Trade Practices Act 1974, ss.46, 47, 76, 77, 78

Refrigerated Express Lines (Australasia) Pty Ltd v. Australian Meat and Live-stock Corporation (No. 2) [1980] FCA 38; (1980) 44 FLR 455

Heating Centre Pty Ltd v. Trade Practices Commission (1986) 9 FCR 153

Concrete Constructions Pty Ltd v. Plumbers and Gasfitters Employees' Union (1987) 15 FCR 31

Queensland Wire Industries Pty Ltd v. Broken Hill Proprietary Co. Ltd [1989] HCA 6; (1989) 167 CLR 177

Trade Practices Commission v. Mobil Oil Australia Ltd [1984] FCA 363; (1984) 4 FCR 296

Trade Practices Commission v. Pye Industries Sales Pty Ltd (1978) ATPR 40-089

Trade Practices Commission v. Annand and Thompson Pty Ltd (1987) ATPR 40-772

Trade Practices Commission v. Stihl Chain Saws (Aust) Pty Ltd (1978) ATPR 40-091

Trade Practices Commission v. Massey Ferguson (Australia) Ltd [1983] FCA 124; (1983) ATPR 40-369

Trade Practices Commission v. Bata Shoe Co. of Australia Pty Ltd (No. 2) [1980] FCA 18; (1980) 44 FLR 149

Trade Practices Commission v. Bamix Australia Pty Ltd (1985) ATPR 40-534

Trade Practices Commission v. Commodore Business Machines Pty Ltd (1989) ATPR 40-976

Commodore Business Machines Pty Ltd v. Trade Practices Commission (1990) 92 ALR 563

Trade Practices Commission v. General Corporation Japan (Aust) Pty Ltd (1989) ATPR 40-922

Trade Practices Commission v. Sony (Australia) Pty Ltd (1990) ATPR 41-053

Trade Practices Commission v. Carlton and United Breweries Ltd [1990] FCA 248; (1990) ATPR 41-037

Counsel for the Applicant: D.R. Williams QC and C.J. Carr

Solicitors for the Applicant: Australian Government Solicitor

Counsel for the Respondent: C.L. Zelestis QC and C.G. Colvin

CSR Limited pay to the Commonwealth of Australia a pecuniary penalty of $220,000.

There be judgment for the applicant against the respondent in the sum of $220,000 which amount is to be paid to the District Registrar of this Court within twenty eight (28) days of this date.

The respondent pay the applicant's costs of and incidental to the proceedings to be taxed.

Liberty to North Perth Plaster Works Pty Ltd to apply on or before 22 January 1991 in relation to the costs of complying with subpoena to produce documents.

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

CSR Limited ("CSR") is one of Australia's largest companies whose principal businesses are in the production and sale of building and construction materials and sugar. Its balance sheet as at 31 March 1988 disclosed a paid up capital of $658 million and total assets of $4,418 million. Net profit for the year ended 31 March 1988 was $185.3 million. Some indication of the company's growth may be derived from the corresponding figures as at 31 March 1990; $758 million, $6,299 million and $406.9 million respectively. Among the building and construction materials manufactured by CSR are Gypsum, plaster and plasterboard. It has produced plasterboard and related products in Victoria, New South Wales, Queensland and South Australia since before 1970. These products are used for the construction of ceilings in residential and commercial premises. In March 1988 CSR supplied about 55% of plasterboard in the States of Australia, other than Western Australia. Since 1970 CSR has been the only company manufacturing plasterboard and related products in Western Australia. The nearest plasterboard factory not owned by CSR was located at Adelaide in South Australia.

2. In early 1988 Boral Australian Gypsum Limited ("Boral") supplied the 45% of plasterboard and related products outside Western Australia that was not supplied by CSR. The company manufactures and sells a variety of materials for construction and road servicing purposes. It operates a transport business and in its energy division supplies, distributes and markets liquefied petroleum gas and natural and town gas. It is involved in exploration and production of oil, gas and coal. As at 30 June 1989, Boral's financial statement for the year indicated a share capital of $379 million, total assets of $3,404 million and an after tax profit of $310.7 million.

3. North Perth Plaster Works Pty Ltd ("North Perth") was incorporated in Western Australia in 1970. It carries on business in this State under a variety of business names, including the following:

(i) WA Ceiling Industries - a supplier and installer

of ceilings and interior walls in commercial premises.

(ii) Colonial Ceilings - which supplies and installs

ceilings and interior walls in residential premises.

(iii) The Plaster Masters - which manufactures an

extensive range of wall and ceiling materials such as

decorative plaster cornices and centre pieces. These are sold

to Interior Suppliers for resale or supply to WA Ceiling

Industries and Colonial Ceilings for their contracting

operations.

(iv) Interior Suppliers Western Australia ("Interior

Suppliers") - which supplies ceiling and interior wall

materials to:

(a) the installation trade; and

(b) to consumers;

from its stores at Balcatta (from 1980) and Myaree

(from 1983) and since 1 May 1988 from a warehouse in Osborne

Park.

