Trade Practices - Merger provisions - Acquisition by one biscuit manufacturer of business of a competitor - Whether the acquirer would be, or be likely to be, in a position to dominate a particular market; or, if the acquirer was already in that position, whether the acquisition would, or would be likely to, substantially strengthen its market power - Definition of the product market - Whether wider than biscuits - Whether there are separate markets for different types of biscuits - Substitutability - Whether Arnotts dominates Australian biscuit market - Criteria for determination of dominance - Whether acquisition would substantially strengthen Arnotts' position in the market.

Evidence - Expert evidence - Nature of admissible evidence - Necessity to call expert evidence - Evidence of perceptions of facts - Reliance to be placed on statements in documents by unidentified authors - Admissibility and significance of market research material.

Practice and Procedure - Confidentiality of documents - Tender of unnecessary evidence - Application to call fresh evidence on appeal.

Trade Practices Act 1974, ss.4, 4E, 50

Federal Court of Australia Act 1976, ss.27, 50

Judiciary Act 1903, s.79

Counsel for the Respondent: B.C. Oslington, QC, D.G. Staehli and

M.R.J. Ellicott

Solicitor for the Respondent: Australian Government Solicitor

Counsel for George Weston Foods

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

This case concerns s.50 of the Trade Practices Act 1974. On 24 November 1988 Arnotts Biscuits Limited, ("Arnotts"), a wholly owned subsidiary of Arnotts Limited, and Fledspac Limited ("Fledspac") entered into an agreement whereby Arnotts was granted by Fledspac an option to purchase Fledspac's shares in The Dickens Corporation Pty Limited ("Dickens"), a wholly owned subsidiary of Fledspac, and Fledspac was granted by Arnotts an option to require Arnotts to purchase those shares. The agreement provided for the exercise of the options between 1 January 1990 and 30 June 1993. Dickens owns all the shares in a company, Cereal Foods Pty Limited, formerly known as Nabisco Brands Pty Limited, which manufactures biscuits and cereal products. For convenience we shall refer to that company as "Nabisco", the name under which it is best known.

2. The Trade Practices Commission ("the Commission") brought a proceeding in the original jurisdiction of this Court to restrain the acquisition of the shares on the ground that it would constitute a contravention of s.50 of the Act. Section 50 prohibits certain mergers and other acquisitions.

3. The learned trial Judge, Beaumont J, found that the grant of the option to Arnotts to acquire the shares was a deemed acquisition of those shares: see s. 4(4)(a) of the Act, which provides that a reference in the Act to the acquisition of shares shall be construed as a reference to an acquisition of any legal or equitable interest in shares. His Honour made a declaration that the deemed acquisition contravened s.50(1)(b) of the Act and a further declaration that Fledspac and Dickens were involved in the contravention: see s.75B of the Act.

4. When he delivered judgment on the principal issues in the case his Honour delivered a second judgment concerning the admissibility of the evidence of an expert economist called by the appellants, Dr. Phillip Williams. His Honour ruled that the evidence of Dr. Williams was inadmissible.

5. These appeals are brought from the two judgments of Beaumont J. His Honour's findings that the grant of the option to Arnotts to purchase the shares in Dickens created an equitable interest in the shares, and therefore constituted an "acquisition" of shares for the purposes of s.50, were not challenged on appeal.

6. Fledspac and Dickens, the third and fourth appellants, played no active part in the appeals. They adopted the submissions of counsel for the first and second appellants, Arnotts Limited and Arnotts. For convenience we shall refer to those two appellants as "the appellants". Counsel for the appellants submitted that the trial Judge erred in his three principal findings on substantive issues: that the relevant market is the Australian biscuit market; that the concept of dominance which is embodied in s.50 extends to Arnotts' position, and that the effect of the acquisition would be substantially to strengthen its market power. Counsel also criticised numerous evidentiary rulings made by his Honour. We will deal with each of the three principal issues and the more important evidentiary questions. Some of the more minor evidentiary matters were disposed of during argument.

7. Before turning to these issues, it is appropriate to say something about the course of the trial, aspects of which cause us concern. As we have indicated, the principal issue in the case is whether the acquisition by Arnotts of the biscuit business conducted by Nabisco would contravene s.50 of the Trade Practices Act. That would be so if, as a result of the acquisition, Arnotts would be, or would be likely to be, in a position to dominate a particular market for goods or, if Arnotts is already in that position, the acquisition would, or would be likely to, substantially strengthen its market power; it being common ground that the Nabisco biscuit business competes with that of Arnotts.

8. The investigation of these practical questions of fact involved a trial occupying 110 hearing days, spread over nine months. The hearing generated some 6,500 pages of transcript and 292 exhibits. Most of the exhibits were lengthy documents. Many occupied one or more large ring-bound folders. Stacked side-by-side in folders, the exhibits extend for some five metres. In total, they contain tens of thousands of pages. The trial Judge found it necessary to refer in his reasons for judgment to only a handful of those documents, although no doubt he read them all. But we were not asked to do this. Although, before us, the appellants attacked his Honour's findings on almost every significant factual issue and many of his evidentiary rulings, and although both parties supplied us with extensive written submissions supplemented by seven days of addresses, counsel found it necessary to refer us to only a tiny proportion of the oral and documentary evidence; perhaps no more than two per cent of it. We acknowledge that it is usually unnecessary on appeal for counsel to refer to the whole of the evidence led, and properly led, at the trial. We also acknowledge that material which itself has no evidentiary value is sometimes properly tendered in order to provide a context for other material. However, making these allowances, the comparison just made raises immediate doubts about the utility of much of the evidence tendered at the trial. Those doubts are abundantly confirmed by examination of the material itself.

9. A large proportion of the documents tendered in evidence comes from the records of commercial organisations: biscuit manufacturers and retailers. In most cases, it would seem, the person producing the documents to the Court, or tendering them in evidence, claimed that they contained commercially confidential information. So the trial Judge made orders under s.50 of the Federal Court of Australia Act 1976 limiting access to those documents. Access was usually confined to the lawyers engaged in the case and any independent experts advising a party. One result of these orders was that counsel and witnesses were inhibited in their references to the contents of documents unless the Court was closed to the public, as it frequently was. A further result became apparent when judgment was delivered. The "confidential" documents included a good deal of information about the size and structure of the biscuit industry, including the market shares of the major manufacturers. This information is basic to a coherent discussion of the case. It was material which the trial Judge rightly thought necessary to set out in his reasons. Furthermore, as it happened, his Honour relied heavily upon these documents for his conclusions that the relevant market was properly to be described as "the Australian biscuit market" and that Arnotts already enjoyed a dominant position in that market. In an unexpurgated version of his reasons, his Honour set out information about the industry which he had gleaned from the "confidential" documents. He also quoted the relevant documentary passages upon which he relied for his findings on the issues of market and dominance, and explained how they supported his conclusions. But the unexpurgated version was made available only to a limited number of people, not even including executives of Arnotts. In deference to the claims for confidentiality, the trial Judge felt constrained to issue an expurgated version of his reasons, for a general audience, from which all citations from the "confidential" documents were omitted. That version lacked both basic information and intelligibility; it is reported, (1990) 93 ALR 657. It is not until one reads the unexpurgated version that one can gain any real understanding of his Honour's findings of fact or processes of reasoning.

10. We do not know what their reactions were, but it would be understandable if the executives of Arnotts felt aggrieved at being denied an intelligible explanation of their loss of an important case upon which their company must have spent millions of dollars. Furthermore, the general community has an interest in knowing the reasons for the outcome of a major case affecting many people outside Arnotts and into which substantial public funds have been poured.

11. We recognise that there are documents which are truly confidential, whose dissemination to competitors or to the general public might cause irredeemable commercial harm. Obvious examples are documents containing information about secret manufacturing processes or ingredients; perhaps future marketing strategies, lists of suppliers, customers and the like. Where such documents become involved in litigation, the disadvantages of restricting access may have to be accepted in order to avoid injustice to their owners or authors. But few of the documents for which claims of confidentiality were made in this case seem to have been truly confidential. Neither before nor during the hearing of the appeal did we carry out any comprehensive review of the confidentiality orders; we were not asked to do so. But, from time to time, the matter of confidentiality did arise. When we asked counsel why particular documents had been thought to be confidential, the claims of confidentiality melted away. In the end it was conceded, not only by the parties to the appeal but also by counsel for George Weston Foods Limited ("Weston") - whose client had produced numerous documents for which it made a blanket confidentiality claim, some of which were quoted by the trial Judge in his unexpurgated reasons - that none of the material quoted in the reasons should properly be regarded as confidential. Accordingly, we revoked his Honour's order under s.50, insofar as it related to any material set out in the unexpurgated reasons. This had the result, not only of making his Honour's full reasons available to anyone who might be interested, but also of freeing counsel from the inability to refer aloud to that material and ourselves from any inhibition in discussing it in our reasons for judgment.

12. We do not make the above comments for the sake of complaint. We recognise the burden of presenting a complex case such as this. The parties were represented at the trial by experienced counsel. Nonetheless, we regard the situation which we have described as unacceptable. Neither the Court nor the litigants should have to contend with the constraints imposed by unnecessarily wide confidentiality orders. Neither should they be burdened with the consequences of a mountain of seemingly unnecessary evidence. We have no doubt that, with even reasonable attention on both sides to the relevance and utility of the questions being asked and the documents being tendered, the trial could have been completed in much less time than it actually took and, consequentially, with much less cost to the parties.

13. There appears to be an assumption abroad today about commercial litigation: that, when big issues are at stake, there must inevitably be a long and complicated hearing. This assumption must be discarded. No matter how much is at stake, in dollar terms, there is no justification for irrelevant or unuseful evidence. Moreover, it is in the interests of the parties to analyse properly the cases which they wish to make and to restrict themselves to helpful material; and not only because of savings in costs. The devotion of excessive attention to peripheral matters, rather than the main issues, causes the parties to lose sight of the real issues and to devote insufficient attention to them. The result may be to leave the Court with insufficient or unsatisfactory material upon principal factual issues. The essence of counsel's function is the identification of, and concentration upon, the critical issues in the case.

14. A remarkable feature of the present case is that, when the smoke all clears away, most of the critical facts stand clear and uncontroversial. We are satisfied that Beaumont J was correct in each of the three principal findings which we have identified. We will deal with each of these issues separately; but first it may be useful to give a brief account of Arnotts' business.

15. The founder of Arnotts was William Arnott, a Scottish emigrant who established the business of a baker and pastrycook at West Maitland in 1850. In 1894, a factory was acquired in Sydney. In 1904 the business was acquired by a company formed for the purpose, then named William Arnott Limited. In 1949, the company acquired an established Brisbane biscuit manufacturer, Morrows Pty Limited. Subsequently, other established businesses were acquired: the Guest and Brockhoff businesses in Melbourne and businesses in Adelaide and Fremantle. All of these businesses had been founded in the 19th century as family concerns. In about 1976, Arnotts took over the business of Peek Frean (Australia) Pty Ltd, the Australian subsidiary of a British biscuit manufacturer.

16. There has also been a degree of vertical integration and product diversification. In 1965, the Arnotts group acquired a controlling interest in a Victorian potato chip business. In the next year a subsidiary was formed to manufacture, in Sydney, potato chips for distribution in States other than Victoria and Tasmania. This has proved a successful business. A 66% per cent interest was acquired in Cardboard Manufacturing Co. Pty Limited, a company supplying a steadily increasing proportion of the group's requirements for corrugated cartons. In 1971, a controlling interest was acquired in McCorquodale Holdings Pty Limited, a flour milling and stock feed company based at Parramatta in New South Wales. Two years later a controlling interest was obtained in Kingaroy Toasted Peanuts Pty Limited. A manufacturer of pet foods was acquired in 1982.

17. By the time of the trial the Arnott commercial empire involved assets of approximately $800m and a share capital of $7m. The parent company, Arnotts Limited, has a large number of subsidiaries in Australia and abroad. The operating revenue of the group for the year ended 30 June 1988 was $709m. The principal activities of the group are the manufacture and distribution of biscuits, formula dietary foods, snack products, cakes, pet foods, confectionery, bread, jam, nuts, packaging materials, containers, flour milling and engineering. Arnotts itself is a major Australian manufacturer of food products; including biscuits, cakes and confectionery. Biscuits represent the major part of Arnotts' business.

18. The biscuits manufactured and sold by Arnotts include a number of well established brand names. The "Milk Arrowroot" biscuits made their appearance in about 1880. "Sao", "Assorted Creams", "Family Assorted", "Scotch Finger", "Gingernut" and "Shredded Wheatmeal" biscuits have all been marketed since at least 1906. "Monte Carlo" and "Spicy Fruit Roll" were introduced in the 1920's. The dry cracker biscuits known as "Jatz" and "Salada" were introduced more than 25 years ago. The evidence indicates, on the part of consumers, strong recognition of Arnotts' brand, which is displayed on distinctive packaging. Arnotts' biscuits are perceived by consumers as the best quality biscuits, but as more expensive than other brands.

19. The "Premiere" brand is used by Arnotts for products specially imported to fill "market gaps" or "niches" in the "exclusive type market", where the potential volume of sales appears not to warrant the capital expenditure on manufacturing equipment that would be necessary for Australian production. In addition, Arnotts supplies "Sunshine" brand biscuits at the lower-priced end of the market.

20. Beaumont J found that there was a "market", within the meaning of ss. 4E and 50 of the Act, being a national market for the supply of biscuits to wholesalers and retailers, and that there were two principal players therein, in addition to Arnotts, namely Nabisco and Weston. About 90% of biscuits supplied by the participants in this market are supplied to the major retail supermarket chains or to large grocery wholesalers. The four principal purchasers of Arnotts' biscuits are the supermarket chains conducted by Coles Myer Limited (the "New World" supermarkets), Franklins Ltd, Woolworths Ltd, and the buyers comprised in Amalgamated Australian Wholesalers Ltd. The evidence included considerable detail about some of the participants in the market determined by his Honour. In other cases, the material was more sketchy. We will set out such of the evidence - none of which was controversial - as is necessary for the purpose of considering the appellants' challenge to the trial Judge's finding.

21. Over the three years ending 30 June 1988, Arnotts supplied approximately 65% of the biscuits consumed in Australia, Weston 13% and Nabisco 8%. The balance, approximately 14%, was divided between imported biscuits (excluding biscuits imported by Arnotts and marketed under the name "Premiere") and the product of other Australian manufacturers.

22. In 1988, the total Australian biscuit market had gross wholesale sales of about $600m. The total volume in 1985/86, 1986/87 and 1987/88 was 135,720,900 kgs, 135,545,900 kgs and 137,946,000 kgs respectively. There are approximately 26 manufacturers and importers of biscuits, in addition to Arnotts, Nabisco and Weston. They include Cadbury Schweppes Pty Limited, which in 1987 successfully launched a range of chocolate biscuits. But none of these other manufacturers has offered a product range comparable to that of Arnotts, Nabisco and Weston.

23. In some of its "New World" supermarkets Coles Myer sells biscuits baked on the premises. Further, in 1989, it launched a range of biscuits, manufactured for it under contract and marketed under its "in house" brand "Farmland". The other supermarket chains also sell "generic" biscuits and "in house" brands at lower prices than Arnotts' biscuits. However, Arnotts uses its "Sunshine" brand to compete with the "in house" and generic products sold by the supermarket chains.

24. The generic and "in-house" products are manufactured primarily by Paradise Food Industries Pty Limited ("Paradise") and Players Biscuits Pty Limited ("Players"). Paradise commenced operations in Brisbane in March 1986. The Joint Managing Director of Paradise since 1972, Mr Timothy Wong, gave this evidence about the difficulties confronting a new biscuit manufacturer:

"Very great difficulties face anybody wishing to

manufacture biscuits in Australia on a

significant scale as a new entrant to the

market. Because the capital cost in

establishing a biscuit manufacturing plant is

high, it is necessary to have a reasonably high

level of sales or potential sales to make the

capital outlay attractive. Obtaining staff with

biscuit production skills and machinery

operation skills is also difficult. New product

development costs are also significant. There

is also a significant cost in maintaining

inventory levels which are high in relation to

the size of sales. In addition, a new entrant

proposing to supply branded biscuit products is

also faced with new product listing fees charged

by the various wholesalers and retailers of

biscuits."

Before their expansion into Australia, the companies in the Paradise group had been engaged in biscuit manufacture in Papua New Guinea for over 30 years. The value of Australian sales grew from $175,279 in 1986 to $3.62m. in 1988; still a small percentage of the $600m. national market for that year.

25. Players commenced manufacturing biscuits in 1974 or 1975. It commenced to supply the major supermarket chains with generic or "home brand" biscuits in about 1984. It has a factory in Sydney which was opened in 1988. The factory has a floor space of some 120,000 sq. feet. It was constructed and outfitted at a cost of $12m. This sum includes the cost of plant and equipment, said to incorporate "state of the art" technology. For the year ended 30 June 1989, the total sales of Players' biscuits amounted to $19.7m.

26. In the late 1970's, Arnotts, Nabisco and Weston had supplied some 98% of the biscuits consumed in Australia, the balance being highly priced imports. Biscuits imported from New Zealand are now duty free. Duty on other imports is presently at a maximum of 2%. The result is a significant expansion in the volume of imports.

27. Weston is ultimately foreign owned, being a subsidiary of Associated British Foods plc, a large, broadly based food producer. It is a major flour miller and supplies the Australian food industry with flour, starches, gluten and a wide range of bread, cake and pastry mixes. It also manufactures and supplies stock feed, small goods and dairy products. The evidence does not indicate the year in which Weston entered the biscuit market in Australia, but it was before the advent of Nabisco.

