used Y-bar as a feed-stock for the manufacture of its steel fence posts. The argument of non-discrimination, it may be noted, assumes an identification between B.H.P. and A.W.I.
While there were differences in the form of s. 46 before and after 1977, in each case the section began with an injunction that a corporation, in a position substantially to control a market for goods, "shall not take advantage of the power in relation to that market that it has by virtue of being in that position" to do certain things (pre-1977) or for the purpose of doing certain things (post-1977). Whatever differences may have resulted from the reference to "to" on the one hand and "for the purpose of" on the other, there was no contravention of s. 46 unless a corporation took advantage of the power it had in a market. Taking advantage of power remains crucial to s. 46(1) in its present form; at the same time, as s. 46(1) has stood since its inception a contravention may occur through the exercise of power in that market or in another market. In some cases the market will be the same; however, s. 46(1) expressly contemplates a corporation with the requisite power using that power for a proscribed purpose in another market.
One difficulty facing Q.W.I. is that the case before Pincus J. was conducted on the basis that there was no relevant distinction between B.H.P. and A.W.I. That is certainly the way the relationship between those companies was viewed by the economists called by the parties. Whether the opinion of economists necessarily disposed of the matter is another question. But the conduct of the case is a relevant consideration. Q.W.I. did not argue before Pincus J. that the sale of Y-bar by B.H.P. to A.W.I. evidenced a market in Y-bar. Q.W.I. did contend before us that there could be a market for Y-bar so long as there was someone eager to buy (as was Q.W.I.), that a market for Y-bar was created by Q.W.I.'s demand for the product and B.H.P.'s production of it. In other words, a potentiality for trade was in the circumstances enough to constitute a market. And, arising from a discussion with this Court, Q.W.I. sought to rely as well upon the separate identity of B.H.P. and A.W.I. to justify an actual market.
The existence of a market is vital to anyone seeking to invoke s. 46. Unless a corporation takes advantage of the power it holds in a market, there can be no contravention of the section. In this regard there is a starting point in the finding by Pincus J. of a market for rural fencing materials in Australia and, if need be, in the finding of a star picket market. B.H.P. did not argue against the existence of the former. Despite what was submitted by counsel for Q.W.I., both in opening and in reply, Pincus J. did not expressly find that there was a market for the supply of steel and steel products. His Honour was not prepared to make that finding because of his views as to substitutability though, as suggested earlier in these reasons, he seems to have assumed the existence of such a market in his summary of conclusions. Nevertheless there can be little doubt that there is, in terms of the Act, a market for steel and steel products. Of course the mere existence of such a market advances Q.W.I.'s case only part of the way. But it may mean that the identification by the Full Court of a market in Y-bar was unnecessary and was misleading in that it diverted attention from what the trial judge had found or ought to have found.
The reason why Pincus J. rejected a market for steel and steel products lay in his interpretation of s. 4E of the Act. That section, introduced by Act No. 81 of 1977, contains a definition of "market"; the definition is not exhaustive. The term "market" means a market in Australia and, when used in relation to any goods, "includes a market for those goods and other goods that are substitutable for, or otherwise competitive with, the first-mentioned goods "
The introduction of s. 4E followed a recommendation of the Swanson Committee that the definition of "market" be extended so as to "require that, in the determination of a "market" for particular purposes, regard shall be had to substitute products, being products which have a reasonable interchangeability of use and which have high cross-elasticity of demand, i.e. where a small decrease in the price of a particular product would cause a significant quantum of demand for a similar product to switch to the product in question" (Trade Practices Act Review Committee (Swanson Committee): Report to the Minister for Business and Consumer Affairs (1976), p. 17, par. 4.22). This test of interchangeability of products on the demand side has been widely recognized in other jurisdictions as relevant to market definition: see, for instance, United States v. Du Pont & Co. [37] ; L'Oréal v. De Nieuwe AMCK [38] . Indeed, in delineating the scope of the product market demand substitutability has often been emphasized at the expense of supply substitutability.