4. Prior to April 1988 North Perth purchased its plasterboard and related product requirements from CSR and competed with that company in their resale. Its principal competitors, apart from CSR, in the period January 1986 to April 1988 inclusive, were three firms called Ceiling Supermarket, Coastal Ceilings and Versatile Ceilings. Each of these resold ceiling materials manufactured by CSR and others. Most of their sales were to ceiling contractors and fixers and direct to consumers. North Perth, during this period, sold largely to fixers who also purchased direct from CSR. The fixers tended to acquire "house lot" quantities from CSR at a reduced "warehouse" price. Smaller quantities were acquired from North Perth, which had conveniently located "one stop" shops where it was also possible to purchase tools of trade, adhesives, screws, nails and other products. Remaining North Perth sales were to consumers and ceiling fixers who were too small or too new to be given an account by CSR.

5. The relevant market is that for ceiling materials in Western Australia. That is the market in which manufacturers of materials used for the construction of ceilings in residential and commercial premises supply those materials to wholesalers and ceiling fixers and in which wholesalers sell to ceiling fixers and others. Products used in the market include plasterboard and related products, plasterglass, mineral fibre tiles, metal pans and metal strips. Plasterglass is made of plaster reinforced with fibreglass. It is more expensive than plasterboard. In 1988 there were 10 manufacturers of plasterglass products in Western Australia. Although used less widely than plasterboard, it is preferred by some project home builders. Mineral fibre tiles are panels made of sound absorbing mineral fibre and are used for the construction of sound absorbing or "acoustic" ceilings. They are not manufactured in Australia, being imported principally by three organisations, Armstrong Worldwide Industries, Compradore Australia Pty Ltd and USG Importers Australia Pty Ltd. They are not used in residential premises or "wet areas" of commercial premises. They require a controlled reverse cycle air conditioned environment to perform properly. Metal pans are made in rectangular or square shapes from aluminium or steel. They may be plain or perforated. The perforated panels with sound absorbing insulation are used for acoustic ceilings. Metal strip ceiling panels made of aluminium usually have sound absorbing insulation laid over them to make an acoustic ceiling. Both metal strips and metal pans are produced in Western Australia.

6. In 1986, North Perth expended $1,014,521 in plasterboard purchases from CSR. In 1987 the figure was $1,352,789. CSR's total plasterboard sales in Western Australia in those two years amounted to $12,077,011 and $13,450,630 respectively. The 1988 figures were the subject of a confidentiality order. The respective market shares of CSR, North Perth and their lesser competitors in 1987 are set out in the following table:

ESTIMATED SALE OF PLASTERBOARD AND RELATED

PRODUCTS ($) IN THE CEILING MATERIALS MARKET 1987

Manufacturer/ Products Sales by Sales by Total Total

Wholesales in to Fixing to end

own fixing Contractors users

Business such as

(Manufacturer Handymen and

to Wholesalers Hardware

Stores

North Perth Plaster 700,000 525,000 175,000 1,400,000 9%

TOTALS: 1,350,000 3,250,000 400,000 15,000,000 100%

7. The composition of the product market in Western Australia by reference to various ceiling materials as at June 1987 was as follows:

Plasterboard and Related

Products (Made by CSR) 54%

Plasterglass 32%

Mineral Fibre Tiles 2%

Metal pans and pan strips 9%

Other 3%

8. In January 1987, North Perth began to acquire Artcote plasterboard panels from Boral. According to Alan Simmonds, General Manager of North Perth, the Artcote panels and the CSR equivalent called Supa-tile were selling well in the Eastern States, but were not available in Western Australia. He had in contemplation the development of a business relationship with Boral and intended to test CSR's reaction to his company selling Boral products. Since 1982, North Perth had from time to time explored the question of developing an association with Boral and distributing its products in Western Australia. By late 1986 the possibility of concluding some arrangement had become more likely and North Perth decided to evaluate its feasibility by distributing the Artcote plasterboard. In 1987 discussions with Boral about pricing arrangements made it apparent to North Perth that it could agree on a price structure for Boral products sufficiently favourable to permit profitable competition with CSR. In March 1987, it began selling a Boral adhesive product used in the installation of plasterboard. This was for about 10% less than the price of the CSR equivalent product which it continued to stock.

9. On 7 July 1987, Simmonds met at North Perth's premises with Gareth Spencer, the State Manager, Gypsum Product Group, CSR, a division of CSR. Spencer expressed concern about North Perth's developing relationship with Boral. He told Simmonds that things could become "decidedly messy" if North Perth were to "go down the road with Boral". Simmonds replied that he considered that might be the case, which was why North Perth was evaluating the position. On 9 July 1987, Simmonds wrote to Boral referring to earlier discussions about the possibility that North Perth would market Boral plasterboard materials in Western Australia under an agency or distributor agreement. The main reason expressed in the letter for the slow progress of the discussions was mutual concern "about the reaction of CSR Limited to a competitor in a market place it has dominated since 1972". He noted that Artcote panel sales had been encouraging to that point and that there had been only a limited response by CSR. He referred to the concern expressed by CSR at North Perth's "apparent alignment with Boral" and its decision to re-evaluate its relationship with North Perth. North Perth at that stage was reluctant to engage in any negotiations with CSR until its discussions with Boral had reached some conclusion. Simmonds urged that the time was right for Boral to establish a presence in Western Australia. Statistical data relating to plaster product purchases was included with the letter. He concluded by saying that North Perth was anxious to see the matter proceed as quickly as possible.