28. The Australian operations of Nabisco commenced some 20 years ago. In addition to biscuits, Nabisco manufactures breakfast cereals and processed nuts. This last branch of the business dates from 1978. Nabisco has always been ultimately foreign owned. On 1 July 1988 the group was acquired by the ICM group of companies, which uses the business name "Best Foods". The group is, in particular, a supplier of cereal foods, principally under the trade mark "Uncle Tobys". In biscuits, the Nabisco strength is dry crackers, flavoured snacks and chocolate biscuits; whilst Weston is strong in assortments, cookies and chocolate biscuits. Arnotts covers the entire range of products. Six to ten new lines are introduced each year by each of the three major manufacturers.

29. Retail margins vary, usually between 15% and 20%. The size of the margin tends to be related to the volume of products sold. There is a practice among retailers of taking lower margins on top selling lines, often below 10%. The result is to exert price pressure on products having low market shares. The manufacturers of those products need to keep margins slight so as to remain competitive with the leading brands.

30. Nabisco's biscuit products are manufactured at the company's plant at Broadmeadows, Victoria. The company has a warehouse in each capital of the other States, to which the biscuits are transported from Broadmeadows. Arnotts has factories in all States except Tasmania. Weston is established at Camperdown in New South Wales, Kedron in Queensland and Abbotsford in Victoria.

31. The three major biscuit manufacturers operate their own transport fleets to carry supplies directly from their plants or warehouses to the supermarkets. They do not use the central warehousing facilities offered by the supermarket chains. The reason is that biscuits have a relatively short shelf life. Direct supply assists the sale of fresh stock. Only Arnotts, Weston and Nabisco deliver their products in this way. Other biscuit suppliers depend upon retailers to get their products to the stores. For example, Coles' "New World" distributes the products of other suppliers through its own distribution system. But it requires these suppliers to allow a distribution discount, equivalent to the cost of distributing the goods, which is deducted from the wholesale price of the biscuits.

32. The operations of the grocery wholesalers vary somewhat, but the Queensland Independent Wholesalers Group ("QIW") may serve as an example. QIW supplies most of the grocery retailers in Queensland and northern New South Wales (some 1,400 stores) with the exception of the Coles Myer, Woolworths and Franklins supermarkets. It has a central distribution centre in Brisbane. Supplies of biscuits are kept at 13 "cash and carry" warehouses throughout Queensland, QIW biscuit sales being divided equally between the Brisbane facility on the one hand and the "cash and carry" warehouses on the other. The smaller retailers buy their supplies from the cash and carry warehouses. The larger independent retailers place orders on the three major manufacturers, which deliver directly to these retailers. But the manufacturer invoices QIW which bills the retailer; then the retailer pays QIW and QIW pays the manufacturer.

33. Arnotts, Weston and Nabisco and, to a lesser extent, the smaller suppliers provide a merchandising service for their products in the retail stores. Representatives visit stores. They check the stocks of biscuits on the shelves (particularly as to the expiration of "use by" dates) and furnish promotional material for display. In recent years, at least, Arnotts has had a group of highly effective representatives. They frequently visit the stores in their areas and provide the company with detailed and astute "grass-roots" market intelligence.

34. A set of statistics, known as the Biscuit Industry Statistics ("BIS"), is maintained. These statistics relate only to the operations of Arnotts, Weston and Nabisco. The industry treats BIS as a reliable indicator of the performance of the three leading members of the industry; but, of course, they cast no light upon the performance of others.

35. In his reasons for judgment Beaumont J stated his principal conclusions in seventeen numbered paragraphs:

"1. There is a national biscuit industry of

which the clear leader is Arnotts. It is, by

far, the largest manufacturer, its products are

of the highest quality and it is the only

manufacturer to produce the whole range of

biscuits available. Arnotts manufactures the

best selling product in each of the groups which

constitute the range of biscuits marketed in

Australia. Weston and Nabisco are also large

manufacturers of biscuits in terms of volume,

but the size of the operations of Weston and

Nabisco, relative to Arnotts, is small. From

time to time, Weston, Nabisco, Cadbury, Players,

Paradise and generic biscuits (or 'house brands'

of some of the large retail chains) have offered

competition to Arnotts in certain areas in the

short term. But no competitor has even sought

to compete with Arnotts over its whole range

and, even when competition is offered in a

particular product category, Arnotts is usually

able to move to 'contain' the competition. As

Weston's management recognised, Arnotts is able

'to influence market situations at will'.

2. Arnotts' major brand in all trading areas

is the 'Arnott' brand. Arnotts has succeeded in

marketing this brand so as 'to equate products

with a certain standard of quality in consumers'

minds'. Arnotts aims to give, and, it seems,

has given, 'meticulous' attention to the

'Arnott' brand so as to 'ensure competitive

advantage in performance, function and value'.

3. Arnotts' 'Sunshine' brand is used on

products designed to 'contain', and it appears

do contain, 'low price, private label and

generic competition in defence of the major

brand in each trading area.'

4. The 'Premiere' brand is used for products

specially imported to fill 'market gaps'

('niches') in the 'exclusive type market' where

potential volume does not warrant capital

expenditure for manufacturing equipment.

5. Arnotts' 'product mix' policies, which are

concerned only with the 'biscuit market', adopt

the following product group definition for its

biscuits, based on production characteristics

and historical measurement: Dry crackers,

flavoured snacks, crispbread, plain assorted,

plain non-assorted, fancy assorted, fancy non-

assorted, cookies, shortbread, and chocolate

coated. The biscuit industry adopts a similar

approach. In addition, Arnotts has a 'dietary'

group and a 'miscellaneous' group, neither of

which appear to be significant for present

purposes.

6. An important object of Arnotts' style of

packaging is to enable 'prompt discovery and

identification' of the Arnotts' brand.

7. Arnotts' pricing policy is to ensure that

any price increases to offset rising costs are

'limited to ensure that products always

represent good value to the consumer, make it

difficult for competitors to offer comparative

value and offer the retailer a better

profit/volume relationship than most grocery

store items.' Arnotts' aim to stabilise prices

and margins'. When 'pricing to contain

competition, whilst (Arnotts) do not aim to be

'cheaper' than competitors, (Arnotts') pricing

strategy is always to ensure that we do not

price our major products to present a

significant threat to our share/volume/profit

position through non-competitive pricing.' The

size and historical position (over 120 years) of

Arnotts in the industry puts it in the position

of 'price leaders', a situation in which

'competitors generally follow any deviation in

price, especially upward.' Arnotts' ability to

maintain a 'price leader' policy is reinforced

by its 'strong consumer franchise, consistent

advertising, volume production and technological

leadership.'

8. Arnotts' basic principle is that its

trading terms and conditions are the same for

every retailer and prices and discounts are

'arranged to enable any retailer of reasonable

size to trade to maximum margins.'

9. Because of its position as 'market

leader', Arnotts makes a 'substantial

investment' in marketing.

10. Arnotts' national biscuit marketing

objectives for 1987/1988 were:

(1) To maintain a profitable growth in total

kilogram sales.

(2) To 'maintain a dominant market position'.

The aim was to achieve and maintain 'a

market share of not less than 70% of the

total Australian biscuit market.' (It is

not clear whether the 70% objective was to

be measured by volume or by sales value.

Arnotts' achieved approximately 65% by

volume and rather more if measured by the

value of sales.) A second aim was to

achieve and maintain a 'market share of

not less than 75% as measured in the

B.I.S. figures for Total Biscuits Sales.'

(This was achieved.)

(3) To establish and maintain 'profitable

leadership' in each product group. The

first objective was to have 'more than a

60% market share in any single group'.

(This was substantially achieved. Taking

the B.I.S. national figures for 1988, the

only product group of Arnotts with less

than 60% were crispbreads - extruded

(57.83%) and crispbreads - non-extruded

(53.63%)). The second objective was to

have the best selling product in each

group. (This objective was achieved).

(4) To introduce new products to (a) add

variety to Arnotts' product range (this

was achieved); (b) 'overcome competitive

activity where competitive new products

are seen to represent a long term threat

in present and new markets' (it appears

that this was achieved); (c) fill gaps in

Arnotts' range: created by deletions

(variety and brands), 'emerging

competitive strengths' or new market

development (it appears that this was

achieved).

11. The biscuit industry markets a very high

proportion of its biscuits through the major

retail supermarket chains or through the large

grocery wholesales. Biscuits are usually

grouped together in 'biscuit bars' in which

Arnotts' biscuits are first in the traffic flow

and occupy about 50% of the bar. This confers a

considerable marketing advantage upon Arnotts.

It is very difficult, and very expensive, for a

new entrant to the biscuit industry to obtain

access to 'facings', or shelf space, in biscuit

bars in supermarkets. There are suggestions in

the evidence that, on occasions, the retail

chains have indicated interest in encouraging a

new entrant (e.g. Players, Paradise) to provide

competition to Arnotts, but Arnotts has been

able, generally speaking, to maintain its

position of first in the traffic flow, and

occupying 50% of the biscuit bar. The strength

of Arnotts' position in this respect has

provided a considerable barrier to any new

entrant to the biscuit industry.

12. Biscuits are marketed separately from

other processed foods such as snack foods,

confectionery and bread. From time to time, the

management of the biscuit industry has noted the

possibility of threats from, or opportunities

in, the snack food industry, the confectionery

industry and the bread industry. But these

threats, or opportunities, are unusual and, when

they occur, they are confined to a specific

category of biscuit, e.g. chocolate biscuits,

and do not involve biscuits generally. As the

Arnotts' management approach to 'Tim Tams' and

the discussion of the introduction of sales tax

on chocolate biscuits in 1985 show, even in the

case of chocolate biscuits, the biscuit industry

recognises, and acts upon the recognition, that

the biscuit industry should be distinguished

from the confectionery industry. Hence the need

to package and market a biscuit differently if

it is to be sold as confectionery. The general

position is that the biscuit industry is self-

contained. Generally speaking, as the

'competitive activity' reports indicate, the

members of the industry confine their attention,

and their conduct, to the biscuit marketing

efforts of other biscuit manufacturers. By and

large, biscuit producers do not concern

themselves with the activities of the

manufacturers of other kinds of processed foods.

I say 'by and large' because, as Deane J. (with

the general agreement of Dawson J.) pointed out

in Queensland Wire ((1989) [1989] HCA 6; 167 CLR 177, at 196),

the 'outer' limited of a market are likely to be

'blurred'.

13. The B.I.S. figures deal, for instance in

the cracker and savoury segment, with

approximately 90% in volume and approximately

95% 'in dollar terms' of biscuit sales in

Australia. This explains why the management of

Arnotts, Weston and Nabisco place considerable,

even if not exclusive, reliance upon these

statistics. It also explains why Arnotts'

management devotes so much effort to the process

of monitoring the trading activities of Weston

and Nabisco.

14. Weston's management recognised that

Weston's performance was hindered by, inter

alia, the following: (1) Weston does not compete

in the cracker, flavoured snacks segment ('23%

of the total market'). (2) Arnotts and their

other brands have a 'stranglehold on the

domestic market in relation to range, price

structure and advertising/promotional

activities.' (3) The advent of generics has

weakened its image as the 'value for money'

manufacturer. (4) The 1985 sales tax has

'narrowed' the 'differential' between a packet

of chocolate biscuits and a block of chocolate.

Biscuit sales have 'slowed' in 'almost every

segment but particularly in the high priced

chocolate range'. (5) Chain store 'dominance'

of the trade is a 'cause for concern' to all

food manufacturers. Their 'dictatorial'

attitude in relation to promotional funding and

trading terms places 'great strain' on the

relationship between manufacturer and retailer.

Independent retailers are losing their share of

the market as chain store sales increase in

volume.

15. Although the retail chains are a cause for

concern for Weston, it appears that, on the

whole, relations between Arnotts and the chains

are mutually satisfactory. The history of the

relationship between Arnotts and each of the

chains, generally speaking, is consistent with

an attitude of co-operation between them.

Whatever power the chains may exercise over the

smaller players, including Weston and Nabisco,

the evidence indicates a recognition by Arnotts

and by the chains that they need each other.

There is no evidence that the chains have a

'dictatorial' attitude towards Arnotts. This is

consistent with their recognition of Arnotts'

position as the clear leader of the biscuit

industry. The management of one of the major

retailers, Coles New World, actually described

Arnotts as a 'dominant market leader'.

16. Nabisco's management recognised, and acted

upon the recognition, that Arnotts have a

'dominant' share of the 'total biscuit market'.

17. Over the three years ended March 1986,

1987 and 1988, the 'Arnott' brand share remained

stable, irrespective of what happened in the

case of the 'Sunshine' brand, Weston, Nabisco,

imports and generics."

36. His Honour held that there is in Australia an area of "close competition" in the supply of biscuits, that there is a "market" for biscuits in the sense explained in the authorities and that the market is a substantial one. He held that the "product market" is biscuits and the "geographic market" is Australia.

37. The trial Judge dealt with the question of dominance and found that:

"An enterprise will be in a position to dominate

a market when there is a probability that the

other enterprise or enterprises in the market

will act in a way calculated not to affect

adversely the dominant concern's short term

interest. Dominance, unlike control, is not

primarily concerned with the formal relationship

between entities but rather with their conduct

towards each other within a particular market

environment. If the size or strength of a

particular entity is such that, in practice,

other entities are unable or unwilling actively

to compete with it in a particular market, that

entity is dominant in that market. The dominant

position relates to a position of economic

strength enjoyed by an undertaking which enables

it to prevent effective competition being

maintained in the relevant market by affording

it the power to behave to an appreciable extent

independently of its competitors, its customers

and ultimately of the consumer. Such a position

does not preclude some competition but enables

the undertaking which profits by it, if not to

determine, at least to have an appreciable

influence on, the conditions under which the

competition will develop and, in any case, to

act largely in disregard of it so long as such

conduct does not operate to its detriment."

38. His Honour found that Arnotts was in a position to dominate the market, that it has held for many years a very large market share and that it has had some, but not much, competition in the supply of biscuits. He said that the members of the biscuit industry and the members of the grocery trade act upon the belief that Arnotts is in a position to exercise, and does exercise from time to time, a commanding influence in the market. The size and strength of Arnotts is such that in practice other entities are unable or unwilling to offer any significant competition to Arnotts in the biscuit market in the medium or long term. Even in the short term, there is an obvious reluctance to meet Arnotts "head-on" or directly. Instead, other suppliers of biscuits seek to find "gaps" or "niches" in the market. Beaumont J held that this conduct is an indication that Arnotts holds a commanding influence in the market.

39. His Honour dealt with the meaning of the word "substantially" in s.50(1)(b)(ii). He said that, in his opinion, it suggests a degree of strengthening of power that is "real or of substance and not insubstantial or nominal", relying upon Tillmann's Butcheries Pty Ltd v Australasian Meat Industry Employees' Union [1979] FCA 85; (1979) 42 FLR 331 per Bowen CJ at 338-9 and Deane J at 348. Reference was also made by his Honour to R. v Hudson [1985] FCA 442; (1985) 63 ALR 257 at 270.

40. Beaumont J concluded that Arnotts' acquisition of Nabisco would, or would be likely to, substantially strengthen Arnotts' power to dominate the national biscuit market. He cited two considerations in support of that conclusion.

41. First, his Honour said that Nabisco has about 8% of the total Australian biscuit market and about 9% of the BIS share. In two important sections of the market - dry crackers and flavoured snacks - Nabisco is Arnotts' only competitor. These segments were "vitally important" to Arnotts because of "sheer volume" and the "growth rates being achieved disproportionately to the total biscuit market". His Honour accepted evidence that, if Arnotts had no significant competitor in these segments of the market, its power to bargain with retailers in these areas, at least, would be considerably enhanced. Secondly, Beaumont J thought that Arnotts would gain economies of scale from an acquisition of this size.

42. Having concluded that Arnotts is in a position to dominate the market in Australia for biscuits and that the acquisition of the shares in Nabisco by Arnotts would substantially strengthen the power of Arnotts to dominate that market, his Honour said that it followed that the deemed "acquisition" of shares under the option agreement contravened s.50(1)(b).

43. The trial Judge found that Fledspac and Dickens were also "involved" in the contravention within the meaning of s. 75B(1) of the Act. He said it further followed that any actual, as distinct from any deemed or notional, acquisition of the shares by virtue of the exercise of any option granted by the option agreement would also contravene s.50(1)(b).

44. Counsel for the appellants criticised the sufficiency of the factual findings made by Beaumont J, one submission being that - for this amongst other reasons - there ought to be a new trial. In response to this submission we feel bound to say that, whilst it would be unreasonable to expect his Honour to have made findings relating to all the matters of fact put before him, his findings were rather sparse. We would have benefitted from a much fuller account of the effect of the evidence in relation to the critical issues. In the situation we encountered, we have had to spend more time winnowing the primary facts from the mass of evidence than we would have expected. Fortunately, we have had considerable assistance from counsel in this task, leading us to feel satisfied about the accuracy of the matters of fact stated in these reasons which were not the subject of findings by his Honour.

45. Section 50 of the Trade Practices Act, so far as presently relevant, provides:

"50(1) A corporation shall not acquire,

directly or indirectly, any shares in the

capital, or any assets, of a body corporate if -

(a) as a result of the acquisition, the

corporation would be, or be likely to be,

in a position to dominate a market for

goods or services; or

(b) in a case where the corporation is in a

position to dominate a market for goods or

services -

(i) the body corporate or another body

corporate that is related to that

body corporate is, or is likely to

be, a competitor of the corporation

or of a body corporate that is

related to the corporation; and

(ii) the acquisition would, or

would be likely to,

substantially strengthen the

power of the corporation to

control or dominate that

market.

...

(3) In this section -

(a) a reference to a market for goods or

services shall be construed as a reference

to a substantial market for goods or

services in Australia in a State or

Territory; and

(b) a reference to dominating a market for

goods or services shall be construed as a

reference to dominating such a market

either as a supplier or as an acquirer of

goods or services in that market."

Section 4E 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."