But this does not mean that supply substitutability is irrelevant to the task of market definition: see Europemballage Corp. and Continental Can Co. Inc. v. E.C. Commission [39] . Rather, the definition of the relevant market requires a consideration of substitutability both on the demand and on the supply side. This has been recognized in Re Queensland Co-operative Milling Association Ltd; Re Defiance Holdings Ltd. [40] ; Re Howard Smith Industries Pty. Ltd. [41] , both decisions adopted in Trade Practices Commission v. Ansett Transport Industries (Operations) Pty. Ltd. [42] ; Re Tooth & Co. Ltd. and Tooheys Ltd. [43] ; Trade Practices Commission v. T.N.T. Management Pty. Ltd. [44] . See also B.A.K., The Role of Supply Substitutability in Defining the Relevant Product Market, Virginia Law Review, vol. 65 (1979), p. 129; Hubbard, Potential Production: A Supply Side Approach for Relevant Product Market Definitions, Fordham Law Review, vol. 48 (1980), p. 1199. And see generally Wyatt and Dashwood, The Substantive Law of the E.E.C., 2nd ed. (1987), pp. 400-405; Hawk, European Economic Community and United States Antitrust Law: Contrasts and Convergences, Australian Business Law Review, vol. 16 (1988) 282, at pp. 297-299 .
In considering the question of substitutability, Pincus J. thought that regard should only be had to the "demand end" and not to the "supply end". This was because his Honour was of the view that if s. 4E were read to include the wider notion of supply, "odd consequences may ensue". He mentioned by way of illustration a factory making diecast toys which could, with little expense, make diecast machine-gun parts. "Yet", his Honour said, "machine-guns and toys would not ordinarily be regarded by practical business people as competing in the same market. Section 4E suggests to me that it is not that sort of substitutability which the legislature had in mind."
The notion of substitutability is of importance in the present case because it is apparent that, had Pincus J. been prepared to have regard to substitution at the supply end, he would have accepted the first market proffered by B.H.P., namely the market for steel and steel products in Australia. The evidence left no doubt that B.H.P. was in a position substantially to control that market, a fortiori that it had a substantial degree of power therein. But the evidence sufficiently indicated that there is a market in which steel and steel goods are sold and bought and in which B.H.P. has the capacity to alter the range of those products. The same may be said of others who are engaged in the manufacture of steel products but, as it happens, B.H.P. is the substantial producer of steel in Australia. Nevertheless, there is, in terms of s. 4E, a market for steel and steel products.
B.H.P. has taken advantage of the power it possesses in that market for the purpose of preventing Q.W.I. from competing with it in the market for star pickets. The amendments of 1986 introduced s. 46(7) which permits a finding that a corporation has taken advantage of its power for a proscribed purpose "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". But even without such a provision it is apparent from B.H.P.'s internal documents and its dealings with Q.W.I. that its purpose has been to prevent the latter from competing in the market for star pickets.
It is not necessary for Q.W.I. to establish that the relevant market is the Y-bar market; by focusing on that market the Full Court was in error. But even if it was necessary, the absence of existing buyers does not mean that there is no market for Y-bar. It would be a curious consequence if the offering by B.H.P. of a limited supply of Y-bar established a market for that product but the withholding of supply altogether meant that there was no market. In any event Pincus J. found that B.H.P. was prepared to sell Y-bar to Q.W.I., though at a price that was "excessively high". In those circumstances the failure by Q.W.I., in the courts below, to challenge the identification of B.H.P. and A.W.I. is not fatal to the conclusion that there is a market in Y-bar.
Pincus J. rejected Q.W.I.'s claim because he considered that B.H.P. had not taken advantage of the power it undoubtedly possessed. His Honour's examination of s. 46, including a consideration of relevant authorities, led him to the conclusion that there can be no contravention of s. 46 without a misuse of power. He accepted as appropriate the comments in Donald and Heydon, Trade Practices Law: Restrictive Trade Practices, Deceptive Conduct and Consumer Protection (1978), vol. 1, p. 224:
They [the words "take advantage of"] must refer to abuse of position, to something unusual, predatory, forceful, or deceitful. A seducer takes advantage of his victim; Hitler took advantage of the disunity and weakness of his enemies; a monopoliser takes advantage of his market power.