10. On 9 September, Simmonds had a further meeting with Spencer. The substance of their conversation was referred to in the statement of agreed facts and in Simmonds' affidavit. Spencer asked what North Perth was doing about plasterboard products. He replied that the company was evaluating the position with Boral and its options if it went "down the road with Boral". Spencer said that CSR would like to see that avoided if at all possible. He said that it could get "very untidy in the market" and that there were be "blood in the streets" because CSR would defend its position in the market rigorously. He asked what things needed to be done to keep North Perth "in the compound". Simmonds said he would like to see CSR come up with a proposal. However he declined Spencer's request for an indication of North Perth's arrangements with Boral. The meeting concluded on the basis that CSR would come back to him. According to Spencer the tone of the conversation was friendly. It took place, he said, in the context of his understanding that North Perth was negotiating a price for plasterboard with Boral. He understood that if the price offered by Boral were more competitive than that offered by CSR then North Perth would seek to sell the Boral products rather than the CSR products because of the higher margin. He also understood that Simmonds was inviting CSR to propose an increased discount to North Perth for its purchases of plasterboard and related products.

11. A week or so later, Spencer telephoned and invited Simmonds to dinner with Brent Baker, CSR's General Manager, Building Products Division, who was visiting Perth. The three men met at the Matilda Bay Restaurant on 21 September. Baker said he understood that North Perth was having serious discussions with Boral and, if that were the way North Perth wanted to go, "it could get very messy ". Simmonds said that he saw a parallel between North Perth expanding its operations in WA and CSR's expansion into the United Kingdom. He thought North Perth ought to have the opportunity to expand also. Again, according to Spencer, the tone of the discussion was friendly. As far as he was concerned he was trying to prevent the loss of a major customer to Boral. The following day Baker and Spencer visited North Perth's premises and as they left Baker asked Simmonds to let CSR keep in touch "so we know where you're going".

12. On 14 December, CSR, through Spencer, offered to make Gyprock available to North Perth at a price of $3.18 per square metre, less 12 1/2% discount, less 2 1/2% on 30 day settlement of accounts. This represented a net price of $2.71 per square metre. The net price, after early settlement discount, then being paid by North Perth was $2.78 per square metre. It was said that there would be no problem with home branding and that CSR would provide promotional support to a value to be determined. Simmonds told Spencer that the proposal did not come close to what North Perth needed. He would however consider it. Simmonds said in his affidavit, and I accept, that the CSR proposal was not expressed to be conditional upon North Perth buying all or any particular proportion of its plasterboard and related products from CSR.

13. On 23 December, Spencer phoned Simmonds wanting to know of North Perth's response to the CSR proposal. Simmonds said the matter was still under consideration and he would ring in the New Year. On 8 January they met for lunch at the River Room Restaurant in the Sheraton Hotel. Spencer said he was becoming impatient to know when the matter would be concluded. He said that CSR had not taken any "action in the field" in response to North Perth marketing of Boral products to that point. It seemed only fair that the matter be concluded shortly. By the term "action in the field" he meant to refer to the support provided by CSR to its major customers. Simmonds told him it was not a simple matter but that he expected a decision would be made in the near future.

14. On 12 and 13 January, North Perth concluded negotiations with Boral and reached an agreement under which it would acquire plasterboard from Boral's Victorian factory from about April 1988. Boral would supply North Perth with such quantities of its products as it would require. North Perth agreed to acquire stock and distribute the products. On 18 February, Simmonds contacted Spencer and told him that North Perth would be marketing Boral products in the near future. He said he would like to avoid a situation where there was "a lot of hostility". He also told Spencer that North Perth would be embarking on an advertising campaign and conducting a series of trade nights promoting Boral's products. His company planned to achieve 30% market penetration in 3 years. Spencer understood this to mean that North Perth's marketing plan was to move from selling about 9% of CSR plasterboard and related products in Western Australia to selling 30% of the total market with Boral products. There was, he said, no suggestion then that North Perth would continue selling and promoting CSR's product. He formed the opinion that because Boral was able to offer North Perth a better price than CSR, North Perth would have an interest in purchasing from Boral rather than CSR and it would, in his view, prefer to sell the Boral products. He was therefore surprised when Simmonds told him at a lunch meeting on 4 March that he did not expect to stop buying CSR products. Spencer told Simmonds he had always expected that as a Boral distributor, North Perth would not be buying from CSR. Simmonds said:

"No, we still expect to be buying some of our

requirements from you".

Spencer replied that he would have to think about that because he could not see how it would be in CSR's best interests to be supplying small quantities of products to North Perth. All that would do would be to assist Boral to compete with CSR.

15. On 9 March, an immediate subordinate of Brent Baker, Mr Tony Tanner, National Marketing Manager of CSR, accompanied by Spencer, met with Simmonds at North Perth's premises. Tanner expressed disappointment at North Perth's decision and asked for the underlying reasons. Simmonds told him in substance that the marketing of Boral products provided North Perth with an opportunity to increase its business which was not available under current arrangements with CSR and that maintenance of those arrangements would result in a decline in North Perth's share of resale market for plasterboard and related products. Tanner said that they saw Boral rather than North Perth as their competitor. North Perth, he said, should not take it that CSR would accept the loss of one of its biggest customers as a foregone conclusion:

"You are a large customer of ours. We sell you

350 to 400,000 square metres of Gyprock which is a

significant quantity. We are not lightly going to let

Boral take that and then start to defend the market

from there. We will fight to retain our market from

the start."