"Competition" is defined in s. 4(1) as including:

"Competition from imported goods or from

services rendered by persons not resident or not

carrying on business in Australia."

46. We turn to the definition of the "market". Part IV of the Trade Practices Act is designed to foster competition. The role of s.50 is to maintain competitive markets by restraining monopolisation and prohibiting mergers that will produce a non-competitive market.

47. The identification of the relevant market and the assessment of dominance, in the sense of market power, cannot be separated. This point was made by Mason CJ and Wilson J in Queensland Wire Industries Pty Limited v The Broken Hill Company Proprietary Limited [1989] HCA 6; (1989) 167 CLR 177 at 187-8 in these terms:

"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

the degree of market power will be at the

product level which is the source of that power

... 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."

See also Australia Meat Holdings Pty Limited v Trade Practices Commission (1989) ATPR 40-932 (Full Court) at 50, 091 and 50, 104.

48. In the area of restrictive trade practices law it is impossible to provide an absolute definition of "market". As was observed by Professor Maureen Brunt in her article, "Market Definition Issues in Australian and New Zealand Trade Practices Litigation" (1990) 18 Australian Business Law Review 86 at 126:

"It must be constantly borne in mind that market

definition is but a tool to facilitate a proper

orientation for the analysis of market power and

competitive processes - and should be taken only

a sufficient distance to achieve the legal

decision. There may be more than one relevant

market for a particular case in the sense of

markets that would attract liability."

49. Deane J observed in Queensland Wire at 195 that the word "market" is not susceptible of precise comprehensive definition, when used as an abstract noun in an economic context. He thought that 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. Stevens Cartage Contractors Pty. Limited (1977) ATPR 17,445 at 17,460). In the same case, at 200, Dawson J struck a cautionary note:

"Too rigid an approach in defining a market is

apt to lead to unrealistic results."

See also the discussion, with reference to some academic writings, in Mark Lyons Pty Ltd v Bursill Sportsgear Pty Ltd (1987) 75 ALR 581 at 588-591.

50. However, the authorities provide some assistance to those concerned to define the relevant market in a particular case. The following passage from the Trade Practices Tribunal's decision in Re Queensland Co-operative Milling Association Ltd; Re Defiance Holdings Ltd (1976) 25 FLR 169 ("QCMA") at 190 has frequently been cited. But it is worth repeating, as it bears on the delineation of the market in the present case:

"A market is the area of close competition

between firms or, putting it a little

differently, the field of rivalry between them

... Within the bounds of a market there is

substitution - substitution between one product

and another, and between one source of supply

and another, in response to changing prices. So

a market is the field of actual and potential

transactions between buyers and sellers amongst

whom there can be strong substitution, at least

in the long run, given a sufficient price

incentive ... Whether such substitution is

feasible or likely depends ultimately on

customer attitudes, technology, distance, and

cost and price incentives.

... in determining the outer boundaries of the market we ask a quite simple but fundamental question: If the firm were to 'give less and charge more' would there be, to put the matter colloquially, much of a reaction?"

51. The concept of substitutability of products is heavily relied upon by the appellants in this case. Substitutability affects the definition of markets. As Mason CJ and Wilson J observed in Queensland Wire at 188:

"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."

52. All the judgments in the High Court in that case emphasised the importance of the consideration of substitutability, as required by s. 4E. Accordingly, the process of defining a market involves both including products which compete with the defendant's product and excluding those which, because of differentiating characteristics, do not compete.

53. The two main arguments advanced by counsel for the appellants against the correctness of the trial Judge's delineation of the relevant product market are: first, that there are categories of biscuits which are not competitive with other categories of biscuits; and, second, that there is competition between certain types of biscuits on the one hand and certain types of non-biscuit products on the other. The first matter is said to support the conclusion that there is not one overall biscuit market but a series of biscuit markets. The second matter is argued to require a finding, if aggregation be appropriate, that the market is wider than biscuits themselves.

54. As to the first argument, the appellants submit that his Honour failed to deal with oral evidence to the effect that retailers do not consider some categories of biscuits to be competitive with other categories of biscuits. There was evidence that retailers, when deciding whether or not to stock a new line of biscuit products, take no account of the possible impact this will have on sales of, or current marketing practices with respect to, biscuit products in other categories. For example, retailers consider that chocolate biscuits compete with other chocolate biscuits, but not with dry crackers or sweet biscuits. Secondly, there was evidence that retailers avoid promoting biscuit products of different manufacturers, within the same category, at the same time (for example, both a Cadbury and Arnotts chocolate coated biscuit); but retailers frequently run simultaneous promotions of biscuits produced by different manufacturers which are within different categories. For example, an Arnotts chocolate biscuit promotion may run simultaneously with a Weston cookies promotion. Counsel argue that the effect of this evidence is that biscuits are competitive with each other only within well defined categories.

55. There is evidence each way upon the first matter. There is certainly evidence which supports the appellants. However, there is also evidence which suggests that retailers do take into account other categories of biscuits when deciding whether to stock a new line of biscuits. This evidence includes the testimony of Mr H Sidler, Senior Merchandise Manager - Food of Woolworths, and Mr E R Bender, a consultant who has had a 30 years association with Franklins.

56. As to the second matter, it is conceded by the Commission that the evidence does establish that retailers avoid the simultaneous promotion of two products within the same category; but it was argued that this is but one factor amongst the many which should be considered in defining the relevant market.

57. We were referred to a large amount of evidence, both oral and documentary, concerning the question whether biscuit manufacturers identify only other biscuit manufacturers as providing any real degree of competition. There are references to biscuit manufacturers being aware that biscuits compete with some non-biscuit products; for example, Weston's "Wagon Wheel" product - which is a chocolate coated biscuit marketed as a confectionery; Nabisco's "Rum Slice"; certain after dinner mints which compete with mint flavoured chocolate biscuits; "Snowballs" which are chocolate coated marshmallow confections rolled in desiccated coconut and which compete with sweet biscuits. However, an examination of the evidence establishes that biscuit manufacturers do not usually concern themselves with the activities of the manufacturers of non-biscuit products. The Arnotts' records which are in evidence include the sales representatives' regular reports. Those reports are analysed and summarised at State offices. The summaries ultimately go to the Arnotts' directors. Other such records include what are described as "competitive activity release reports", which are documents kept by Arnotts in which it identifies products released into the market that, in its view, compete with its own products. Both the sales representatives' reports and the "competitive activity release reports" refer almost exclusively to other biscuit products. It seems that those within the Arnotts organisation who are concerned with competition, on a day-to-day basis, see themselves as being part of a biscuit industry, within which there is competition but which is little troubled by products sold as confectionery; even products which have characteristics and uses similar to those of some biscuits. The same situation applies to the other two major manufacturers. Weston keeps monthly sales and marketing reports, monthly action statements and what are described as "business plans". Nabisco maintains similar records. These records relate almost entirely to biscuit products. They strongly support the conclusion that, essentially, only other biscuit manufacturers are identified by biscuit manufacturers as providing any real degree of competition to their biscuit products.

58. The evidence also supports the following conclusions:

(a) wholesale purchasers - that is, the retailers - tend not to

take into account non-biscuit products when purchasing, or

promoting the sale of, biscuits;

(b) retailers display biscuits in a location separate to those in

which snack foods and confectionery are displayed;

(c) in large supermarkets the biscuit buyers are not necessarily

responsible for buying snack foods or confectionery;

(d) salesmen engaged by manufacturers to sell biscuit products are

generally not responsible for the sale of their employer's non-

biscuit products;

(e) salesmen employed by biscuit manufacturers generally do not

take non-biscuit products into consideration when selling

biscuits; and

(f) suppliers of confectionery and snack foods tend not to take

into account biscuits or their prices when setting prices for

their snack foods and confectionery.

59. In evaluating the appellants' submissions relating to the definition of the product market it is important to bear in mind that substitutability involves matters of degree. The point was well made in a casenote by Dr Geoffrey Walker in (1976) 50 Australian Law Journal at 89- 92. Dr Walker pointed out that, in one sense, all goods and services compete for the buyer's custom; and, in that sense, are within the same market. In another sense, most items being distinct in some respect, each item has its own market. In the application of the concept to provisions such as s.50, an intermediate position is appropriate.The Court of Justice of the European Community made a similar point in Hoffmann - La Roche Co AG v Commission of the European Communities (1979) 3 CMLR 211 when it said at 272:

"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 product is concerned."

60. Conversely, in determining, in United Brands v Commission of the European Communities [1978] EUECJ C-27/76; (1978) 1 CMLR 429, whether other fruits should be excluded from the market which bananas serve, the European Court said at 482:'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."

61. It is relevant to recall the observation of Deane J in Queensland Wire at 195-196:

"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."

62. This observation was made in the course of a discussion which referred to s.4E of the Act. Deane J was making the point that the application of the concept of substitutability requires the making of a value judgment. The question of substitutability is not to be disposed of merely by showing that, upon some occasions, some people consume one product rather than another or that some products within a claimed market do not directly compete with some other products in that market; or do compete with some products outside that claimed market.

63. The same point was made, in different language, by Mason CJ and Wilson J in Queensland Wire at 188. Their Honours did so by their quotations from Hoffmann-La Roche and United Brands. Both quotations include words which indicate that substitutability is a matter of degree: "sufficient degree of interchangeability" and "only to a limited extent interchangeable".

64. In the present case, emphasis is placed upon the fact that, upon some occasions, a consumer might select a non-biscuit product instead of a biscuit; for example, corn crisps might be served with a savoury dip rather than dry biscuits; chocolate mints might be offered as an after- dinner sweet, rather than chocolate biscuits. But the fact that, upon some occasions, some consumers select one product rather than another does not establish that the two products are "substitutable", so as to be within a single market. No doubt there are many people who sometimes drink tea and, at other times, coffee. But if, for example, a particular company dominated the sale of tea within Australia, it would thwart the objectives of provisions such as ss.46 and 50 of the Trade Practices Act to deny their application because that company did not dominate the "hot beverage market". The fact is that tea and coffee are distinct beverages, for each of which there is a distinct demand. To adopt the test applied in QCMA, a rise in the price of tea would probably cause few consumers to abandon tea for coffee. It is important to remember that the notion of substitutability adopted in s.4E is one which looks to the market itself, not to the habits of individual consumers. The section speaks of "goods or services that are substitutable for, or otherwise competitive with, the first-mentioned goods or services".

65. This point emerges clearly from United Brands. The applicant in that case was a major distributor of bananas. But it argued that it was not in a dominant position since the relevant market was not the banana market but the fresh fruit market. It submitted that bananas compete with other fresh fruit - in the same shops, on the same shelves - at prices that can be compared and to satisfy the same needs: consumption as a dessert or between meals. Moreover, statistics showed that consumer expenditure on the purchase of bananas dropped during that part of the year when there was a plentiful supply of other fresh fruit. Yet the European Court of Justice held that it was appropriate to speak of a banana market. This conclusion was partly based on the fact that bananas were available throughout the whole year, and therefore substitutability had to be considered on a year- round basis. But it was also based upon the fact that the banana is a distinct product with a distinct demand:

"The banana has certain characteristics, appearance,

taste, softness, seedlessness, easy handling, a constant

level of production which enable it to satisfy the

constant needs of an important section of the population

consisting of the very young, the old and the sick. As

far as prices are concerned two FAO studies show that the

banana is only affected by the prices - falling prices -

of other fruits (and only of peaches and table grapes)

during the summer months and mainly in July and then by

an amount not exceeding 20 per cent. Although it cannot

be denied that during these months and some weeks at the

end of the year this product is exposed to competition

from other fruits, the flexible way in which the volume

of imports and their marketing on the relevant geographic

market is adjusted means that the conditions of

competition are extremely limited and that its price

adapts without any serious difficulties to this situation

where supplies of fruit are plentiful. It follows from

all these considerations that a very large number of

consumers having a constant need for bananas are not

noticeably or even appreciably enticed away from the

consumption of this product by the arrival of fresh fruit

on the market and that even the seasonal peak periods

only affect it for a limited period of time and to a very

limited extent from the point of view of

substitutability. Consequently the banana market is a

market which is sufficiently distinct from the other

fresh fruit market."

66. In the same way, it may be said that biscuits have distinct characteristics which set them aside from other products. As we have pointed out, manufacturers recognise this. They speak of "the biscuit industry". They concentrate their competitive attention upon other biscuit manufacturers; not concerning themselves with those who distribute corn crisps or chocolates. Retailers recognise this; displaying biscuits - as a distinct range of products, whether savoury or sweet - on separate shelves, away from the corn crisps and chocolates. Most importantly, although some consumers may be fickle, there must be many for whom no other product provides an acceptable substitute; who routinely consume biscuits, throughout the year and with little regard for price variations or alternatives. We cannot accept the suggestion that the relevant product market is wider than that for biscuits.

67. The argument that the relevant market is narrower than the "biscuit market" has rather more appeal. Some types of biscuits are not interchangeable with others. A host who has run out of dry biscuits is unlikely to serve cheese on chocolate biscuits. But interchangeability of function is only one element in determining the extent of a market. It is not necessary that each product in a particular market serve precisely the same function as each other. For example, it is usual to speak of "the motor car market". Yet there is no real competition between a Mercedes Benz 500SL and a Nissan Pulsar or between a Ford Fairlane and a Toyota Land Cruiser. Each vehicle is pitched at a particular segment of the market, to serve people who have particular needs or financial limits. Some people might describe the clusters of vehicles which do compete with each other as being within a particular sub-market. But, whether or not that course is taken, it remains rational to speak of the "motor car market" in which new motor cars are sold by a limited number of manufacturers, each of which produces a range of models, has a reputation transcending any particular product and whose prosperity is significantly affected by common external factors such as general economic conditions, labour costs, tariff levels etc. It is meaningful to speak about the share of the "Australian market" enjoyed by European or Japanese imported cars, or by the Ford Motor Company. ( And, apropos the earlier point, even if it appeared that the volume of car sales was affected by housing interest rates, it would not be sensible, in s.46 or s.50 terms, to place motor cars within the same market as houses or mortgage finance.)

68. It is noteworthy that the industry itself sees biscuit products, considered as a whole, as constituting a discrete class of foods. We have already referred to the internal reports of the three major manufacturers. Even more telling is the practice of "blocking" the biscuit products of one particular manufacturer on supermarket shelves, rather than dividing the products into categories, each of which contains the similar products of each stocked manufacturer. The supermarkets do not place the Arnotts' dry biscuits alongside the Nabisco dry biscuits or Arnotts' sweet biscuits with Weston's. All Arnotts' biscuits, for example, are generally presented together, emphasising the significance of Arnotts as a "biscuit" manufacturer. The supermarkets "block" biscuits at the behest of the manufacturers, especially Arnotts. Furthermore, the supermarkets allocate shelf space to the various suppliers with reference to their total volume of biscuits, not on the basis of separate categories of biscuits. This is significant because shelf space is critical in the sale of biscuits. Speaking generally, Arnotts has 50 percent of biscuit bar space, whilst Weston and Nabisco enjoy about 15 percent and 10 percent respectively.

69. A further factor telling against the submission that there is a multiplicity of biscuit markets is the form of Arnotts' advertising. This advertising is extensive. It has contributed significantly to the market share which Arnotts enjoys. Arnotts' advertising stresses that there is "no substitute for quality" and Arnotts' name commands strong brand loyalty. Although references are sometimes made to particular products, the focus of the advertising is on the name "Arnotts"; in connection with biscuits, rather than particular varieties of biscuits.

70. For the above reasons, we are of the opinion that the definition of "market" adopted by the trial Judge was correct.

71. The next question is whether Arnotts is in a position to dominate the market defined by the trial Judge, within the meaning of s.50(1)(b) of the Act.

72. As we have already indicated, Beaumont J found that it was. Much of the material upon which he relied is set out in the seventeen numbered paragraphs which we have already quoted. Towards the end of his judgment his Honour expressly referred to some matters which, he thought, indicated dominance (93 ALR at 707-8):

"Arnotts has had, for many years, a very large market

share. True, Arnotts has some competition in the supply

of biscuits, but not much. The evidence shows that the

members of the biscuit industry and the members of the

grocery trade, being the 'players' in the market, act

upon the belief that Arnotts is in a position to

exercise, and does exercise, from time to time, a

commanding influence in the market. The evidence

establishes that the size and strength of Arnotts is such

that, in practice, other entities are unable or unwilling

to offer any significant competition to Arnotts in the

biscuit market in the medium or long term. Even in the

short term, there is an obvious reluctance to meet

Arnotts 'head-on' or directly. Instead, other suppliers

of biscuits seek to find 'gaps' or 'niches' in the

market. All of this conduct is an indication that

Arnotts holds a commanding influence in the market."

73. The appellants challenge these findings, contending that the evidence showed fierce competition within the biscuit industry. Counsel submit that the existence of competition is incompatible with dominance, the essence of which is the unwillingness of other market participants actively to compete with the market leader. They also submit that there are no significant barriers preventing new suppliers of biscuit products commencing business within Australia, that new viable suppliers have in fact recently entered the field and that the major supermarket chains - notably Coles Myer, Woolworths and Franklins - exercise such power as purchasers of biscuits that they prevent the possession or acquisition of any dominant market power by any supplier, including Arnotts.

74. The word "dominance" is not defined in the Act. Its natural and ordinary meaning is "having a commanding influence on": see Trade Practices Commission v Ansett Transport Industries (Operations) Pty Limited [1978] FCA 21; (1978) 32 FLR 305 at 325. A dominant firm has a high degree of "market power", a term defined in Queensland Wire. Mason CJ and Wilson J said at 188:

"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 ..."

"The term 'market power' is ordinarily taken to be

a reference to the power to raise price by

restricting output in a sustainable manner ... 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 ... The ability to

engage persistently in these practices may be as

indicative of market power as the ability to

influence prices."

His Honour then quoted from Kaysen and Turner, Antitrust Policy (1959) at 75:

"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."