This is a matter to which the Full Court directed little attention, no doubt because of its stand that Q.W.I. had not established a relevant market, Y-bar failing to qualify in that regard. There is a deceptive simplicity in the words "take advantage of", yet, as the Swanson Committee noted in 1976, "It could mean simply to use or it could mean to misuse" (Swanson Committee Report, p. 39, par. 6.5). And as the Committee observed in the same paragraph in relation to the word "to" which introduced the paragraphs in s. 46(1) as it stood before 1977, "Similarly, the word "to" could change its meaning according to whether one interpreted it as "in order to" or "with the result that"."
The pejorative interpretation applied by Pincus J. was accepted by Foster J. in Midland Milk Pty. Ltd. v. Victorian Dairy Industry Authority [45] . Otherwise there is a dearth of authority on the point. It is true that Fisher J. in Trade Practices Commission v. C.S.B.P. & Farmers Ltd. [46] concluded that in the circumstances of that case there had been no "taking advantage" within the meaning of s. 46 because there had been no "predatory conduct". But this approach was influenced by the concession made by counsel "that the concept of taking advantage must entail an element of conscious predatory behaviour " [47] . The distinction between use and misuse of power has been commonly drawn by commentators on antitrust law. By way of illustration, Donald and Heydon say, at p. 221:
There is a stock distinction in discussing monopolisation legislation between predation and competition; between unfair rivalry and fair rivalry; between relying on one's market control and relying on one's efficiency; and between deliberateness and the unexpected 1. (1988) 82 A.L.R. 279, at p. 295. 2. (1980) 53 F.L.R. 135, at p. 154. 3. (1980) 53 F.L.R., at p. 147.
These distinctions have been drawn because Pt IV of the Act, which is designed to promote and preserve competition, must confront the problem caused by a competitor who is so successful as to eliminate rivals and thus defeat the legislative aim of promoting competition. If success is due to no more than superior skill and efficiency, little criticism can be made of the conduct involved. Not so, if there has been unfair business practice. And so constraints have been placed on competition. The nature of those constraints has been influenced by this distinction between predatory conduct and conventional business practice.
Counsel for Q.W.I. accepted that s. 46, read as a whole, imports the notion of misuse of power. But, he said, that notion is not to be derived just from the words "take advantage of". The element of misuse is supplied by the requirement in s. 46(1), after the amendments of 1977, that the taking advantage of power must be for a proscribed purpose. Counsel invited the Court to treat the words "shall not take advantage of that power for the purpose of" as a composite expression involving two elements. On this approach, it is unnecessary and unhelpful to employ expressions such as "predatory". There is no breach of s. 46 unless there has been a use of market power for one of the purposes proscribed by the section. But once it appears that there has been a use of market power for such a purpose, the section has been contravened and it adds nothing to consider the motives of the corporation taking advantage of the market power which it has.
The interpretation relied on by Q.W.I. is, in my view, the correct one. It gives effect to the ordinary meaning of the expression "take advantage of" which the Shorter Oxford English Dictionary (1973), vol.1, speaks of as " [t]o take, make one's a.[dvantage] of a thing: to use any favourable condition it offers" and by the Macquarie Dictionary (1981), as "to make use of: to take advantage of an opportunity ". That too was the opinion of the Blunt Committee which considered that the words "take advantage of" mean "use market power", that is they are a reference to the "overt deliberate exercise of market power" (Trade Practices Consultative Committee (Blunt Committee): Small Business and the Trade Practices Act (1979), vol.1, p. 70, par. 9.27). The Blunt Committee recommended, in that same paragraph, that the words "take advantage of" be replaced by "use" to avoid any confusion and misunderstanding. That recommendation was not adopted. If there is a distinction between those expressions, it perhaps lies in the notion that "use" carries a sense of positive action while "take advantage of" may stem from mere passivity. But I doubt that in truth there is any real distinction involved.