Simmonds thought there was scope for an increase in the size of the market in Western Australia, in particular in relation to the use of plasterboard for wall linings in houses. Tanner and Spencer agreed. Simmonds then said that North Perth would like to continue buying CSR products so that it could supply those customers who only wanted CSR materials. Spencer said that this was a concept he had grave doubts about. He had never thought that North Perth would want to continue buying from CSR once it started marketing Boral. He would have great difficulty with any arrangement which saw CSR assisting Boral to compete with it. Simmonds replied that North Perth would be marketing Boral products through its new Osborne Park warehouse and would not be selling CSR products from there. However it wanted CSR products for its Balcatta and Myaree outlets. Some of those customers, he said, would still want CSR products and North Perth would like to be able to sell them. Spencer replied:

"I will have to give some serious thought to us

supplying you."

According to Spencer, Simmonds was, in effect, proposing that North Perth sell CSR plasterboard and related products on a "second choice" basis.

16. Following this meeting, Spencer had a number of telephone conversations with CSR's solicitors. He wanted to ensure that CSR could cut off supplies to North Perth without breaching the provisions of the Trade Practices Act. In August 1985 he had attended a seminar for staff and management of CSR Gyprock in Western Australia, conducted by CSR's corporate solicitor. That seminar included discussion of ss.46 and 47 of the Act. However, he viewed these provisions as difficult to understand and wanted to be guided by legal advice.

17. On 30 March, Spencer wrote to North Perth on behalf of CSR in the following terms:

"Dear Sir,

DISTRIBUTION OF BORAL PRODUCTS

You have recently informed us of your plans to

acquire plasterboard products from Boral, and to

commence supplying such products to customers in

Western Australia in competition with CSR. In doing

so you will be trading in direct competition with the

Gyprock line of products manufactured and distributed

by CSR in this State.

CSR does not wish the continued supply of its

products to your company to be used as a means by

which Boral is able to compete with CSR whilst not

providing the same product range or availability of

supplies. If Boral wishes to enter the Western

Australian market then it should provide the same

service (in terms of product range) and supply (in

terms of availability of product) as CSR.

Because of the above matters we considered

withdrawing supplies of product from you forthwith,

but before doing so obtained legal advice concerning

our position, particularly in relation to the Trade

Practices Act. The advice which CSR has obtained

from its solicitors is that supply of CSR's product

should not be withdrawn from you until such time as

supplies of Boral's products are available to you at

commercial quantities and prices. We understand that

in May this year you will be in such a position.

We therefore give notice that effective from 1

May, 1988 (or such later date as you may commence

distribution of Boral products in direct competition

with us,) CSR will withdraw all supplies of its

product to you where such supplies are either to:-

(a) supplement Boral's product line; or

(b) "top up" short falls in supply by

Boral to you.

CSR will, of course, continue to supply its

existing customers whether or not they choose also to

buy Boral's product from you.

Finally, it should be made clear that CSR is not

attempting to obtain any agreement from you that you

refrain from acquiring product from Boral, nor is CSR

stating that it will not supply you because you are

acquiring product from Boral, as is evidenced by our

continued supply over the past year or more. This

decision has been made solely because to supply you

would be to enable Boral to compete on unequal terms

with CSR in the Western Australian market and there

is no reason why CSR should be compelled to assist

Boral to compete."

Simmonds, who was away on a business trip in the United States at the time, saw the letter on his return on 1 April 1988. On 7 April, Spencer telephoned him and said that he would have liked the letter to be more conciliatory, but that it had been prepared by "Head Office" and had to stay as it was. In fact, as emerged in his oral testimony, Spencer had prepared the letter himself and sent a copy to Baker. Simmonds asked whether there were any circumstances in which CSR would consider making supplies available, such as pallet loads of jointing compound. Spencer replied that he could see no arrangement under which they could provide North Perth with any product "because to do so would be construed as us helping Boral to compete with us". Simmonds told him that North Perth wanted to be able to purchase CSR materials to meet its customers' specific requirements. He also said that North Perth was obtaining legal advice and expressed disappointment at CSR's approach. He said he would get back to Spencer soon about the legal position. The purpose of Spencer's telephone call did not emerge with clarity from his evidence. In cross-examination he said that he wanted to ensure that Simmonds had received the letter of 30 March. I am satisfied, however, that the call was intended to find out whether North Perth was going to change its position on marketing Boral products.

18. The letter was drawn to suggest that supply to North Perth would continue except where orders were placed to supplement the Boral product line or "top up" short falls in supply. Spencer was cross examined about how CSR would make the judgment that an order was to supplement or top up the Boral product line. He was not aware of any gaps that CSR might be asked to fill in the range of Boral products, apart from a 90 mm cornice. He would be able to tell, he said, from its nature, whether an order placed with CSR was for topping up purposes. The intent of the letter was to withdraw supply unless it "took a different form from the topping up or completion of a product range". In my opinion, however, the practical effect of the letter and its intention was to announce a general refusal to supply with effect from 1 May. The purported limitation of that refusal to orders made for the purposes of supplementing Boral's product line or topping up on shortfalls in supply by Boral was a device to avoid the possibility of a complaint that CSR was in breach of the Trade Practices Act 1974.

19. Simmonds telephoned Spencer on 13 April and informed him that he had been in touch with the Trade Practices Commission, which had expressed an interest in knowing more about the case. He said:

"It may transpire that your proposed actions

are in breach of sections of the Trade Practices Act,

in particular ss. 46 and 47. I know this knowledge

won't precipitate a change of mind on your part, at

least you have our current response."