Dawson J also referred to QCMA at 188-189 and continued:

"Market power is thus the advantage which flows

from monopoly or near monopoly ..."

75. Queensland Wire was concerned with s. 46 of the Act, but what their Honours said with respect to markets and market power in that statutory context is relevant also to the concept of market power underlying s.50.

76. The decided cases have stated criteria to which regard may be had in determining whether a participant enjoys a dominant position in a market. But those criteria vary according to the facts and circumstances of each case. No inflexible rule can be laid down, except perhaps in the case of barriers to entry.

77. A useful list of criteria was given in QCMA at 189:

"Competition is a process rather than a situation.

Nevertheless, whether firms compete is very much a

matter of the structure of the markets in which

they operate. The elements of market structure

which we would stress as needing to be scanned in

any cases are these: (1) The number and size

distribution of independent sellers, especially the

degree of market concentration; (2) The height of

barriers to entry, that is the ease with which new

firms may enter and secure a viable market; (3)

The extent to which the products of the industry

are characterized by extreme product

differentiation and sales promotion;

(4) The character of 'vertical relationships' with

customers and with suppliers and the extent of vertical

integration; and (5) The nature of any formal, stable

and fundamental arrangements between firms which restrict

their ability to function as independent entities. Of

all of these elements of market structure, no doubt the

most important is (2), the condition of entry. For it is

the ease with which firms may enter which establishes the

possibilities of market concentration over time; and it

is the threat of the entry of a new firm or a new plant

into a market which operates as the ultimate regulator of

competitive conduct."

78. Some of the European cases provide assistance in the resolution of questions of market power and dominance. Although they arise out of a different statute they apply similar economic concepts.

79. In Europemballage Corporation and Continental Can Company Inc v European Communities Commission [1973] EUECJ C-6/72; (1973) CMLR 199 ("Continental Can") the European Court appears to have taken into account, on the question of dominant position: market share for the products in question; the size of the new unit created by the merger in relation to the size of competitors in the market; the economic strength of customers in relation to the new unit and potential competition either from manufacturers of the same products situated in other geographical markets or from manufacturers of other products situated in the common market.

80. United Brands, a case of high barriers to entry, adopted what was said in Continental Can. There the Commission had based its view of dominance on a series of factors which, when taken together, were said to give United Brands an unchallengeable ascendancy over its competitors: its market share; the diversity of its sources of supply; the homogeneous nature of its product; its distribution system; its marketing system and publicity campaigns; the diversified nature of its operation and its vertical integration. The Court said that "dominant position" relates to a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by giving it the power to behave to an appreciable extent independently of its competitors, customers and, ultimately, its consumers. The European Court pointed out that, speaking generally, a dominant position derives from a combination of factors: the company's structure; the situation on the market so far as competition is concerned; whether a trader has succeeded in winning a large market share (a trader does not have to eliminate all opportunity for competition to be in a dominant position); and barriers to entry, which may include any exceptionally large capital investment required for the creation and running of a competitive business enterprise. The decision stressed that it is the cumulative effect of these matters which determines whether an enterprise has a dominant position in the relevant market.

81. Hoffman-La Roche was also a barrier to entry case. The European Court acknowledged that the importance of market share might vary from one market to another; but it said that the view might legitimately be taken that very large market shares are in themselves, save in exceptional circumstances, evidence of the existence of a dominant position. The Court went on at 275:

"An undertaking which has a very large market share and

holds it for some time, by means of the volume of

production and the scale of the supply which it stands

for - without those having much smaller market shares

being able to meet rapidly the demand from those who

would like to break away from the undertaking which has

the largest market share - is by virtue of that share in

a position of strength which makes it an unavoidable

trading partner and which already because of this secures

for it, at the very least during relatively long periods,

that freedom of action which is the special feature of a

dominant position."

82. In Hoffmann-La Roche the Court rejected reliance on mere market share, saying that, on the facts of that case, this might just as well result from effective competitive behaviour as from a position which ensures that the company can behave independently of competitors. But the Court thought it always to be relevant to consider the relationship between the market share of the undertaking concerned and that of its competitors, especially those of the next largest, the technological lead of an undertaking over its competitors, the existence of a highly developed sales network and the absence of potential competition; the first because it enables the competitive strength of the undertaking in question to be assessed, the second and third because they represent in themselves technical and commercial advantages and the fourth because it is the consequence of the existence of obstacles preventing new competitors from having access to the market.

83. A little more should be said about the concept of barriers to entry. In Queensland Wire Mason CJ and Wilson J said at 189:

"A large market share may well be evidence of

market power ... 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. 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 non-existent':

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."

"The existence of barriers to entry may be conclusive in

determining the relevant market and the degree of market

power in it. ... 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)."

85. Barriers to entry are barriers which confront the entry of a new firm into the market or barriers that confront an existing firm seeking to increase its market share. As Tipping J commented in connection with s.36 of the Commerce Act 1906 (NZ), in New Zealand Magic Millions Ltd v Wrightson Bloodstock Ltd (1990) 1 NZLR 731 at 757:

"The higher the barriers to entry the less is the

likelihood of constraint from potential entrants on the

conduct of the encumbent or encumbents. It can I think

be said with validity that without barriers to entry

dominance will seldom if ever be found. The question in

my view is not so much as to whether there exist barriers

to entry but rather as to their height."

86. Barriers to entry may arise from a variety of sources, including the following:

(a) Blocked access: Control of the supply of essential

raw materials by established firms, distribution

channels or other elements in the market, making

new entry either impossible or too costly.

(b) Capital requirements for a new market entrant. It

is necessary to remember, however, that there is a

distinction between costs of entry and barriers to

entry. Not all costs of entry represent a barrier.

Critical factors are the extent of the predicted

costs and the likely return.

(c) Economies of scale: The scale of activities of

existing market participants may be such as to

lower their unit costs to a point where a newcomer

could not compete, except at a loss.

(d) Product differentiation: A long established firm

may have the benefit of accumulated goodwill which

a new entrant can only counteract by bearing higher

promotional costs or suffering lower selling prices

than the existing firms. See Areeda, Antitrust

Analysis - Problems, Text, Cases 3rd ed. at

paras.117, 604.

(e) Legal restrictions: Such restrictions may take the

form of a statutory monopoly on the activity itself

- for example, a broadcasting licence - or

restrictions on access to commercially advantageous

material - for example, by legislation dealing with

patents, trade marks, copyright etc.

87. Some of the theoretical barriers to entry do not apply to the present case. As we see the evidence, it indicates five potential barriers to entry: the difficulties facing a competitor by reason of Arnotts' position as market (65% share) and price leader; the capital cost which would be incurred by another organisation which sought to compete with Arnotts across a broad product range; the strength of brand loyalty enjoyed by Arnotts; the competitive advantage ensuing from Arnotts' economies of scale and range; and the difficulty which a competitor would face in obtaining sufficient supermarket shelf space to support an "across-the- range" operation. The five matters are, of course, entwined.

88. In the United States the possession by one participant of a large market share has been regarded as raising a presumption as to an inherent lessening of competition: see United States v Philadelphia National Bank 371 US 321 at 363 (1963) and United States v General Dynamics Corporation [1974] USSC 54; 415 US 486 at 496-498 (1974). We were not asked to consider whether Australian courts should go so far. Arnotts' market leadership may be considered in conjunction with its price leadership and the other matters we have listed. Price leadership may itself be an indicator of market power. One of the indications of market power is the capacity of a participant to raise its prices without competitors taking away customers. In the present case, without going to the detail of the instances revealed in the evidence, it is clear that, generally speaking, Arnotts has been able to fix its prices without reference to those of its competitors; whereas the competitors have been severely inhibited in their price-fixing by a desire not to exceed Arnotts' price for the particular product. These points were made in one of Arnotts' own documents, the 1987/1988 Marketing Plan. That document concludes a discussion of the company's pricing policy with the following words:

"The size and historical position of the company in the

industry puts us in the position of 'price leaders', a

situation in which competitors generally follow any

deviation in price, especially upward.

Our ability to maintain a 'price leader' policy will

continue to be reinforced by our strong consumer

franchise, consistent advertising, volume production and

technological leadership."

89. Surprisingly, in a case beset with such a surfeit of evidence, there is a paucity of detail about the next three matters. But there is enough to show that these barriers do exist. As to capital cost, it is highly significant that neither Weston nor Nabisco, both members of large multi-national conglomerates, has been willing to "take on" Arnotts across its full range of products. It is particularly noteworthy that Weston has never manufactured a dry biscuit, despite the fact that dry biscuits constitute some 23% of all biscuits sold in Australia and that this proportion is growing. A clue to the reason emerges from the Weston 1989 Biscuit Marketing Plan, which is in evidence. That plan discussed the possibility of manufacturing wafers, a product not currently offered by the company. But the comment was made that "to produce the products necessary to compete against Arnotts, it would require an investment of $1,250,000 for plant and equipment" and would result in a gross factory margin of only 3-4% after applying normal overheads. When one considers the enormous infrastructure enjoyed by Arnotts, it is obvious that cost is a major barrier to effective competition with Arnotts. We accept that economists do not regard mere cost as a barrier to entry unless there is some asymmetry between the amount that the incumbent had to spend in order to acquire the assets that it has acquired and the amount that the newcomer has to spend. But when one is comparing the cost which would have been incurred by Arnotts over 140 years with the outlay required to duplicate those resources at present day prices there is an obvious, substantial asymmetry.

90. The problem of cost is compounded by brand loyalty. Any substantial competitor would be faced with the task of challenging a highly efficient, well regarded company manufacturing biscuits known, by their present names, to generations of Australians. The extent and depth of Arnotts' brand loyalty is indicated by the fact that, despite the best endeavours of other suppliers, Arnotts manages, year after year, to market two out of every three biscuits sold in Australia; and this despite the fact that most of its lines sell for prices at, or near, the top of the price range of comparable products. To the brand loyalty attaching to the name "Arnotts" must be added the effect of Arnotts' use of the "Sunshine" brand. Arnotts already achieves the greatest width of range, through the full spectrum of biscuit products. By the use of "Sunshine" brand, Arnotts adds depth to width; by marketing two versions of some types of biscuits, one at the top of the range under the "Arnotts" label, and a "Sunshine" version which is price-competitive with cheaper brands and generics.

91. Arnotts' economies of scale flow, of course, from its market share. Once again, more detail would have been helpful. But it is clear that Arnotts does enjoy substantial economies of scale. Its volume provides flexibility in the use of factory ovens and warehouses and unit economies in advertising, with emphasis upon the name and tradition of Arnotts. Its great product range minimises seasonal sales fluctuations, with resulting benefits to cash flow, the efficient use of manufacturing and distribution resources and retention of supermarket shelf space allocations.

92. Similarly, there are economies of scale in distribution costs. A company which accounts for 65% of all biscuit sales must have a marked advantage, in terms of unit distribution costs, over companies which have only 13% or 8% of the market. All three companies distribute directly to the retail stores but the Arnotts' truck must be off-loading many more biscuits at each stop. Again, there must be an advantage to Arnotts in spreading the cost of a sales representative's visit to a store amongst 65 units, as against Weston's 13 units or Nabisco's 8.

93. The final matter which we have mentioned, supermarket shelf space, loomed large in the trial Judge's reasons. We have already quoted his findings that Arnotts' biscuits are usually placed first in the supermarket traffic flow and occupy about 50% of the total biscuit bar. As his Honour said, "(t)his confers a considerable marketing advantage upon Arnotts". The appellants do not challenge the accuracy of these findings, although counsel pointed out that the evidence did indicate some exceptions. But they say that a figure of only 50% - less than Arnotts' market share - is a counter indication of dominance because it shows that Arnotts is not able to exact its "fair share" of shelf space.

94. It seems to us that counsel's argument misses the point made by the trial Judge. The amount of shelf space allocated to Arnotts results in a situation in which the shelf space available to other biscuit suppliers is extremely limited.(Biscuits are, of course, only one item which must be offered by supermarkets if they are to maintain the support of their customers. As numerous witnesses testified, there is intense competition for supermarket shelf space, between products and between brands). No doubt it is true that, if another biscuit supplier considerably expanded its range of products and its volume of sales, the supermarkets would increase the proportion of shelf space allocated to that supplier's products. But given the significance of supermarket sales in the total volume of biscuit sales, such a supplier is in a classic "Catch 22" situation: it cannot obtain more shelf space until it increases its product range and sales volume, but it cannot increase its product range and sales volume until it increases its shelf space. Perhaps the shelf space advantage is not necessarily permanent. Over a lengthy period of time another supplier might gradually increase its range and sales volume, and so chip away at Arnotts' 50% shelf space. But Arnotts' incumbency of shelf space is a major obstacle to full-blooded competition, and so a barrier to entry.

95. Notwithstanding all of these matters, counsel submit that the evidence of active competition between biscuit suppliers necessarily negates dominance. There is no doubt that other suppliers do compete against Arnotts in an attempt to take away some of its market share, although, as his Honour observed, with scant success. But counsel say that the degree of success does not matter; the will is all. They refer to a passage in Trade Practices Commission v Australia Meat Holdings Ltd [1988] FCA 244; (1988) 83 ALR 299 at 337 wherein Wilcox J adopted a test of domination suggested by Dr Geoffrey Walker in an article "Control or Dominate a Market: Development in Australian Merger Law", (1979) 24 Antitrust Bulletin 371. Dr Walker suggested that an enterprise "is in a position to dominate a market when there is a probability that the other enterprises in the market will act in a way calculated not to affect adversely the dominant concern's short term interests".

96. The test of unwillingness effectively to compete was relevant to Australia Meat Holdings. On the factual findings, that would have been the situation in the north Queensland cattle market if the merger had proceeded. But this test was not put forward as an exhaustive test of dominance. Indeed, Wilcox J suggested the following statement of principle: "If the size or strength of a particular entity is such that, in practice, other entities are unable or unwilling actively to compete with it in a particular market, that entity is dominant in that market" (Emphasis supplied).

97. In the present case, others do compete with the firm alleged to be dominant. But, no doubt because of the matters we have discussed, they have been unsuccessful in reducing Arnotts' 65% market share. Despite their best endeavours, other biscuit suppliers are unable to compete with Arnotts across its range of products.

98. The appellants' argument that the major supermarket chains exercise such power as purchasers of biscuits that they preclude any supplier acquiring dominant market power may be disposed of shortly. Beaumont J dealt with this matter in para.15 of his principal conclusions. Nothing has been put before us to suggest that the findings set out in that paragraph were wrong. It is true that the evidence suggested that, whilst Arnotts strove to obtain terms of trade with the supermarket chains which would ensure the allocation to Arnotts of shelf space in a "corporate block" which was commensurate with its share of sales, Arnotts was not always successful in obtaining and preserving such a share of shelf space. For example, Coles Myer has an immediate interest in securing what it regards as suitable space for its own "Farmland" range of biscuits.

99. On the other hand, Mr I C McClellan, a senior executive of "New World", stated that his company recognised that, if it were not to stock Arnotts biscuits, this would have "an enormous impact" on sales; given the brand loyalty of customers, they would go to competing supermarkets to make their purchases of Arnotts biscuits. There was evidence to like effect from other retailers. There was also evidence that Arnotts was less flexible in its trading and promotional terms, and in its delivery arrangements, than its competitors. Yet the supermarkets tolerate those demands because of Arnotts' market power.

100. One of the factors which induced Beaumont J to hold that Arnotts was dominant in the Australian biscuit market was the language used in some of the internal working papers of other biscuit manufacturers. Upon a number of occasions, the authors of such documents referred to Arnotts' "dominant position" or to it being "the dominant market leader". One author even used the word "stranglehold" to describe Arnotts' market power.

101. The trial Judge's use of these documents for this purpose is criticised by counsel for the appellants. They argue that the Court could not be confident that the authors of internal working papers - who were unlikely to be either economists or lawyers - would be familiar with the learning upon the meaning of the word "dominate", as used in s.50; they might have used the word in a different sense. Without evidence from the authors of the documents, counsel submit, it is unsafe to place any reliance upon the terminology they have used.

102. We agree with this submission. In a case where the identity of the author of such a document is known, the position may be otherwise. But neither the evidence nor any of the documents themselves identifies the author of any of the documents upon which his Honour placed reliance. In that situation, we would not treat any of these documents as probative of Arnotts' market position. But, even excluding these documents from consideration, there was sufficient evidence to support his Honour's conclusion that Arnotts already dominates the Australian biscuit market.

103. Where the subject corporation is already in a position to dominate a particular market, s.50 is contravened only if the acquisition would, or would be likely to, substantially strengthen the power of that corporation to control or dominate that market.

104. Beaumont J held that "substantially", in the context of s.50(1)(b)(ii),"suggests a degree of strengthening of power that is 'real or of substance and not insubstantial or nominal'." His Honour concluded that Arnotts' acquisition of Nabisco would, or would be likely to, substantially strengthen Arnotts' power to dominate the national biscuit market. Beaumont J pointed to two matters as supporting this conclusion. First, he referred to Nabisco's 8% market share. In two important segments of the biscuit market (dry crackers and biscuit snacks) Nabisco is Arnotts' only competitor. His Honour regarded these segments of the market as vitally important because of their high volume and disproportionately large rate of growth. Secondly, Beaumont J concluded that Arnotts would gain further economies of scale from the acquisition of Nabisco. His Honour said that, viewed against the background of the failure by Arnotts and Nabisco to call any evidence from management, these considerations suggested that the acquisition of Nabisco would, or would be likely to, strengthen Arnotts' power to dominate the Australian biscuit market and would, or would be likely to, strengthen Arnotts' power to do so to a degree that was real and of substance and was not insubstantial or nominal.