Section 46 looks to the situation of a corporation that has availed itself of the circumstance of having a position of power in the market. To attain monopoly power is not of itself a contravention of the section. There is no relevant misuse of market power unless a corporation has one of the purposes proscribed by the paragraphs of s. 46(1). Expressions such as "predatory" add nothing to an understanding of the section though "predatory" conduct may evidence the existence of a proscribed purpose.
This interpretation of the key expression in s. 46(1) gains some support from the remarks of Fox J. and Burchett J. in Williams v. Papersave Pty. Ltd. [48] .
There are three purposes identified in s. 46(1). The first may be put to one side, it not being suggested that it has any application in the present case. Paragraph (c) may be applicable, though, in the circumstances of the present case, it is unlikely that Q.W.I. could fail to establish the purpose referred to in par. (b) yet succeed in establishing that in par. (c). The purpose referred to in par. (b) is that of "preventing the entry of a person into that or any other market". The reference to "for the purpose of" carries with it the notion of an intent to achieve the result spoken of in each of the paragraphs in s. 46(1).
In reaching his conclusion that the words "take advantage" require a misuse of power, Pincus J. drew support from the comment of Donald and Heydon, p. 224, referred to earlier in these reasons. The words, it was suggested by the authors, "must refer to abuse of position, to something unusual, predatory, forceful, or deceitful". Now, it may be that the authors' comment was valid in regard to s. 46(1) as it originally stood. But, for reasons already given, the comment cannot hold good in regard to the section in its amended form, carrying as it did (and does) a reference to purpose. Indeed, this was recognized by Donald and Heydon in a later passage not referred to by Pincus J. At p. 230 the authors considered the consequences of the change between 1974 and 1977 from "to" to "for the purpose of". They suggested that the change had two consequences, "perhaps unforeseen". The first of those changes is not relevant to the present discussion. As to the second, involving the meaning of "take advantage", the authors said:
Formerly it was necessary to construe these words as involving abusive or predatory tactics in order to make s. 46 not applicable to an unduly huge range of Australian firms. Now that the predatory element is partly covered by the words of purpose, what work does "take advantage" do? May not these words mean simply "exercise" or "use" in order to avoid redundancy with respect to "for the purpose of"?
Pincus J. also relied upon Victorian Egg Marketing Board v. Parkwood Eggs Pty. Ltd. [49] and Top Performance Motors Pty. Ltd. v. Ira Berk (Queensland) Pty. Ltd. [50] . As to the first of those decisions, it is true that Bowen C.J. referred to predatory practice but his Honour's conclusion that the Board was engaged in predatory pricing was relevant only to the question of proscribed purpose; he did not treat it as relevant to the question whether there had been a taking advantage. Bowen C.J.'s view was that misuse of power was required, but this he found in the existence of a proscribed purpose. It is also true that in Top Performance Motors Joske J. adopted a view of s. 46 which required more than the mere exercise of power before it could be said that a person had taken advantage of that power. But his Honour was considering s. 46 in its original form and he was drawing a distinction between exercise of market power and exercise of contractual rights. The applicant failed before the Court, not because taking advantage did not mean using, but rather because taking advantage of contractual rights was not taking advantage of market power. Cf. Warman International Ltd. v. Envirotech Australia Pty. Ltd. [51] , where Wilcox J. held that "[t]o exercise in good faith an extraneous legal right is to take advantage of that right, not of market power ". Whether there is any real difference between the judgments of Joske J. and Smithers J. in Top Performance Motors as Forster C.J. suggested in Ah Toy v. Thiess Toyota [62] , does not arise for consideration in that case.