"Alan, even if I wanted to change my position

on this matter, and I'm not saying that I do, it is a

matter that is being handled by our head office."

It is common ground that from May 1988 until 5 September 1990, CSR refused to supply North Perth with plasterboard or related products.

20. There was a further meeting between North Perth and CSR representatives on 5 May at North Perth's premises. Luis Toncich, a director of North Perth, and Peter Westlund, its financial controller, were present. Spencer and Baker were in attendance from CSR. Toncich said he noted that CSR had closed the North Perth account. Spencer replied that North Perth knew the reason for CSR's action. The reason, he told Toncich, was that it would be uneconomic for North Perth to supply CSR products except for the purpose of topping up its stock lines. This would assist Boral to compete unfairly with CSR. He also expressed his belief that, in the long run, North Perth would return to CSR. He was sorry that they could not work together to develop the market in WA instead of "wasting a lot of time and effort in competing with each other". Baker added that it was sad to see North Perth leave CSR, and he hoped one day they would "join forces again".

21. North Perth placed orders with CSR on 4, 12 and 13 May. Those of 4th and 12th related to 900 mm wide Gyprock which was not available from Boral. None of the orders was met. On 13 May, Keith Cooper, a sales manager employed by CSR, told Simmonds that CSR would not supply the order of 13 May and that it was putting into effect the terms of its letter of 30 March.

22. Spencer said his concern that North Perth would order only to top up Boral lines was confirmed by the orders placed in April and May. The overall level of orders decreased by two thirds in April, and those placed in May were for plasterboard of 900 mm width, not carried by Boral, and some related products. He also believed, on the basis of a conversation with Simmonds and the fact that the North Perth officers placing the orders were not the usual persons who did so, that they had been placed at the instigation of the Trade Practices Commission. As to the latter point, the fact that an order may have been placed at the suggestion of the Commission to test a supplier's policy or practice, does not bear upon the relevance of the response as evidence of that policy or practice. That is not to say that a supplier's knowledge of the Commission's involvement in procuring the making of an order may not be relevant to ascertaining the true purpose of its response to that order. It was Simmonds' evidence, which I accept, that the orders placed in May were placed by senior personnel to clearly establish whether CSR had in fact cut off supply to North Perth. They were orders, he said, placed to meet the genuine requirements of the company.

23. Following CSR's decision to refuse supply, Simmonds consulted with North Perth's directors and senior executives and decided to make every effort to ensure that the company would succeed using Boral's plasterboard and related products. He moved as quickly as he could to see North Perth's name and Boral's jointly presented in the market. With financial support from Boral signs were erected at the Myaree and Balcatta outlets bearing the words "Boral Plasterboard Sales Centre". The colour and design of the Interior Suppliers logo were also altered so that it matched Boral's.

24. There was a further meeting between Simmonds and Spencer on 12 November. Affidavit evidence was received from both about their discussions on that occasion and Simmonds was cross-examined on his affidavit in reply. It was not in dispute that Spencer asked if North Perth wanted to purchase a full range of products from CSR and that Simmonds said they wanted to be able to meet specific requests or express orders in which Gyprock was supplied. He also told Spencer that North Perth did not intend to carry a full range of CSR products, but wanted the CSR account to remain open to "access" any CSR products specifically requested by a customer. North Perth was not in a position to carry a full range of both CSR and Boral products in stock. But Simmonds denied in his evidence that there had ever been a requirement that CSR's wholesalers in this or any other State should carry a full range of its products.

Discussions Between Trade Practices Commission and CSR

25. A substantial correspondence was exchanged between the Commission and CSR in the second half of 1988. On 19 July, CSR's corporate solicitor, Mr Mutton, wrote expressing surprise that his company's action should be considered to warrant detailed investigation. The point was made that CSR regarded its three principal distributors in Western Australia as an integral part of its marketing infrastructure and that they were "privy to strategies involving plans for the release of new products, fixing systems and changes to product specification before implementation in the market place. Under the new trading relationship with Boral, North Perth was said to be an integral part of its marketing arm. He also expressed concern that Boral plaster products would be supplied to buyers who asked for Gyprock. The letter concluded:

"Because of the contractual link that has been

created between Boral and Interior Supplies the

decision was taken to cease supply of Gyprock branded

products. The implementation of this decision was

delayed until Interior Supplies has actually received

stock from Boral because it was not intended to cause

any trading difficulties for Interior Supplies

through a loss of continuity of stock during this

period of transition from CSR to Boral. This is

consistent with the practice of CSR throughout

Australia of only selling product to Boral where,

because of circumstances beyond their control, they

are unable to maintain their own inventories. It

would seem to be a practice that is reciprocated."

26. Neither the proposition that North Perth as a CSR distributor would be privy to its marketing strategies, nor the thinly veiled suggestion that Boral products would be passed off as Gyprock had been previously advanced in discussions between CSR and North Perth. They seem to have been propounded as part of an ex post facto justification of CSR's position.

27. By a letter of 28 July 1988, the Commission indicated that it was seeking advice on instituting proceedings. A further letter from CSR of 9 August 1988 maintained the position that:

1. North Perth trading as Interior Supplies had been

privy to CSR marketing strategies.

2. Interior Supplies had a significant buying advantage

in its dealings with Boral.