105. Counsel for the appellants submit that Beaumont J misconstrued the word "substantially". They refer to QCMA, where the Trade Practice Tribunal considered the then test for authorisation of mergers or acquisitions ("a substantial benefit to the public") and said at 183:

"The benefit must be 'substantial'. It must be

'considerable', 'large' or 'weighty'. It need not,

it is plain, be necessarily capable of quantitative

assessment; but it should be sufficiently definable

- have sufficient substance - as to permit some

factual judgment of its relative importance."

106. However, in our opinion Beaumont J was correct in construing the word "substantially", where used in s.50(1)(b)(ii) of the Act, as meaning real or of substance; as distinct from nominal, insubstantial or ephemeral: see Tillmann's Butcheries per Bowen CJ at 338-9 and Deane J at 348; R v Hudson at 270 and Mark Lyons at 591-592.

107. In the context of s.50(1)(b)(ii), "substantially" should not be construed in the sense of meaning large or weighty or considerable. The purpose of s.50 is to protect and advance competition by precluding mergers or acquisitions which are likely to have an adverse affect on competition. If a corporation is already in a dominant position in the relevant market before an acquisition, it would be odd if the threshold to be crossed before the section could operate to prohibit the merger is that the acquisition must be such as would give the corporation a large increase in its position of dominance. The legislative policy underlying the section is satisfied where the likely outcome of the acquisition would be a real or substantial strengthening of the market power of the acquiring corporation.

108. Counsel for the appellants refer to the explanatory memorandum for the Trade Practices Revision Act 1986, which introduced a new sub.(2A) to s.50. That subsection defines an associated body corporate as one over whose activities another body corporate "is ... in a position to exert ... a substantial degree of influence ..." Paragraph 64 of the explanatory memorandum said that:

"The word 'substantial' in sub-s.50(2A) is intended

to signify 'large or weighty' or 'considerable,

solid or big' in the same way as for s. 46 ... To

give 'substantial' in s.50(2A) a lesser meaning of

merely 'real or of substance and not insubstantial

or nominal'... would be to ignore the significance

of the subject matter at s.50 and could lead to the

result that market power held by one body corporate

was not in reality available to an 'associated body

corporate' within the meaning of sub-s.50(2A)."

109. Counsel suggest that it would be odd if the cognate words "substantially" and "substantial" had different meanings in the one section. But the two subsections address different problems. Section 50(2A) is not concerned with the power of a corporation to dominate a market. It is directed to defining the amount of influence necessary for a finding that one body corporate is associated with another body corporate. Different policy considerations apply. Whereas, as we have suggested, the policy underlying s.50(1) is likely to be facilitated by reading "substantially", in that subsection, in an expansive way, serious injustices could occur if subs.(2) was so interpreted as to deem a corporation which enjoyed only minor influence on another corporation an associate of that corporation.

110. Counsel submit that there is a lack of cogent evidence that any enhancement of Arnotts would follow the acquisition. It is said that the Commission's case before the primary Judge was largely confined to an assertion that Arnotts' trading terms are less favourable than the trading terms of Nabisco; that, after the acquisition, Nabisco biscuits would be supplied pursuant to those less favourable trading terms and that Arnotts would inherit the retail shelf space formerly occupied by Nabisco products.

111. We are satisfied that the Commission's submissions were not so confined. They included the following matters:

(1) Arnotts' market share would increase;

(2) there are likely to be less promotions and higher

prices without Nabisco in the market. Such

constraints as were provided by Nabisco in relation

to promotions and price cutting would be removed;

(3) given the ability more frequently to charge full

retail price and to discount less, and its enhanced

economies of scale, the profitability of Arnotts

would increase; as would the size of its cash flow.

The result would exacerbate the disadvantage of

Weston, the principal remaining competitor, which

has little or no dry cracker or flavoured snack

production, and so suffers from seasonal

disadvantages;

(4) Arnotts is likely to acquire Nabisco's shelf space

in the supermarkets;

(5) the growth in the width of Arnotts' range of

biscuits will increase its ability to cut prices,

fill gaps and render terms of trade less

favourable; and

(6) potential new entrants will face greater barriers

to entry.

In their written submissions counsel for the Commission refer to evidence which, they say, supports these submissions.

112. We have examined the evidence to which we were referred by both parties on those questions. We are satisfied that there is evidence which strongly supports the Commissions' submissions, though the evidence is not entirely one way. His Honour did not refer to all this evidence. But, in a case of this size, it was not possible for him to refer to all the evidence. It is not to be assumed that the trial Judge ignored any it. His Honour referred to Nabisco's market share and he made the telling point that Arnotts' acquisition of Nabisco would not only lift its market share from 65% to 73%; it would also give it a virtual monopoly of two important, and growing, segments of the market: dry crackers and flavoured snacks. The growth of market share could be expected to improve even further Arnotts' economies of scale. It seems to us that these conclusions were plainly right, and that Arnotts' acquisition of Nabisco would be likely substantially to strengthen its power to dominate the national biscuit market.

113. The conclusions which we have expressed on the principal issues make it necessary for us to deal with the appellants' submissions on evidentiary matters. Their contention is that these rulings were erroneous in point of law, so that a new trial must be ordered.

114. The appellants' major evidentiary complaint relates to his Honour's decision to reject as inadmissible the whole of the evidence given by Dr Williams, the economist called on their behalf.

115. As we have mentioned, Beaumont J gave reasons for that decision in a separate judgment handed down by him at the same time as his principal reasons for judgment. This judgment is not reported. His Honour there stated that there was no issue about Dr Williams' expert qualifications; the respondent's objection was on other grounds. In his reasons, Beaumont J recorded the course taken by him:

"Because the point was a complex one, Dr. Williams'

evidence was allowed to be given but was received

subject to the ultimate determination of the

Commission's objection."

116. His Honour went on to summarise the evidence given by Dr Williams as to his knowledge of the case:

"When Dr. Williams was called, he was examined in

chief to the effect that he had been present in

court 'for a great deal of time'. At that stage,

the hearing had taken 55 days, the transcript of

the proceedings consisting of several thousands of

pages. Dr. Williams gave evidence that, on the

occasions when he could not be in court, he had

read the transcript of the proceedings. He gave

evidence that he had also read the amended

statement of claim and 'paid particular attention'

to the transcript of the Commission's opening. He

said that he had read all the documentary exhibits,

which, at that stage, consisted of many thousands

of pages of documents."

117. The Judge described the course taken by counsel in Dr Williams' examination in chief. The witness was taken first to para.12A of the amended statement of claim, in which the applicant had made assertions as to the relationship in the market place between Arnotts, Nabisco and Weston. He was asked "to comment upon each of the preceding subparagraphs of paragraph 12A of the amended statement of claim from the point of view of economic principle". In response to this request, Dr Williams gave a lengthy answer in which he re-paraphrased the allegations in the paragraph and then offered a comment "from a couple of points of view". His comments consisted largely of observations about the evidence in the case, opinions being expressed as to whether particular allegations had been made out and as to the existence of evidence which rebutted some of them. In the course of this exegesis Dr Williams referred to what he called "a matter of economic logic" wherein he opined that, even if the allegations in subparas.(a) to (d) were established, "that would not establish the proposition in subparagraph (e)." He gave a reason, which reflected his analysis of the evidence.

118. Although the Judge did not set out all of this in his reasons, Dr Williams was then taken to para.18 of the amended Statement of Claim. He was asked to "comment, from the standpoint of economic principle, upon each of the matters referred to in paragraph 18". He replied that he could, but only on the assumption that the respondent "has succeeded in establishing the market that is pleaded in paragraph 12A". Being eventually invited to make that assumption, Dr Williams proceeded to analyse the allegations in para.18, offering comments as to the extent to which they had been established. These comments went on for a long time; they were still incomplete when the Court adjourned for the day, Dr Williams having been called immediately after lunch.

119. On the following morning Dr Williams resumed his comments, but they were interrupted by an argument which illustrates one of the problems of Dr Williams' evidence. On the first afternoon Dr Williams had not totally confined himself to factual opinions. From time to time he made a reference to a principle of economics, but always within the context of his own view of the facts. This pattern continued on the second day. Dr Williams was asked: "Are you saying that in economics a distribution network is recognised as something that has the capacity to generate economies of scale?". He answered: "Yes". Mr Sweeney QC, senior counsel for the appellants, then asked: "Is there any evidence of which you are aware to suggest a conclusion in the present case of the existence of or the extent of economies of scale in relation to distribution networks?". Mr Oslington QC, senior counsel for the respondent, objected, contending that the witness could express opinions based upon assumed facts but could not be asked whether there was evidence of a particular fact. During the ensuing debate, Mr Oslington pressed the view that the witness had to state the basis on which he expressed his opinion and that any assumed facts must be properly identified. Eventually, after lengthy argument, Mr Sweeney was permitted to ask Dr Williams "whether there is any indication of the matter"; that is, economies of scale in distribution. Dr Williams said that there was, without identifying the particular material, and he was immediately asked how he analysed the significance of that material. Counsel for the respondent objected, whereupon it was agreed that the material relied upon would be identified in the answer. But, when the answer came, the material was identified in only the most general terms, reference being made to "the way in which the particular biscuit companies in question have arranged their distribution systems." The witness mentioned that Arnotts, Nabisco and Weston made their own distributions and that some of the newer market entrants were planning to use a specialist distributor. The conclusion was: "So there does seem to be some evidence of a survivor type of some economies of scale in distribution, but it may well be that those economies of scale are exhausted at quite a low rate of output of distribution".

120. Dr Williams' comments on para.18 of the amended statement of claims then continued, for some time. His analysis of the facts pertaining to para.18 occupies 69 pages of transcript. Mr Sweeney then took him to the transcript of Mr Oslington's opening address and asked him to "comment from the point of view of economics on each of the matters raised by Mr Oslington in that opening". Dr Williams obliged, putting various matters by way of response to Mr Oslington's opening observations: that the BIS statistics did not assist to define the market because not all biscuit manufacturers were included in BIS; that it was not helpful to ask individuals to identify the market in which they operated because "the way they interpret the word 'market' is very different from the way economists interpret the word 'market'"; the significance of the removal of sales tax in the marketing of "Tim Tams"; whether Arnotts was running its snack food operations separately from its biscuit operations; the significance of some evidence as to substitutability between biscuits and products such as bread, snack foods and confectionery; how, on the evidence, Arnotts assesses its market share; and a few other matters. Mr Sweeney then asked Dr Williams for his opinion as to "whether or not the appropriate market definition would be the market for all biscuits". Mr Oslington objected, contending that Mr Sweeney should preface his question by asking what facts or what assumptions Dr Williams was making in expressing his opinion. Mr Sweeney responded: "The assumption is the whole of the transcript and the whole of the documentary evidence". The question was allowed and Dr Williams answered: "My opinion would be that the evidence and the exhibits have not succeeded in establishing such a market to my satisfaction". Dr Williams was then asked his opinion as to whether, if the evidence did establish such a market, Arnotts was already dominant in it. Over Mr Oslington's objection, Dr Williams responded: "That the evidence and exhibits have not established that Arnotts is already dominant". Finally, Mr Sweeney invited Dr Williams to assume a biscuit market in which Arnotts was not already dominant and asked him whether Arnotts would achieve dominance by the takeover of Nabisco. Over Mr Oslington's further objection, Dr Williams responded "That the evidence and exhibits do not establish that the acquisition would enable Arnotts to achieve such a position of dominance in the biscuit market".

121. At the conclusion of this evidence, Dr Williams was released for a few days so that Mr Oslington could prepare a cross-examination. Upon his return to the witness box, Dr Williams was cross-examined for two days. This cross-examination largely related to matters of general economic theory and, it must be said, ranged over a very wide spectrum indeed. We do not see the relevance of most of the evidence elicited in cross-examination.

122. In expressing his reasons for rejecting Dr Williams' evidence, Beaumont J referred to Paric v John Holland (Constructions) Pty Limited, both in the New South Wales Court of Appeal - see (1984) 2 NSWLR 505 - and in the High Court of Australia - see [1985] HCA 58; (1985) 62 ALR 85. In the High Court, Mason ACJ, Wilson, Brennan, Deane and Dawson JJ said at pp 87-88:

"It is trite law that for an expert medical opinion

to be of any value the facts upon which it is based

must be proved by admissible evidence (Ramsay v

Watson [1961] HCA 65; (1961) 108 CLR 642). But that does not mean

that the facts so proved must correspond with

complete precision to the proposition on which the

opinion is based. The passages from Wigmore on

Evidence cited by Samuels JA in the Court of Appeal

... to the effect that it is a question of fact

whether the case supposed is sufficiently like the

one under consideration to render the opinion of

the expert of any value are in accordance with both

principle and common sense."

123. Beaumont J went on to quote from a number of learned treatises and judicial decisions regarding expert evidence, each of which emphasised the necessity for identification of the facts assumed by the witness. All of these citations are relevant but it may suffice to quote only two of them. The first is an extract from Phipson "The Law of Evidence" 13th ed. at 561:

"(a) Where the issue involves other elements

besides the purely scientific, the expert must

confine himself to the latter, and must not give

his opinion upon the legal or general merits of the

case; (b) Where the issue is substantially one of

science or skill merely, the expert may, if he has

himself observed the facts, be asked the very

question which the jury have to decide. If,

however, his opinion is based merely upon facts

proved by others, such a question is improper, for

it practically asks him to determine the truth of

their testimony, as well as to give an opinion upon

it; the correct course is to put such facts to him

hypothetically, but not en bloc, asking him to

assume one or more of them to be true, and to state

his opinion thereon. Where, however, the facts are

not in dispute, it has been said that the former

question may be put as a matter of convenience,

though not as of right."

124. Secondly, we set out the comments of King CJ, in The Queen v Fowler (1985) 39 SASR 440 at 443, upon just such a procedure as counsel adopted in this case:

"The course which was sought to be adopted in the

present case of asking the opinion of the witness

as to the possible mental condition of the accused

at the time of the alleged crime, based not upon

assumed facts, but upon a reading of the whole of

the evidence and the accused's account of his drug

ingestion, is not acceptable and such evidence

cannot be admissible. It involves the expert in

making his own unstated findings of fact and his

own interpretation of them. The jury might arrive

at different conclusions of fact and a different

interpretation of the facts. Clearly a witness

cannot be permitted to express his findings and

interpretations of fact, and there would therefore

be no way by which the jury could know whether the

opinion could stand in the light of the jury's view

of the facts.

If, therefore, evidence of opinion is to be adduced

at the new trial as to the accused's mental

condition at the time of the killing deduced from

his behaviour and ingestion of drugs, it is of the

utmost importance that the assumptions of fact upon

which the opinion is arrived at be clearly stated

and that the evidence be confined to opinions

expressed upon those stated assumed facts."

125. Beaumont J then expressed his conclusion, as follows:

"In my opinion, these authorities establish that there is

a rule of evidence at common law that, except in a

straight-forward, uncomplicated case, where the facts are

admitted and readily identified, the opinion of an expert

is admissible only where the premises, that is to say,

the facts, upon which his or her opinion is based, are

expressly stated. It follows that, in a complex case,

where facts are not readily identifiable, it is not

permissible to put the whole of the transcript and

documentary evidence to the witness en bloc.

This is complex litigation and the facts in respect of

which Dr. Williams purported to express his opinion were

not admitted by the respondents. Indeed, the facts, and

the proper inferences or conclusions to be drawn from the

facts contended for by the Commission, were vigorously

disputed by the respondents over the many months of this

litigation. In those circumstances, it is impossible for

the court to know what facts Dr. Williams had in mind

when expressing his views.

This objection to his evidence is not a mere technicality

nor is it only a rule to be applied in jury trials.

True, some of the authorities refer to the jury, but the

rule is of general application. In complicated

litigation, there are sound reasons of policy which

support a rule that the premises considered by the expert

should be expressly stated rather than left to

speculation. It is preferable that these matters be

clarified when the witness is examined in chief rather

than leave room for argument later as to exactly what

matters the expert had in his mind when expressing his

conclusions (cf. Trade Practices Commission v. Ansett

Transport Industries (Operations) Pty. Ltd. (1978) 32

FLR 305 per Northrop J. at p 329; Trade Practices

Commission v. T.N.T. Management Pty. ltd. (1985) 6 FCR

1 per Franki J. at pp 80-2).

It follows, in my view, that the evidence of Dr. Williams

is inadmissible."

126. In attacking this ruling, counsel for the appellants put a number of submissions. First, they say that "there was evidence that from the standpoint of economics a number of the matters pleaded or relied upon by the Commission did not, as a matter of economic principle, support and were not relevant to the conclusion for which they were relied upon. This material was entirely admissible". They instance the question, referred to above, in which Dr Williams was asked to comment upon the allegations in para.12A of the amended Statement of Claim "from the point of view of economic principle". They contend that, in form, the question was a proper one. Perhaps it was; although we doubt that it was a very useful question and it had the disadvantage that it tended to invite the witness to offer his analysis of the evidence, as he did. Although, in his lengthy discourse upon the pleadings, Dr Williams mentioned some matters of economic principle, essentially his dissertation was an expression of his opinions about the factual correctness of the assertions in the pleadings. None of this evidence was admissible. It transgressed both of the canons stated by Phipson in the passage extracted above.

127. Secondly, counsel say that, in cross-examination, Dr Williams gave evidence of economic principles of general application. This is correct; but we were not referred to any passage in that cross-examination whose exclusion from evidence may have disadvantaged the appellants.

128. Thirdly, counsel say that "there was evidence of the economic significance of particular factual matters the subject of evidence". If so, they have not been identified to us. We are certainly aware of evidence of the conclusions reached by Dr Williams; but not of the economic significance of particular factual matters.