At the core of B.H.P.'s argument was the submission that the concept of market power means absence of constraint. Mr. Gleeson, senior counsel for B.H.P., argued that one can never find as a fact that a person is using or exercising, let alone taking advantage of, market power unless one finds as a fact that the conduct in which the person is engaging is something in which he would not or could not engage but for the absence of constraint. In other words, it was said that there can only be a use of market power if what the corporation does it does only because of the absence of a competitor. Elaborating this proposition, counsel submitted that while B.H.P. had refused to supply Y-bar to Q.W.I. at competitive prices (a constructive refusal of supply, as found by the primary judge), there had been no finding of fact by Pincus J. or by the Full Court that B.H.P. had refused to supply Y-bar because there were no other people supplying that product. B.H.P.'s decision to consume all its intermediate product was due to it being a vertically integrated manufacturer. That decision, it was argued, was made regardless of whether or not there were other people who also supplied Y-bar. In this connexion, there may be noted the observation of Pincus J. that "there is no evidence that any product of B.H.P.'s rolling mills other than Y-bar is unavailable for sale. B.H.P.'s conduct in withholding supplies of Y-bar is not in accordance with the general pattern of its commercial behaviour".
Counsel for Q.W.I. responded that, even if the test suggested on behalf of B.H.P. was correct, that test had been satisfied. This was so because it can be assumed that the relevant market is a market for steel products; B.H.P. supplies Y-bar, one of those steel products, to A.W.I. but not to Q.W.I.; B.H.P. supplies to others all the other steel products of its rolling mills; B.H.P. will not supply Q.W.I. with Y-bar in order to protect A.W.I. from competition in the manufacture of fence posts; and the reason why B.H.P. can refuse to supply Q.W.I. with Y-bar is that B.H.P. has power in the market for steel products resulting from there being no relevant competitor with B.H.P. in that market. On that approach, the relevant question to ask in determining whether there has been an infringement of s. 46 is this: Is B.H.P. refusing to supply Y-bar because of its dominant power (due to the absence of competitors) in the steel products market? The answer to that question, it is said, must be yes.
In my view the answer is correct. The only reason why B.H.P. is able to withhold Y-bar (while at the same time supplying all the other products from its rolling mills) is that it has no other competitor in the steel product market who can supply Y-bar. It has dominant power in the steel products market due to the absence of constraint. It is exercising the power which it has when it refuses to supply Q.W.I. with Y-bar at competitive prices; it is doing so to prevent the entry of Q.W.I. into the star picket market; and it has been successful in that attempt. There has been a contravention of s. 46(1)(b) as it stood before the amendments of 1986 and as it has stood since then.
For these reasons the appeal should be allowed. The question of the relief to which Q.W.I. is entitled will be a matter for Pincus J. It will be for his Honour to determine whether Q.W.I. is entitled to an injunction against B.H.P. and A.W.I. and the form of that injunction, whether Q.W.I. is entitled to damages and, if so, the assessment of those damages.
Before concluding it is necessary to say something of an application made by the Trade Practices Commission to intervene on the hearing of this appeal. The Commission did not seek to intervene before Pincus J. or the Full Court. Section 163A of the Act empowers the Commission to intervene in a proceeding instituted under Pt IV (other than a matter arising under s. 48) where declaratory relief is sought of the kind mentioned in s. 163A(1)(a). No such relief is sought by Q.W.I. Counsel for B.H.P. and A.W.I. opposed the intervention of the Commission, largely on the ground that submissions the Commission had indicated it wished to make were based on factual arguments not urged in the courts below by Q.W.I. and not reflected in findings of fact made by those courts. In my view leave to intervene should be refused for two reasons. The first lies in the objection advanced by B.H.P. and A.W.I. to which reference has just been made. The second is that submissions by the Commission as to the proper construction and operation of the Act were largely taken up by counsel for Q.W.I. and have been dealt with in these reasons. In the circumstances, no particular purpose would be served by acceding to the Commission's application.
Queensland Wire Industries Pty Ltd
Broken Hill Proprietary Co Ltd
High Court of Australia Mason C.J. Wilson, Deane, Dawson and Toohey JJ. Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd [1989] HCA 6