3. Their relationship was more than that of buyer and

seller.

4. Although it was not suggested that Boral products

were specifically presented as Gyprock, the Boral product was

being supplied without the distinction being highlighted to the

consumer.

The Commission responded on 15 August that its views had not altered and the matter was with Senior Counsel. In a further letter of 6 September it asked for CSR's response to a request from North Perth for "a full range of building products" including Gyprock. Mr Mutton replied on 21 September that CSR would "prefer that the issue presently under consideration be resolved without recourse to the Courts". He went on to say that the company would require advice as to the relationship between North Perth and Boral before it would consider supplying its products as requested. On 21 October the Commission wrote back advising that it had directed that proceedings be instituted against CSR for alleged contraventions of s.46 of the Trade Practices Act. On 28 October Mutton wrote direct to the Chairman of the Commission expressing surprise and disappointment at the Commission's views "given the discussions that have taken place between representatives of the Commission and of CSR over the past few months". Further discussion was suggested and market information proffered. It was agreed that officers of the Commission should meet with Mr Mutton. That meeting did not resolve the matter. Correspondence from CSR asked about North Perth's purposes in requesting a full range of building products, where CSR products would be stored and how purchases would be financed. Other questions related to North Perth's approach to customers who specifically requested Gyprock, its proposals for marketing CSR products and how it would deal with customers referred by CSR and with sales training, market support and product development as between CSR and Boral.

28. The Commission responded on 18 November, that the issue before it was that "CSR have apparently refused to supply Interior Supplies because it was stocking 'Boral' products". Other questions would have to be resolved between CSR and North Perth. But CSR, through its solicitors, maintained the position that its purposes in its dealings with North Perth were legitimate:

"Our client has said that it will not supply

Interior Supplies with product to supplement Boral's

product range or to overcome shortfalls in supply

from Boral to Interior Supplies and thereby enable

Boral to compete more effectively in the market

place. That is a commercial purpose entirely outside

the scope of s.46 of the Act, and understandably so.

Indeed it is a purpose which was recognised as being

beyond the scope of s.46 by his Honour Mr Justice

Pincus in the Queensland Wire case (1987) ATPR 40-810

at 48,821."

Further communications were suggested and the statement made that any proceedings would be defended. Correspondence was subsequently exchanged between the Australian Government Solicitor and CSR's solicitors on 9 and 15 December. On 20 December, Mr Mutton wrote to the Commission saying that CSR was prepared to supply Gyprock branded products to North Perth on trading terms generally applicable. He went on to say:

"It is assumed that all entities that are

supplied which carry on business as a reseller will

actively market the entire product range and not just

segments thereof."

That assumption was characterised as "totally unacceptable" by the Australian Government Solicitor and as evidencing or providing the basis for "a clear inference that the refusal to supply is for a purpose prohibited by s.46". The Commission's position was then stated thus:

"... unless your client (CSR Ltd) provides an

unqualified and unequivocal assurance by noon Perth

time on Thursday 22 December 1988, that it will

resume supplies forthwith to Interior Supplies on its

usual trading terms, my client will institute

proceedings in the Federal Court."

CSR's response by letter from its solicitors dated 22 December 1988 was, that in the absence of clarification, it would only assume that Interior Supplies did not propose to stock and sell its full range of products and sought only to top up shortfall in supply and product range from Boral. Clarification was requested by return:

"...whereupon we will obtain our client's

immediate instructions in relation to an assurance of

supply."

The Australian Government Solicitor replied on 23 December that the position could hardly be put in any clearer terms than already was the case and that proceedings would be instituted on that day.

29. On 23 December 1988 the application instituting these proceedings was filed along with a statement of claim. The application sought an order that CSR pay to the Commonwealth a pecuniary penalty in relation to each contravention of the Trade Practices Act 1974 alleged in the accompanying statement of claim. Injunctive relief was also claimed. A defence was filed on 10 March and an amended statement of claim on 17 March. The amendments were comparatively minor.

30. By its defence filed on 10 March, CSR denied that it had refused to supply North Perth. It alleged that North Perth's account with CSR had remained open at all material times and that North Perth had been advised accordingly. The only orders placed since May had been to top up short falls in supply, or alternatively were entrapment orders which did not represent the company's genuine requirements. By its defence, CSR also alleged that at all material times it had been willing to supply plasterboard and related products to North Perth, except where such orders were required to supplement Boral's product line or to top up shortfalls in supply. The allegation was made in the statement of claim that the purposes for which CSR had refused to supply and continued to refuse to supply North Perth were and alternatively included as a substantial purpose each of the following:

"(a) deterring or preventing Boral from

engaging in competitive conduct in the ceiling

materials market.

(b) eliminating or substantially damaging

Boral as a competitor in the ceiling materials

market.

(c) to the extent that Boral may not at

any material time have entered the ceiling

materials market, preventing the entry of Boral

into that market.

(d) deterring or preventing North Perth

Plaster from engaging in competitive conduct in

the ceiling materials market.

(e) eliminating or substantially damaging

North Perth Plaster as a competitor in the

ceiling materials market."

This paragraph was denied. The allegation was made in para.15 of the amended statement of claim that at all material times CSR had, and still has, a substantial degree of power as a supplier in the ceiling materials market. The defence as initially filed admitted that power, although it did not admit all the factual bases set out in the statement of claim by reason of which that power was said to exist. It denied that CSR had taken or was taking advantage of the power in contravention of s.46 and a plea that by its refusal to supply North Perth it had contravened s.47 of the Act was also denied.