129. Fourthly, the appellants refer to the concluding questions in Dr Williams' evidence in chief, saying that "there was evidence the true effect of which was that on all the evidence addressed an economist would not conclude the issues of market and dominance in the Commission's favour". True it is that Dr Williams was permitted to give this evidence, over the respondent's objection. But, with respect, he should not have been. The question invited an answer which depended upon Dr Williams' evaluation of the whole of the evidence known to him. He did not identify the particular facts upon which he based his opinions, nor his processes of reasoning. It may be assumed that Dr Williams had regard to the whole of the evidence given to that stage of the hearing, because he said that he had heard or read it all. But there was no way of knowing what parts of that evidence he accepted as correct or what weight he gave to particular aspects of it.

130. The events of this case underline the importance of the principle that an expert witness must identify the facts assumed in his or her opinion. After Dr Williams left the witness box, a considerable amount of other material, both oral and documentary, was admitted into evidence. Without knowledge of the basis of Dr Williams' conclusions, the trial Judge had no way of knowing whether that additional material would have affected Dr Williams' views.

131. The final submission of the appellants suggests a special rule, based on policy considerations, for matters arising under Part IV of the Trade Practices Act. That submission reads:

"Finally it is submitted that the Federal Court

sitting on Part IV cases ought to accept economic

opinion evidence concerning the effect of the

evidence given, where it is effectively impossible

to reduce the entirety of the evidence to

assumptions; even if it were possible one could not

predict the permutations and combinations necessary

to cover all possible findings by the Court. There

is no unfairness to the Commission because the

witness can have put to him any factors in the

evidence which it is suggested make his opinion

untenable, incorrect or doubtful."

132. Before dealing with that submission, it is desirable to refer to the accepted general rules as to the functions of expert witnesses. Sir Richard Eggleston's work, "Evidence, Proof and Probability", contains an illuminating discussion of the role of expert witnesses: see, in the second edition, 145-158. Sir Richard there identifies four separate functions which are from time to time performed by expert witnesses: "generalising from experience, acting as librarian, acting as statistician and acting as advocate". Sir Richard pointed out that not only experts were allowed to generalise; where it was not reasonable to expect a non- expert witness to recount the primary facts underlying an opinion - for example, about the approximate age of a person - the witness is allowed to give evidence in the form of an opinion. But experts constantly generalise from experience, calling in aid all their training and professional experience in expressing an opinion upon a matter within their field. Sir Richard discussed aspects of that function at 147-148:

"Assuming that the matter is one on which only an

expert can express an opinion, what sort of opinion

may he give, and on what material can it be based?

It is often said that an expert cannot give an

opinion as to the ultimate fact that the court has

to decide. This is inaccurate, as experts,

especially valuers, often give evidence as to the

ultimate fact, and in many cases the question

whether that fact exists can be answered only by

experts. ... What the rule really means is that an

expert must not express an opinion if to do so

would involve unstated assumptions as to either

disputed facts or propositions of law. Thus an

expert who says 'In my opinion this accident was

caused by ...' in a case where the facts are

disputed is assuming the right to make a decision

as to which of the parties is telling the truth,

and is therefore usurping the function of the

tribunal. Similarly, if a valuer is called in a

case where the 'unimproved value' of a property is

in issue, and there is uncertainty as to the

meaning of the term as a matter of law, the expert

should not say 'In my opinion the unimproved value

is ...' without stating on what interpretation of

the term his opinion is based. In general, where

there is uncertainty of either description, the

opinion should be based on hypothetical facts,

clearly stated.

As to the material on which the expert opinion can

be based, just as the non-expert who is allowed to

express an opinion does so on the basis of

experience, so can the expert base his opinion on

his experience, without having to prove by

admissible evidence all the facts on which the

opinion is based. Accordingly, a valuer can base

his opinion on comparable sales of property,

without having to call witnesses to prove the facts

relating to the sales. An experienced valuer will

in the course of a lifetime accumulate a mass of

material about sales, from his own practice, from

journals, from newspaper reports, and from

discussion with his fellow practitioners, much of

which he will be unable to recall, but which

enables him to express an opinion more accurately

than one who has examined only the facts regarding

the sales in the area. But if he wishes to cite a

particular instance to the court, for example,

where there is an adjoining property that has

recently been sold, evidence must be given by

someone who can swear to the facts relating to the

sale."

133. Applying those principles to a case such as the present, it seems to us that an expert economist may legitimately give an opinion, for example, as to the proper method of defining a market. The economist may go further, rendering that opinion more apposite to the case by proferring a definition relevant to the particular case. By way of example, we point to the evidence given by expert witnesses, on each side, in Australia Meat Holdings; some saying that the relevant market was the Queensland fat cattle market, some suggesting that there was a separate north Queensland market. It does not matter whether, as in that case, the issue is one upon which the Court has to reach a finding. What does matter - the point emphasised by Sir Richard - is that the assumptions upon which the opinion is based are identified and articulated. Of course, if the assumptions made by the witness turned out to be different to those ultimately found by the Court, the opinion might have little relevance. Whether that would be so would depend, in the words of an American case adopted by Samuels JA in Paric at p 509, on "whether the case supposed is so far like the one they (the jury) are considering as that the opinion of the expert on the supposed case is any guide to them".

134. In connection with this first function, we note the recent decision of the New South Wales Court of Appeal in ULV Pty Ltd v Scott (1990) 19 NSWLR 190 wherein Priestley JA, at 202-204, sets out views consistent with those stated above.

135. The second function of an expert, according to Sir Richard Eggleston, is to act as librarian. As he explained at 153-154:

"In many cases the expert does not himself know the

answer to the problem from his own study or

experience. But being trained in the relevant

discipline, he is able to refer to works of

authority in which the answer is given. In such a

case the expert himself is not generalizing, but is

making available the fruits of generalizations by

other people, either from their own experience or

from the experience of others whose writings form

part of the literature. The expert witness here is

not giving evidence of his own opinion, except to

say that in his expert opinion the books to which

he is making reference are of sufficient standing

to be accepted by the court."

136. The next function was described in this way at 154:

"The third function of the expert is to act as

statistician. Here the statistical material is

available from other sources, either from published

material or from the records of the parties, and

the function of the expert is to apply statistical

methods to that material and draw significant

conclusions. The work of the actuary is of this

kind, but other statistical methods can be of

assistance in analysing material, and it is to be

expected that more and more use will be made of

statisticians in the future."

137. This third function is, of course, one which is particularly appropriate to expert economists. To cite Australia Meat Holdings once again, it is a function which was undertaken by at least two of the economists called in that case; they drawing their data from identified material already in evidence.

138. The last function identified by Sir Richard Eggleston was the expert acting as advocate. At 154 he said:

"This is the area in which experts find themselves

in the greatest trouble. It is of course not

permissible for the expert to take over the role of

advocate from counsel in the case - the law does

not allow unqualified people to act as barristers,

except in special courts like the industrial

tribunals or the small claims courts. But the

expert has a legitimate role of advocacy in that,

having expounded to the tribunal the rules

applicable to the case (these may not even be in

dispute), his evidence may then consist of argument

as to the conclusions that should be drawn from the

facts, interpreted in the light of those rules.

The difficulty arises because the expert often

finds it difficult to distinguish between argument

on the assumption that the 'facts' put forward by

his side are the correct ones, and telling the

judge or jury which facts they should accept as

true. If he makes his assumptions clear, there is

no objection to his arguing what the consequences

of accepting those assumptions should be; but he is

not to do the jury's fact-finding for it, where

this depends on accepting one or the other set of

contradictory witnesses."

139. This last citation is particularly relevant to Dr Williams' evidence. The fundamental problem about his evidence is that he attempted to act as advocate without making his assumptions clear. He did not assume a set of identified facts, consistent with those contended for by the appellants. Rather, he told the Judge what facts he should accept.

140. The submission made by counsel for the appellants is that the Court should adopt some special rule for Part IV cases, permitting the admission of expert economic evidence without disclosure of the assumptions upon which that evidence is based. Nothing could be more mischievous. There are two reasons why we are of that opinion. The first is the very justification advanced by counsel, the difficulty in predicting "the permutations and combinations necessary to cover all possible findings by the Court". If an economist were permitted to express opinions upon the effect of the evidence given, without identifying the facts which he or she assumed for the purpose of those opinions, it would be impossible for the Court to know how to apply that evidence. One of the permutations or combinations may have rendered the opinion inapplicable, in the expert's eyes, but the Court would never know.

141. Secondly, as this case indicates, the course urged by counsel would serve only to prolong trials. Counsel for the appellants spent a day and a half taking Dr Williams through the amended statement of claim and Mr Oslington's opening address. From time to time Dr Williams made a comment about an economic principle; but most of this time was expended in receiving Dr Williams' views as to what allegations of fact the respondent had, and had not, established by evidence. Apparently having the courage of his view that this evidence was inadmissible and that Beaumont J would eventually so rule, Mr Oslington refrained from cross-examining Dr Williams as to the correctness of his factual conclusions. Had he done so, Dr Williams' evidence must have been substantially extended; probably for an extra day or two. Yet, if counsel's submission were adopted, a cross- examiner in Mr Oslington's position would feel bound to challenge in some detail the conclusions of a witness who gave such evidence.

142. The use of an expert witness to filter the facts, asking the witness to hear or read all the evidence and then express factual conclusions, is a practice which we have come across only in Part IV litigation. We do not know its origin; such evidence was rejected in an early Part IV decision: Ansett at p 329. Whatever its origin, the practice is illegitimate. It must be stopped. Part IV litigation is usually complex and expensive enough. It does not need this embellishment.

143. There are fragments of Dr Williams' evidence which, at least if considered in isolation, might properly be regarded as admissible. If the trial Judge had made rulings as the evidence went along, these fragments might have survived. But he eventually rejected the whole of Dr Williams' evidence, including these fragments. Is this a reason for granting a new trial? We think not. A conclusion that evidence has been wrongly admitted or rejected does not necessarily lead to the grant of a new trial. Where the original trial was held before a jury, a new trial may be refused where the material "is of such a nature that it could not reasonably be supposed to have influenced the result" - see Stokes v The Queen [1960] HCA 95; (1960) 105 CLR 279 at 284-285 - or "the Court is satisfied that if the rejected evidence had been received it could not have affected the jury's verdict" - see Dairy Farmers Co-operative Milk Company Limited v Acquilina [1963] HCA 59; (1963) 109 CLR 458 at 463. In the case of a trial before a judge sitting alone, the appeal court has the advantage of reading the reasons for the judge's factual findings. Dealing with a case of wrongful admission of evidence, in Vocisano v Vocisano [1974] HCA 14; (1974) 130 CLR 267 at 274-275, Barwick CJ, with whom Stephens and Jacobs JJ agreed, said:

"Consequently, it is necessary to scan those

reasons carefully to ensure that the inadmissible

material has not entered in any substantial degree

into the conclusion which the trial judge has

formed. In my opinion, before a new trial is

ordered in a case where the verdict is in

accordance with the evidence, it should be seen

that the inadmissible matter has been used by the

judge in reaching his verdict."

144. This decision was followed by the Full Court of this Court in Kabadanis v Panagiotou [1980] FCA 80; (1980) 30 ALR 374 at 380.

145. The present case is one where evidence is claimed to have been wrongly rejected. But, as with the situation in Vocisano, we have the advantage of the trial Judge's reasons. Moreover, we know the nature of the rejected evidence.

146. No questions of credit arises in this case. The whole of the facts are fully examinable in this Court. The practical question is: what difference, if any, would it make to our conclusions if the fragments of Dr Williams' evidence to which we have referred were admitted? We invited the assistance of counsel on this matter but they were unable to point to anything in his evidence which would be likely to affect the conclusions which might otherwise be drawn.

147. Notwithstanding this, we have ourselves considered whether any part of Dr Williams' evidence, if admitted, would affect any of our conclusions on the principal questions in the case. There is no reason to doubt Dr Williams' expertise or sincerity. But, to the extent that Dr Williams went beyond factual conclusions, he merely expressed some well- known canons of economics. We accept the validity of those canons but they do not assist the resolution of the case. In short, the admission of the fragments of evidence in which Dr Williams went beyond his own factual conclusions would make no difference to our conclusions. Accordingly, there is no basis for the granting of a new trial on this ground.

The failure of the respondent to call an expert economist

148. Before leaving the subject of expert evidence we mention a subsidiary matter raised by the appellants. The respondent did not call an economist at the trial. The appellants rightly say that the respondent bore the onus of proof at the trial and they submit that this onus could not be discharged without the assistance of expert evidence from an economist. In their written submissions counsel for the appellants argue as follows:

"Economic principle and its applicability to

particular facts is a matter of expertise, to be

proved by an opinion of an expert given in

evidence. One cannot adopt or adapt the findings

of judges in other cases based upon the expert

evidence given in those cases to later proceedings.

In the first place, it is simply not a permissible

method of proving facts. Secondly, economics like

law, medicine and science is not a static body of

learning. What might have been regarded as

mainstream orthodoxy ten years ago might be

regarded now as having been discredited."

149. No doubt it is correct to say that economics is not a static science. But it does not follow that expert evidence is essential to success in a s.50 case. In order to make out a contravention of s.50 an applicant must establish a number of facts. They include either existing or likely future domination of a market. It is true that the notion of market domination stems from the science of economics; but the words used in the section are ordinary English words and it is for the judge to construe them. Expert evidence will often be important; sometimes critical, because it may enable the application of the concept of market domination to the facts of a particular case. But counsel go too far in submitting that such evidence is critical to an applicant's success.

150. A major complaint of the appellants, in connection with evidentiary rulings, is that the trial Judge "erred on numerous occasions in rejecting admissible evidence and in limiting unduly the use to which much evidence admitted could be used." The submission is "that the trial miscarried because the views and perceptions of key players in the industry were by and large rejected."

151. We do not doubt that the perceptions of people who are involved in a particular activity may be relevant to the determination of a s.50 case. If vendors believe that there are difficulties in selling their goods outside a particular geographical area this may be a factor in concluding that the relevant market is confined to that area, whether or not the perceived difficulties really exist. Regardless of the true facts, the perception may influence behaviour. An example is furnished by the attitude of north Queensland cattle producers discussed in Australia Meat Holdings: see, at first instance, 83 ALR 324-325, and, on appeal, (1989) ATPR 40-932. The same comment applies, of course, to a perception amongst purchasers of difficulties in buying outside a particular place or from a particular area. Similarly, the extent of a product market may be influenced by attitudes as to the similarity of one product to another; whether or not those attitudes are well-grounded in fact.

152. It follows from the above that it would have been erroneous for Beaumont J to reject evidence of the perceptions of people involved in the biscuit industry simply because it was perception evidence. But his Honour did not do so.

153. In relation to this ground counsel referred us to several passages of transcript. Their flavour appears from the first passage, upon which much emphasis was placed. During the course of his cross- examination of Mr Bender, Mr Sweeney asked this question: "Is it your perception as a man with all the experience you have had with Franklins that consumers regard some types of biscuit products as alternatives to other products which are not biscuit products?" Mr Oslington objected, saying that Mr Bender was not in a position to express an opinion about the views of consumers; although he could speak for Franklins. Argument ensued, during the course of which it became apparent that Mr Sweeney wished to establish through Mr Bender's evidence what goods consumers regarded as substitutable for "biscuit products"; a term which he refused to define. His Honour rejected the question, although he made clear that he would permit Mr Bender to be asked questions about Franklins' buying practices and his observation of presentations of goods in Franklins' stores. His Honour made the comment: "A retailer ... could speak about the way consumers conduct themselves as well as anybody else could. In fact the retailer would be the person in the best position to do that". This comment makes it clear that his Honour did not regard the behaviour of consumers, which behaviour no doubt reflected their perceptions, as irrelevant. But he was not prepared to have Mr Bender speak directly about consumers' notions of substitutability. His Honour was clearly correct. No doubt Mr Bender was himself a consumer and could speak for himself. But he could not speak for consumers as a whole. If he had been allowed to answer the question, he would have been able only to express the opinions about the perceptions of consumers which he had formed from observing their conduct. This would not have been a permissible course. As Sir Richard Eggleston pointed out, in the work cited earlier at 145: "Where the primary facts are available, and the opinion of the witness as to those facts is of no greater value than that of the tribunal, the witness will be expected to relate the primary facts and leave it to the tribunal to draw inferences".

154. It is not necessary to refer to all of the rulings of his Honour on perception evidence; some of which were adverse to the appellants, some to the respondent. It is sufficient to say that at no time did Beaumont J indicate that such evidence was, in itself, objectionable. Each ruling related to a particular question; and we are not persuaded that any of the excluded questions ought to have been allowed. His Honour resisted the only invitation by counsel to elevate a reaction to a particular question into a general ruling.

155. The invitation to which we have referred occurred during the course of evidence given by Mr R V Zuccala, the Western Australian General Manager of Woolworths Supermarkets. Mr Sweeney asked Mr Zuccala whether he had "an expectation that APD (a snack food distributor) would attempt to take advantage of its position as a sole supplier to Woolworths in Western Australia of snack food". Not surprisingly, Mr Oslington objected. During the ensuing argument, Mr Sweeney said that this evidence went to a primary fact, namely the power of the supermarket chains. The argument was put in this way:

"It is asked because the relaxation of Woolworths

about the possibility that APD might take advantage

of its status as sole supplier tells your Honour

that APD in fact, cannot take advantage of its

position as sole supplier because Woolworths knows,

and it is the fact, that Woolworths power over APD

is greater than APD's power over Woolworths."

156. Beaumont J rejected the question, insofar as it was relied upon for that purpose. Of course, his Honour was correct in so doing. Mr Zuccala might have been able to speak for Woolworths; and evidence of what Woolworths might or might not do might say something about the comparative market power of Woolworths and APD. But Mr Zuccala was in no position to speak for APD. He might have been right in his assessment of APD's future conduct. He might have been wrong. Even if his assessment had been right, APD's conduct might have been governed by factors other than market power. If it was relevant to investigate the comparative market power of APD and Woolworths - and it is not apparent that it was - Mr Zuccala might have been questioned about matters such as the factors which would inhibit particular conduct by one of them, their trading relationship and their positions in the snack foods market. But Woolworths' market power could not be proved by his expectations as to APD's possible conduct.