31. The matter proceeded with exchange of particulars of pleadings and a trial date fixed for 4 weeks in February 1990. However, in November 1989, CSR sought leave to amend its defence. The most significant element of the amendment was a qualification on the admission previously made that it enjoyed a substantial degree of market power as a supplier in the ceiling materials market. The qualification limited that admission to "all material times prior to 5 May 1988" and added the rider that that power "existed in the context of and was limited by the matters pleaded in paragraphs 5(b) and (c)" of the amended defence. These two limiting matters were said to be:

1. That other suppliers of products in the ceiling

materials market, namely importers of mineral fibre tiles, had

a substantial degree of power in that market.

2. The existence of potential competitors, including

North Perth, and potential further competition from existing

competitors such as Boral.

In the Commission's view the amendments resulted in a significant shift in the complexion and complexity of the case as it would now be required to establish that the relevant degree of market power existed at the time of the contravention. The trial dates were vacated and the matter set down for a two month hearing to commence in September 1990. However, on 4 September it consented to injunctions in the following terms:

"4.The Respondent shall supply

plasterboard and related products (as defined in

the Amended Statement of Claim), to North Perth

Plaster Works Pty Ltd ("NPP") when so ordered by

NPP:-

(a) without any condition or restriction

upon such supply by reason of or arising out of

or in relation to whether or not NPP may have

acquired or may be able to acquire from a

competitor of the Respondent plasterboard or

related products similar to those supplied by

the Respondent;

(b) on the basis of the Respondent's usual

trading terms relating to the quantity of

plasterboard and related products ordered by NPP

and on the basis that such supply shall be

without discrimination against NPP in relation

to prices, discounts, allowances, rebates,

credits, provision of services or payments for

services unless such discrimination makes only

reasonable allowance, applied on a routine basis

and in accordance with the Respondent's normal

procedures, for differences in the volume of

goods ordered on each particular occasion, or

over a particular period, the credit worthiness

of NPP and the cost of delivery of the goods

ordered;

(c) without any discrimination against NPP

in circumstances where any of the plasterboard

and related products are in short supply.

5. There be liberty to either party to

apply on 14 days notice to the other for

variations of the orders in paragraph 4 where

the operation of such orders:-

(a) would unfairly and unreasonably

constrain the Respondent in a manner not

required by the Trade Practices Act 1974; or

(b) has resulted in or is reasonably

expected to result in significant discrimination

against NPP in relation to the supply of

plasterboard and related products from the

Respondent.

PROVIDED THAT neither party shall apply

within 6 months of the date of this order

without the consent of the other party.

6. The Respondent, by itself, its servants

or agents, or otherwise howsoever, is restrained

from engaging in conduct, in respect of the

supply of plasterboard and related products in

the ceiling materials market, which conduct

contravenes Section 46 or Section 47 of the

Trade Practices Act 1974."

And on 5 September 1990 a minute of proposed further re-amended defence was filed in which CSR admitted the pleaded contraventions. A penalty hearing was conducted on 3 and 4 October 1990.

32. In addition to admissions on specific matters of fact in a Statement of Agreed Facts put before the Court at the penalty hearing and which have been embodied in the factual background already set out, CSR has made admissions as to its conduct and purpose. These appear in the Statement of Agreed Facts in the following terms:

1. At all material times CSR had and still has a

substantial degree of power as a supplier in the ceiling

materials market by reason of:

(a) owning and operating the only factory in

Western Australia manufacturing plasterboard and related

products;

(b) its long-established system for

distribution of its products;

(c) its control of the production and

distributio of a very high percentage of the goods sold in the

ceiling materials market;

(d) its financial strength including the

availability to it of capital;

(e) its control of and access to raw materials;

(f) its long-established reputation as a

manufacturer and supplier in the ceiling materials market and

the long-established demand for CSR's products;

(g) the fact that Western Australia is a

geographically remote market area from the viewpoint of other

manufacturers of plasterboard and related products.

2. At all material times prior to May 1988 there was

no competitor of CSR in the ceiling materials market -

(a) having any market share approaching the

size of the market share of CSR in that market;

(b) having any market power approaching the

scale of CSR's market power in that market.

3. At all material times prior to approximately 5 May

1988, North Perth Plaster -

(a) obtained its requirements of plasterboard

and related products from CSR;

(b) was CSR's largest individual customer in

Western Australia (measured in value of purchases) for

plasterboard and related products;

(c) in its business as a wholesaler of

plasterboard and related products, was a competitor of CSR.

4. (a) Boral at all material times has been a

major competitor of CSR in relation to the supply of

plasterboard and related products in Queensland, New South

Wales, Victoria and South Australia; but

(b) Until about March 1988 Boral had not

supplied plasterboard and related products in Western Australia

to a substantial extent.

5. CSR did not at any time during the period up to 1

May 1988 refuse to supply North Perth Plaster with CSR's

plasterboard or related products.

6. As from about May 1988, until 5 September 1990 CSR

has refused to supply North Perth Plaster with plasterboard or

related products.

7. At all material times after May, 1988 Boral was a

competitor of CSR in the ceiling materials market.