157. Even so, as we have said, Beaumont J refrained from a general ruling. Mr Sweeney said: "If your Honour is against me as a matter of principle on this issue ...", to which the Judge replied: "Yes, I am not sure that I am, Mr Sweeney. I think I am partly in your favour and partly against you. I will allow you to prove all the facts and I will allow you to prove opinions". He went on to say that he would permit evidence of an "opinion as to how the future market will operate based on past experience". But Mr Sweeney was not satisfied with that. He wanted the evidence admitted "as a fact standing on its own". This was not permitted.

158. The lack of a general ruling about perception evidence is important to an evaluation of the appellants' complaint about his Honour's handling of this matter. Despite our invitation to do so, Mr Sweeney was unable to show us any particular rejected question, the answer to which might arguably make a difference to the result of the case. Rather, he said that, by consistently rejecting perception evidence, the trial Judge caused him not to call any of the executives of his client companies. He said that they could have only given perception evidence in chief, that he understood that such evidence would be rejected and that there was therefore no point in exposing them to cross-examination. It was not suggested that Beaumont J had indicated an attitude to the evidence intended to be elicited from the witnesses referred to, or even that he had been informed of Mr Sweeney's problem. Mr Sweeney's decision not to call these witnesses depended entirely upon his own assessment of the effect of the rulings actually made.

159. If Mr Sweeney intended to adduce from his own witnesses evidence similar to that which his Honour had earlier rejected, he was, no doubt, correct in deciding that it would be pointless to call those witnesses. If the evidence was of a different nature, nothing said by his Honour warranted the conclusion that it would be rejected.

160. We do not detect any element of unfairness in respect of the trial Judge's handling of the perception evidence.

161. A complaint is made about the reliance of the trial Judge on documents produced on subpoena by Weston and tendered in evidence. The tender was made pursuant to Part IIIA of the Evidence Act 1905, upon the basis that the documents were business records. The appellants do not submit that any of these documents was inadmissible; indeed, many of them were tendered by the appellants themselves. But they say that, in the absence of a Weston witness, it was dangerous to give them any weight. Reference is made to a comment made in Supetina Pty Ltd v Lombok Pty Ltd [1984] FCA 376; (1984) 5 FCR 439 at 445-446. In that case, rejecting the tender of a valuation report, Spender J observed that the document related to a central question in the proceeding and was "evidence of a nature which is susceptible of great subjectivity". His Honour went on to refer to the assistance in testing a document which is obtainable from cross- examination. Counsel for the present appellants point out that Beaumont J made comments to similar effect, in discussing with counsel what reliance he should place upon the Weston documents.

162. The reliance which may properly be placed upon a document tendered under the circumstances we have described must depend largely upon the nature of the document. On one extreme is a document whose nature and origin is apparent on its face and which deals entirely with matters of fact; for example, a factory's production records. Unless there is some reason to doubt the authenticity or accuracy of the document, it may be reasonable to place considerable weight upon the document; even though there is no witness who worked at the factory at the relevant time. By its very nature it is likely to be reliable. To disregard it, simply because of the absence of a witness, would be to spurn one of the major benefits of Part IIIA.

163. On the other extreme may be a document whose origin is proved, in the sense that it is shown to come from a particular organisation, but whose status is obscure. Beaumont J had this situation in mind when, in argument, he commented that some particular documents "could be a draft, they could be an interim report that was rejected by the board". It may be dangerous to give weight to a document of this nature - for example, one containing plans for the future or comments about policy; as distinct from precise information - without knowing its status and author.

164. The only Weston documents upon which Beaumont J placed reliance in his reasons were a letter written by the company secretary and the Weston Business Plan. There was no issue about the identity or status of the author of the first document, although there was some argument as to the inferences which should be drawn from its terms. As to the Business Plan, this is a lengthy document, obviously prepared at a senior level; but the identity of the author is not disclosed by either the evidence or the document itself. Although the document contains some factual information, about which one might have more confidence, the passages used by his Honour were comments containing subjective evaluations of the positions of market participants. Without knowledge of the identity of the author of the document, we would not place any significant weight upon these comments. But, as we have already explained, we would, in any event, not be disposed to use extra-curial descriptions made by people in the industry to determine issues such as the definition of the market and dominance. And this was the only use of the document made by Beaumont J.

165. The appellants tendered some reports of market research undertaken by Roy Morgan Research Centre Pty Ltd. The major report related to a survey undertaken specially for this case, upon the instructions of the appellants' solicitors. The purpose of the survey was to establish the extent to which other foods are substitutable for biscuits. It appears that the relevant questions were settled in discussions between the appellants' solicitors and Roy Morgan and that they were included in one of Roy Morgan's regular Consumer Opinion Trends surveys. These surveys are conducted Australia-wide on most weekends by personal interviews of about 1200 people. The interviewees are apparently selected at random, in the sense that the person interviewed is generally the person who answers the interviewer's door knock; but the residences to be visited are selected by reference to demographic factors, so as to be representative of the whole Australian population.

166. Prior to the tender of the report, the appellants called as witnesses three of the approximately 120 people who conducted the subject interviews. The trial Judge then decided to admit the report, without requiring all of the interviewers to be called, pursuant to 0.33 r.3 of the Federal Court Rules. That rule permits the Court, at any stage of the proceedings, to dispense with compliance with the rules of evidence, amongst other situations, "where such compliance might occasion or involve unnecessary or unreasonable expense or delay". There is no doubt that the calling of the remaining 117 interviewers, who were presumably scattered throughout Australia, would have caused considerable expense and delay.

167. The respondent objected to the tender of the report upon a number of grounds. One ground raised a matter of fundamental principle. It was said that the only way in which the Court could be apprised of the habits and opinions of the 1,200 interviewees would be for counsel to call each of those people. This submission is repeated before us.

168. The admissibility of survey evidence has been a matter of controversy over many years. As long ago as 1953 the New York University Law Review published an article by Sorensen and Sorensen "The Admissibility and Use of Opinion Research Evidence" (vol.28 pp 1213-1261) in which the learned authors comprehensively discussed both the admissibility and utility of such evidence. That article is too lengthy to quote, or even to summarise, but it repays consideration even today. In March 1960 the Judicial Conference of the United States adopted a Handbook of Recommended Procedures for Trial of Protracted Cases. Under the heading "Proof of facts requiring resort to bulk underlying documents or to numerous witnesses: samples and polls", the Handbook included this recommendation:

"Scientifically designed samples and polls, meeting the

tests of necessity and trustworthiness, are useful

adjuncts to conventional methods of proof and may, under

certain circumstances, contribute materially to

shortening the trial of the protracted case."

169. The discussion in the Handbook about this recommendation contained a reference to the question whether survey evidence is admissible as hearsay. The point was made that often it is not; a matter to which we will return. But the further comment was made that, even if the survey is tendered as evidence of the truth of the facts believed by the interviewees, it may be admissible, as an exception to the hearsay rule, by reference to "the factors of necessity and the circumstantial guarantee of trustworthiness": cf. Wigmore on Evidence, vol.5 at paras.1421 and 1422. However, whatever the argued basis of admissibility, the Handbook stressed that admissibility should depend upon proof of a correct methodology. The necessary criteria were set out at 429:

"The offeror has the burden of establishing that a

proffered poll was conducted in accordance with accepted

principles of survey research, i.e., that the proper

universe was examined, that a representative sample was

drawn from that universe, and that the mode of

questioning the interviewees was correct. He should be

required to show that: the persons conducting the survey

were recognized experts; the data gathered was accurately

reported; the sample design, the questionnaire and the

interviewing were in accordance with generally accepted

standards of objective procedure and statistics in the

field of such surveys; the sample design and the

interviews were conducted independently of the attorneys;

and the interviewers, trained in this field, had no

knowledge of the litigation or the purposes for which the

survey was to be used. Normally this showing will be

made through the testimony of the persons responsible for

the various parts of the survey."

170. It would be tedious to refer to all of the reported cases in which the admissibility of survey evidence has been considered. Many of the decisions were cited by McLelland J in Ritz Hotel Ltd v Charles of the Ritz Ltd (1988) 15 NSWLR 158 at 178. At that reference his Honour summarised the situation in these words:

"There is a substantial preponderance of authority

in support of the proposition that survey evidence,

and expert evidence in relation thereto, are

admissible to prove the state of mind of the public

or a section of the public on some particular

matter, when that is an issue. However two

distinct bases emerge from the cases in

justification of the admissibility of such

evidence. The first is that although out-of-court

statements by persons interviewed in the course of

a survey as to their impressions or opinions are of

a hearsay nature, the admission of such statements

as evidence of the existence of those impressions

or opinions falls within a recognised exception to

the hearsay rule. On this approach, the primary

evidence is that of the individual responses of

those interviewed, interpretative expert evidence

being subsidiary. The second basis is that such

statements are to be treated not as hearsay, but as

original data providing a foundation for expert

evidence as to the state of public opinion on the

matter in question. On this approach, the primary

evidence is that of the expert, and evidence of the

individual responses is subsidiary."

171. McLelland J went on to deal with the first basis identified by him, saying that the evidence fell within a recognised exception to the hearsay rule. In that case, this was so. The evidence was tendered in support of a case that particular trade marks would deceive or cause confusion to members of the public. It was tendered to show the public perception of the significance of the word "Ritz", not to prove the correctness of that perception. The relevant rule is stated in Phipson, (13th ed. at para.734) in these words: "Whenever the physical condition, emotions, opinions and state of mind of a person are material to be proved, his statements indicative thereof made at or about the time in question may be given in evidence". In Rattan v The Queen (1972) AC 378 at 387 the Judicial Committee of the Privy Council explained the rule in these terms:

"If the speaking of the words is a relevant fact, a

witness may give evidence that they were spoken. A

question of hearsay only arises when the words

spoken are relied on 'testimonially', i.e. as

establishing some fact narrated by the words".

172. However, when a party seeks to adduce evidence of answers given by respondents to a market survey in order to prove what products they customarily purchase or consume, that party seeks to rely upon the answers testimonially. The evidence is tendered as proof of the facts asserted by the interviewees; so the evidence is hearsay.

173. The list of authorities made by McLelland J contained only three Australian cases: Hoban's Glynde Pty Ltd v Firle Hotel Pty Ltd (1973) 4 SASR 503 at 506-507, McDonald's System of Australia Pty Ltd v McWilliams Wines Pty Ltd [1979] FCA 109; (1979) 28 ALR 236 at 253 and Mobil Oil Corporation v Registrar of Trade Marks [1984] VicRp 3; (1984) VR 25 at 27-28. In each case the relevant evidence was characterised as hearsay evidence and rejected. There is little doubt that, in the first two cases, this characterisation was correct; the material was tendered in proof of the facts asserted by the interviewees' answers. We are not so sure about Mobil. The survey in that case related to public perception of the significance of a word, as bearing upon the question whether a particular mark would deceive or confuse. We would have thought that, as in Ritz, the survey was direct evidence of an issue in the case, namely the state of public perception. This was the view taken in two other Australian cases: see Shoshana Pty Ltd v 10th Cantanae Pty Ltd (1987) 79 ALR 279 at 290-294, noting however that Burchett J would have rejected a survey taken especially for the purposes of the litigation, and Sterling Pharmaceuticals Pty Limited v Johnson & Johnson Australia Pty Limited (1990) AIPC 90-686.

174. However, it is not very profitable - at least in this Court - to spend time in determining whether a particular survey is hearsay evidence. Even if it is, ordinarily the Court will have a discretion under O.33 r.3 to permit the evidence to be adduced. To call the persons who responded to the survey will almost always result in appreciable expense and delay. Given the existence of a discretion, it seems more sensible to concentrate attention upon the necessity for, and reliability of, the survey evidence; rather than to worry about its compliance with rules regarding hearsay evidence which were developed before this type of problem arose. This is not a situation, like that encountered in Pearce v Button [1986] FCA 51; (1986) 8 FCR 408, where the evidence sought to be adduced is the subject of "a real dispute about matters which go to the heart of the case": see per Lockhart J at 422. See also Multi-Modal Ltd v Polakon (1987) 78 ALR 553 at 558.

175. We say nothing about criminal cases. But, in a civil case in which a market survey may cast light on relevant issues, it is desirable in principle to admit into evidence a report of a professionally conducted survey, upon proof that it has been satisfactorily conducted using relevant and unambiguous questions; and without requiring evidence from each of the participants.

176. There are two reasons for our view. In the first place, market survey techniques have now been refined to the point where, if undertaken by experienced, professional people, they are capable of providing answers which are highly likely to be accurate, subject only to a small sampling error. It is commonplace for polls to predict the results of elections within a couple of percentage points. Political parties and commercial organisations constantly use market research to ascertain public reactions upon a wide range of matters; and there is no reason to doubt that, by and large, they find the results reliable. As Hill J observed in Sterling Pharmaceuticals at 36,377, "... statistical analysis can confirm that to a specified degree of probability and subject to a specified error rate, the result can be projected to the whole or a defined section of the population."

177. We agree with a comment made in the Australian Trade Practices Reporter, in the course of a discussion about the use of survey evidence in trade practices cases, at para.15-015:

"A properly designed and conducted survey may

overcome all these problems. The number of

witnesses will be considerably reduced. Probably

it should only be necessary to call the persons

responsible for designing and administering the

survey and an expert witness to verify the design

and methodology employed. The survey, if so

verified, should provide objective results, with no

opportunity for those questioned to be briefed as

to their answers. Equally, the respondents to the

survey will give answers that are realistic in the

sense that they will not be exposed to lengthy

cross-examination as to the rationality of their

beliefs, a matter which is surely irrelevant and

which if raised can only go to undermine the

continued holding of the belief itself. In

general, therefore, such evidence will be more

representative, more objective, and hence more

trustworthy and reliable. This is not to say that

survey evidence is infallible. It is only as good

as the state of the science ... and as the quality

of the particular survey used. Nevertheless

statisticians require little convincing that such

evidence will give considerably more reliable

results than that traditionally employed."

178. See also Zippo Manufacturing Co v Rogers Imports 216 F Supp 670 (1963) where, at 683-684, Feinberg J of the United States District Court said this:

"Even if the surveys did not fit within this

exception, well reasoned authority justifies their

admission under the following approach: the

determination that a statement is hearsay does not

end the inquiry into admissibility; there must

still be a further examination of the need for the

statement at trial and the circumstantial guaranty

of trustworthiness surrounding the making of the

statement. This approach has been used to justify

the admissibility of a survey. Necessity in this

context requires a comparison of the probative

value of the survey with the evidence, if any,

which as a practical matter could be used if the

survey were excluded. If the survey is more

valuable, then necessity exists for the survey,

i.e., it is the inability to get 'evidence of the

same value' which makes the hearsay statement

necessary. When, as here, the state of mind of the

smoking population (115,000,000 people) is the

issue, a scientifically conducted survey is

necessary because the practical alternatives do not

produce equally probative evidence. With such a

survey, the results are probably approximately the

same as would be obtained if each of the

115,000,000 people were interviewed. The

alternative of having 115,000,000 people testify in

court is obviously impractical. The alternatives

of having a much smaller section of the public

testify (such as eighty witnesses) or using expert

witnesses to testify to the state of the public

mind are clearly not as valuable because the

inferences which can be drawn from such testimony

to the public state of mind are not as strong or as

direct as the justifiable inferences from a

scientific survey."

179. These two quotations touch also our second reason: both of the alternative methods of proving consumers' habits and attitudes are unacceptable. One theoretical possibility, in a case like the present, would be for a party to call such of the 1,200 respondents to the Roy Morgan survey as were contactable. This course would have the advantage of providing a fairly selected group of witnesses; subject to any distortion which might be caused by difficulties in locating respondents. But it would add enormously to the cost and duration of a trial.

180. The second possibility would be for a party to call evidence from a lesser number of selected witnesses. This course was taken in Ritz. The plaintiff there called 152 members of the public. The majority of these witnesses were stopped in a public place by a representative of the plaintiff and questioned as to the significance to them of the word "Ritz". It seems that those who gave answers favourable to the plaintiff's case were asked to give evidence. Those who did not, were not. As a result, the evidence of these persons was of negligible value. All that it established was that, with the expenditure of sufficient effort and money, 152 people could be found somewhere in Australia who claimed to associate the word "Ritz" with the plaintiff. The 152 witnesses were not a fair sample of the general public; so that, as McLelland J noted at 215, there was "no ground in the evidence for any extrapolation on a statistical basis, or on the basis of any mathematical or logical probability, of the views of the 'public' witnesses (or any selection from them) as representing the views of the relevant class of the Australian public or a significant section of that class". The plaintiff was not even willing to reveal the total number of persons interviewed; for all the judge knew, the persons who associated the word "Ritz" with the plaintiff may have been a tiny minority. The tender of such partisanly selected evidence was an absurdity.

181. A further possibility is that there will be no evidence about matters such as public recognition of names or attitudes to products. Perhaps this would not matter greatly. As the authorities emphasise, where the question is whether use of a particular name or trade mark would constitute misleading conduct or cause confusion, the court must make its own assessment of the situation. The position is similar where the question is whether one product is substitutable for another. But information is preferable to intuition. Where the state of public knowledge of, or attitudes to, some subject is a relevant factor in the court's adjudication of an issue, it is better to admit than to preclude evidence on those matters.

182. For the above reasons, we would not uphold the respondent's objection in point of principle to the Roy Morgan survey evidence. But there remain other objections, related to the nature of this particular survey. First, it is said that the training given to the interviewers was insufficient. One of the three interviewers who was called said that his training amounted to the completion of a trial questionnaire and a thirty minute interview with someone from Roy Morgan. Mr E Brinkley, a statistical consultant attached to the Australian Bureau of Statistics who was appointed as a court expert to report on the reliability of the Roy Morgan report, thought that "fairly substantial" training was necessary. He had in mind a two or three day training course and supervision of interviewers during their "first few" interviews. Secondly, Mr Brinkley made criticisms of the form of many of the questions. We need not set them all out. It is sufficient to say that many of the questions contained ambiguities. For example, the interviewees were asked to identify things that they "sometimes" ate between meals. But no guidance was given as to the meaning of "sometimes". Some respondents may have mentioned things eaten two or three times a week; some, things eaten once a year. As substitutability is a concept of degree, the difference is significant. Similarly, some questions contain the word "available" or the words "not available". But it was not explained whether this meant available in the home or available at the local supermarket; so, in terms of market behaviour, it is difficult to see what use may be made of the answers. Mr Brinkley also noted the difficulties of recall posed by some questions; for example, a question which invited respondents to list the foods eaten by themselves and all members of their households over the preceding seven days. He commented that the best way of obtaining such information is to ask interviewees to keep a diary during the period surveyed.

183. In addition to the criticisms made by Mr Brinkley, counsel draw attention to an exhibit containing the comments of some of the interviewers. These comments contain references to the length of the interview - it involved many questions other than those commissioned by the appellants - the repetitious nature of many of the questions, including the subject questions, and the difficulty interviewers experienced in maintaining the interviewees' interest. Another exhibit, a bundle of reports from 111 interviewees, suggests that more than half the interviews took more than 20 minutes, some over 50 minutes.

184. As indicated, Beaumont J accepted the admissibility of the Roy Morgan report. But he was impressed with the respondent's criticisms of the questions. He held that "it would not be safe to give any real weight to the results of the survey". We agree with this view. We add that we are also troubled by the paucity of the training given to the interviewers, by their reports as to the attitudes of interviewees and the difficulty of maintaining interviewee interest over such a long period.

185. We have already indicated our opinion that Australian law should follow the American lead in acknowledging that market survey evidence may play a useful role in cases such as the present. In so doing, we do not mean to suggest that survey evidence will always, or even usually, be decisive. It will be merely one element in the overall picture, its importance varying from one case to another: see the stimulating recent article by an American practitioner, Peter Weiss, "The Use of Survey Evidence in Trademark Litigation: Science, Art or Confidence Game?" in (1990) 80 Trademark Reporter at 71-86. But, for reasons which this article emphasises, it is also important to follow the American insistence upon proof of the proper conduct and form of the survey. We speak, of course, of a survey tendered at a final hearing. A less stringent attitude may be appropriate at an interlocutory hearing where the issue is whether there is a serious issue to be tried.

186. We have already quoted the criteria listed in the Judicial Conference Handbook. They seem to be equally appropriate for Australia. In our opinion, any exercise of discretion, as under o.33 r.3, to admit survey evidence should depend upon compliance with those criteria. Where survey evidence which does not satisfy those criteria is admitted, it would ordinarily be entitled to little weight. That is the present case.

187. Surveys are expensive. So it may be prudent for parties in future cases to raise these matters with their opponents and the Court before any survey is carried out: see, by way of warning, Associated Newspapers plc v Insert Media Ltd (1990) 2 All ER 803 at 805-806. The course which we suggest was taken in an early case in this Court, Greynell Investments Pty Ltd v Hunter Douglas Ltd: see para.15-140 of the Australian Trade Practices Reporter where the directions are set out. If the form of the relevant questions is agreed by the parties after expert advice, or settled by the Court, the results ought not to suffer the fate of the subject report.

188. The parties tendered other market survey reports. One was a report of a survey made by Rowntree Hoadley in August 1980 regarding confectionery. Another was a survey by Quantum Market Research carried out for Nabisco. Other reports were commissioned by Arnotts.

189. All of these reports were admitted into evidence as business records - cf. Shoshana - but the trial Judge placed little weight upon them. He commented:

"In no case was the person who commissioned the

report called. Nor was the person who carried out

the survey called. The persons whose views were

sought in the course of the survey were not called.

In these circumstances, it would be unsafe to rely

upon the opinions or conclusions expressed in these

reports. In my view, these are entitled to little

weight."

190. We would not regard the failure to call the interviewees as affecting the weight of these various reports. If interviewees have to be called, there is little point in tendering market survey evidence. And the criteria adopted by the Judicial Conference of the United States, which we have already suggested are appropriate for Australian use, do not include the calling of all of the interviewers. But we agree with the Judge's criticism of the lack of evidence as to how these various surveys were conducted. Even more importantly, the reports do not provide real assistance on any relevant issue. Questioned on this, counsel for the appellants offered one example of the utility of the reports. They referred to the finding of the 1980 Rowntree Hoadley survey that 64.4% of all interviewees regarded "Kit Kat" as a "biscuit" or "chocolate-coated biscuit". The question included in the survey invited the interviewees to choose between two descriptions of the product: "chocolate-coated bar" and "chocolate-coated biscuit". As counsel for the respondent says, given that the description "chocolate-coated bar" is hardly appropriate, it is not surprising that many people chose the alternative. But the answer proves nothing about market definition. Rowntree Hoadley has always marketed "Kit Kat" as confectionery.

191. The "Kit Kat" question was offered only as an example. But it seems to be the best example which counsel can muster. That fact strengthens our impression that there is nothing in these reports which assists the appellants' case.

192. Finally, in relation to evidentiary matters, the appellants complain of the trial Judge's reaction to evidence led from Mrs Nicole Symonds, a solicitor employed by the firm acting for the appellants. Beaumont J dealt with her evidence in this way:

"Mrs. Symonds, a solicitor employed by Arnotts'

solicitors, gave evidence that, during the course

of the trial, she purchased from several retail

outlets in Sydney many items of biscuits, snack

foods, confectionery and breakfast cereals. More

than one thousand items were tendered through Mrs.

Symonds. The items were purchased in an endeavour

to comply with an instruction, given to her by the

solicitor with the conduct of Arnotts' defence, 'to

purchase biscuits and any like products'.

It is not suggested that Mrs. Symonds has any

experience in the biscuit industry. It is,

however, suggested that weight should be given to

her views as a consumer to indicate the range of

processed foods available in this general area.

Accepting that Mrs. Symonds may be regarded as a

consumer of processed foods, I am of the view that,

because of Mrs. Symonds' professional association

with Arnotts' defence of these proceedings, her

evidence should be given little weight.

Even if this factor were not present, Mrs. Symonds'

evidence was necessarily limited in its scope. It

cannot, for instance, tell us the volume of the

trade in the products tendered, in what areas they

are marketed and over what period they have been

marketed. Without knowing these details, very

little could be inferred from Mrs. Symonds'

testimony."

193. We agree with these comments. We add that it is not apparent to us that there was any need to call Mrs Symonds at all. We appreciate that the appellants wished to prove the range of products available to retail customers and the type of stores where they might be purchased. But we would have expected that, if Mrs Symonds had prepared a list of her purchases, the respondent would have made an appropriate admission. The purchases could then have been tendered. If the respondent declined to make an admission, Mrs Symonds might have been briefly called to prove the purchases. The list and the purchases could have been tendered through her. She might have been in the witness box for five minutes. If the appellants had wished the trial Judge to examine the purchases, he could have done so at his convenience, not necessarily in court time. As it was, Mrs Symonds was in the witness box for most of three days. Her evidence extended over 185 pages of transcript. This was partly because senior counsel for the appellants took the course of asking her numerous unnecessary questions. For example, counsel spent many hours taking her descriptions of the packaging of each of the products which she had purchased; something which the trial Judge was capable of seeing for himself. Mrs Symonds gave evidence on such esoterica as her reasons for preferring salted cashews and walnuts to pecan nuts and the order of the various layers in a mint stick. The course taken by counsel for the respondent was equally irresponsible. Senior counsel spent hours cross- examining the witness on such minutiae as the progress of her trolley through the stores where she made her purchases, the precise location of various items, who helped her place the goods in the trolley etc.

194. At the trial, as before us, counsel for the appellants sought to use Mrs Symonds' evidence to show what products were substitutable for biscuits. The argument is that, Mrs Symonds having been instructed "to purchase biscuits and any like products", her selection constituted evidence of the available "like products". Counsel contend that "like products" are substitutable products, so the relevant market must include all of the items which she selected.

195. Leaving aside its other difficulties, this line of argument depends entirely upon Mrs Symonds' assessment of what constitutes a "like product" to biscuits. But, in what sense, "like"; in composition, appearance, taste, nutritional value, calorific value, price? Or some only of those matters; and, if so, which of them? Without a definition of the word "like", the exercise was fundamentally flawed. But, even if there had been a precise definition, Mrs Symonds was a solicitor working on the case. She was hardly a typical consumer. Even assuming that the views of a single consumer were worth having on the issue of substitutability, without reflecting on Mrs Symonds' sincerity it was ludicrous to expect his Honour to give weight to the views on that issue of a solicitor involved in the case. She could not possibly put herself in the position of a "typical consumer", if such a person exists. His Honour was plainly correct in declining to place any weight on this evidence.

196. We are of the opinion that most of the complaints made by the appellants in respect of the trial Judge's rulings on evidence are ill- founded. To the limited extent that we are persuaded that his Honour wrongly rejected evidence, that evidence is not shown to be significant. Even if it were admitted, and taken into account, it would make no difference to the view we have formed about the principal issues in the case. Accordingly, there is no justification for a new trial.

197. Shortly after we reserved judgment on the appeal, the solicitors for the appellants informed the Court that their clients desired to file a notice of motion seeking leave to reopen their case in the appeal and tender fresh evidence. They eventually did so, the notice of motion being made returnable on 2 November 1990. The motion was made pursuant to O.52 r.36 of the Rules of Court. The Commission opposed the motion. After hearing argument, we dismissed the motion, indicating that our reasons would be included in our reasons for judgment in the appeal generally. What follows are those reasons.

198. The evidence which the appellants asked the Court to receive was of facts in existence at the time of the hearing before Beaumont J. But the appellants said that evidence of these facts was not available to them despite their conscientious efforts to obtain it. The relevant evidence consists of certain paragraphs (9 and 15(b)) of a draft affidavit of a Mr G E M Falk, a solicitor in the employ of a Sydney firm of solicitors, Phillip Parbury and Associates, and annexures "D", "E", "F", "H" and "I" thereto. Annexure "D" is a facsimile dated 15 May 1989 from H J Campbell Pretty and Associates ("Campbell Pretty") to Mr Phillip Parbury, a member of Phillip Parbury & Associates. Campbell Pretty is a marketing research company which, together with The Ball Partnership (Australia) Pty Limited and Mattingly Pty Limited, two advertising and marketing companies, was employed by United Biscuits Holdings Plc or United Biscuits (UK) Limited (referred to collectively as "United Biscuits") in 1989 to undertake research and prepare reports concerning the possible entry of United Biscuits into the Australian biscuit market. United Biscuits is an international company with its head office in England. It is one of the world's principal manufacturers and suppliers of biscuits. Annexure "E" is a facsimile sent by Campbell Pretty to Mr Parbury on 8 May 1989 enclosing a facsimile from United Biscuits to Campbell Pretty dated 5 May 1989. Annexures "F" and "H" are facsimiles, dated 15 May 1989 and 23 May 1989 respectively, from United Biscuits to Mr Parbury. Annexure "I" is a facsimile dated 23 May 1989 from Anderson Hughes Ball W.C.R.S. Limited to Phillip Parbury & Associates.

199. In support of the motion, counsel for the appellants argued that if these documents were admitted into evidence they would establish that:

. prior to the date of the judgment of Beaumont J United Biscuits

proposed to launch biscuit products in Australia and had

incurred substantial costs - at least $100,000 - in the

preparation of market research reports with respect to such a

launch;

. by 8 May 1989 United Biscuits had decided to market biscuits in

Australia, intended that millions of dollars would be invested

by it in that marketing and was preparing for a major product

launch of biscuits in Australia.

. other evidence which was admitted at the trial establishes that

United biscuits is one of the world's largest manufacturers of

biscuits and is a corporation far larger than Arnotts;

. the fact that United Biscuits planned to launch a range of

biscuits in Australia, after assessing the market, is

conclusive, or at least highly significant, evidence of the

lack of significant barriers to entry;

. the proposed evidence directly traverses several allegations

made in the amended statement of claim;

. if the evidence had been available, the trial Judge would have

been compelled to a finding to the contrary to that which his

Honour came; namely, that there "is no evidence either direct

or circumstantial, that the party in question "- that is,

United Biscuits -" proposes, or for that matter does not

propose to launch its products in Australia at this stage".

Hence, so it was argued, his Honour would have found that there

were no significant barriers to large scale entry; and,

therefore, that Arnotts could not be dominant.

201. The Court has power in its discretion to receive further evidence, either on affidavit or by oral examination: see s.27 of the Federal Court of Australia Act and O.52 r.36(5), which requires that the evidence which a party wants the Court to receive on the hearing of an appeal be given by affidavit.

202. Counsel for both the appellants and the Commission agreed that, in determining whether fresh evidence should be introduced on the hearing of an appeal, the established principle is that such evidence should not be allowed unless it is almost certain that, if the evidence had been available and had been adduced at the trial, an opposite result would have been reached by the primary judge. Reference was made to the judgment of Dixon J in Orr v Holmes [1948] HCA 16; (1948) 76 CLR 632 at 642:

"But the evident purpose of all of them is to ensure that

new trials will not be granted because of fresh evidence

unless it places such a different complexion upon the

case that a reversal of the former result ought certainly

to ensue. The fact which the new evidence tends to

prove, if it does not itself form part of the issue, must

be well nigh decisive of the state of facts upon which

the issue depends. The evidence must be so persuasive of

the existence of the fact it tends to prove that a

finding to the contrary, if it had been given, would,

upon the materials before the court, appear to have been

improbable if not unreasonable."

203. The only relevant material in annexures "D", "E", "F", "H" and "I" to the draft affidavit of Mr Falk are statements of a hearsay nature. Moreover, they were each "made or obtained for the purpose of, or in contemplation of, any judicial ... proceeding" within the meaning of s.7C(1) of the Evidence Act. Accordingly, none of them would be admissible under Part IIIA of that Act as business records. Counsel for the appellants accepted that position, but argued that Part IIC of the Evidence Act 1898 (NSW) applied to permit their reception into evidence. In that connection, they relied on s.79 of the Judiciary Act 1903 which provides:

"79. The laws of each State or Territory, including the

laws relating to procedure, evidence, and the competency

of witnesses, shall, except as otherwise provided by the

Constitution or the laws of the Commonwealth, be binding

on all Courts exercising federal jurisdiction in that

State or Territory in all cases to which they are applicable."

204. Counsel argued that s.79 of the Judiciary Act required in this case the application of Part IIC of the New South Wales Evidence Act, in particular s.14CE, and enabled the annexures to be received into evidence. Counsel sought to meet s.14CF(1) of the New South Wales Evidence Act, which restricts the admissibility of business records, with an argument that it has a substantially different meaning from s.7C(1) of the Commonwealth Evidence Act and does not render the annexures inadmissible in this case. Section 14CF(1) provides:

"Notwithstanding section 14CE, a statement made or

obtained for the purpose of, or in contemplation of, a

legal proceeding or any other legal proceeding arising

out of the same or substantially the same facts is not

admissible."

205. Counsel contended that the subject documents arose out of a legal proceeding different from the principal proceeding because it related to compliance with subpoenas issued in the principal proceeding.

206. We need not pause to examine the correctness of this argument. It is plain that there is no room for the application of Part IIC of the New South Wales Act in this case. The Commonwealth Evidence Act addresses the admissibility of business records. The fact that the Commonwealth Evidence Act and the New South Wales Evidence Act are not in precisely the same terms is not to the point. The Commonwealth Evidence Act makes extensive provision for the admission into evidence of business records and effectively covers that field. It has "otherwise provided" within the meaning of s.79 of the Judiciary Act: cf. Deputy Commissioner of Taxation v Moorebank Pty Limited [1988] HCA 29; (1988) 165 CLR 55 at 64. There is no room, therefore, for the application of the provisions of the New South Wales Evidence Act relating to the admissibility of business records.

207. In Supetina Spender J considered the interaction of the Commonwealth Act and the Queensland Evidence Act 1977, with respect to business records. His Honour held that s.92 of the Queensland Act, insofar as it relates to documents which come within Part IIIA of the Commonwealth Evidence Act, is inconsistent with that Part and is, to that extent, invalid by virtue of the operation of s.109 of the Constitution. Whilst the result is the same, we prefer to base our conclusion on our construction of s.79 of the Judiciary Act; rather than on the notion of inconsistency within the meaning of s.109 of the Constitution.

208. Unless the Court were to resort to O.33 r.3 - a course plainly inappropriate in relation to such controversial and imprecise material as this - none of these documents would be admissible. And what remains, paras.9 and 15(b) of Mr Falk's draft affidavit, has no separate probative value.

209. There are other reasons which led us to dismiss the appellants' motion. The evidence before Beaumont J established that United Biscuits was contemplating a test launch in Australia of its biscuit products. But it did not establish whether United Biscuits, even if it did carry out a test launch, would or would not make a general launch of biscuit products into the Australian market or, if it did, whether such a launch would have the effect of placing any constraint upon Arnotts. The fresh material which the appellants sought to adduce in evidence before us adds little, if anything, to the inferences which may be drawn from the material already before the trial Judge, in particular exhibit 85. Certainly this further material falls far short of establishing, even with the aid of existing evidence, the conclusions for which the appellants contend.

210. At its highest, this additional evidence shows no more than that, in mid 1989, United Biscuits contemplated launching some of its biscuits into the Australian market. The proffered material says nothing as to the range of products intended to be marketed, the scale of the launch or, of course, its likely success. In particular, it says nothing about the likely effect, if any, of the United Biscuits launch on Arnotts' position in the Australian market. In short, if this additional evidence were admitted, it would not meet the test propounded by Dixon J in Orr v Holmes.