8. At all material times prior to 11 July, 1989 there

were no difficulties, delays or occurrences of non-availability

of particular products or insufficient quantities of products

in relation to North Perth Plaster obtaining supplies of

plasterboard products from Boral.

9. CSR admits that it has refused and refuses to

supply as referred to herein for the purpose of deterring North

Perth Plaster and Boral from engaging in competitive conduct in

the ceiling materials market and for the purpose of preventing

the entry of Boral into the ceiling materials market to the

extent that Boral had not at any material time entered the

ceiling materials market.

10. CSR admits that by engaging in the conduct as

referred to herein CSR has taken and is taking advantage of its

power in the ceiling materials market, in contravention of the

provisions of section 46 of the Act.

11. CSR admits that it has refused and refuses to

supply plasterboard and related products to North Perth

Plaster, as referred to herein, for reasons which include as a

substantial reason that North Perth Plaster has acquired

plasterboard and related products from Boral and resupplied

such products.

12. CSR admits that the engaging by CSR in the conduct

referred to herein was with the purpose, or is likely to have

the effect, of substantially hindering competition in the

ceiling materials market and in particular admits:

(a) CSR has and at all material times had a

substantial degree of power in the ceiling materials market as

referred to herein;

(b) at all material times prior to May 1988

there was no competitor of CSR in the ceiling materials market-

(i) having any market share approaching

the size of CSR's market share in that market, or

(ii) having any market power approaching

the scale of CSR's market power in that market;

(c) a situation in which North Perth Plaster sold

in Western Australia plasterboard and related products

manufactured by Boral would as was known to CSR be a threat to

CSR's position in the ceiling materials market;

(d) the fact that CSR had cut off supplies of

plasterboard and related products to North Perth Plaster would

become common knowledge in the ceiling materials market and

would be a deterrent to any wholesaler who might otherwise have

been interested in stocking Boral's plasterboard and related

products was known to CSR. (sic)

13. At all material times when CSR refused to supply

North Perth Plaster there was an upsurge in building activity

in Western Australia which resulted in a marked increase in the

demand for plasterboard and related products.

14. CSR admits that by engaging in the conduct referred

to herein CSR has in trade or commerce engaged in the practice

of exclusive dealing in contravention of section 47 of the Act.

33. It is an agreed fact that at the time CSR refused to supply North Perth there was an upsurge in building activity in Western Australia which resulted in a marked increase in the demand for plasterboard and related products. Evidence was called by the Commission from Dr. Paul McLeod, a Senior Lecturer in Economics at the University of Adelaide, relating both to the upsurge and the impact of CSR's conduct on North Perth in the light of market conditions. There were exhibited to his affidavit graphs and tables relating to residential and non-residential building approvals and commencements in 1988/89 and earlier years. A table of residential approvals for the whole of the State showed 16,945 for 1986/87, 21,572 for 1987/88 and 27,597 for 1988/89. Commencements figures were:

1986/87 $15,577

1987/88 $18,729

1988/89 $26,619

There was thus, in Dr. McLeod's words, evidence of a "dramatic upturn" in the number of residential approvals and commencements in 1988/89.

34. The burden of Dr. McLeod's evidence was that when CSR cut off supply to North Perth its survival in the ceiling materials market was at risk. That survival was, however, facilitated by the growth in building activity over the period July 1987 to June 1989. The position would, he said, have been quite different had the situation been one of static or declining activity. In that case sales of Boral products to North Perth would have been direct losses to other firms. Economic theory predicts, according to Dr. McLeod, that such a situation would lead to competitive reaction that would make survival that much harder for the firm distributing the new product. When asked what was the extent of the risk he was trying to convey when speaking of the "risk to survival" of North Perth, he said:

"Now my judgment is that a firm in that

position always faces a risk to its survival. Now I

cannot tell you how high that risk is, I am simply -

I, or my judgment is that it must do all the right

things in order to survive a risk situation."

The difficulty with his evidence was that it offered no basis upon which to assess the magnitude of the risk or its comparative magnitudes in the real situation of a growing market and the hypothetical case of a static or declining market. I can accept however that the withdrawal of supply by CSR rendered North Perth more vulnerable to discontinuities in supply from Boral, which was then just entering the Western Australian market. The fact that that entry was facilitated by the increase in general building activity made the risk smaller than it might otherwise have been. And Simmonds' evidence of his own perception of North Perth's situation at the time is consistent with that approach.

35. There was nothing to suggest that North Perth had suffered direct loss or damage as a result of the withdrawal of supply. It may be inferred, however, that customers specifically seeking CSR products would have been compelled to go to CSR itself or other competitors of North Perth. It is reasonable to suppose, therefore, that some profit was foregone by North Perth as a result and the range of choices available to members of the public in deciding with whom they would deal was narrowed.

36. Reference has already been made to the 1985 seminar conducted by Mr Mutton for management and staff of CSR's Gyprock Division in Western Australia. In December 1980 the company had produced a "Guide to the Trade Practices Act" for distribution to staff. Chapter 2, headed "Summary Checklist", set out ten points as a quick reference to assist in recognising potential problems. Points 4 and 7 were in the following terms:

"4. Do not force a customer to buy an item from

CSR as a condition of obtaining another item also

offered by CSR.

.

.

.

7. If in a strong or dominating market

position do not try to injure competition by selling

at below cost, disparaging them or by use of other

unfair means."

Chapter 3 of the booklet, headed "Reason for the Act", referred to exclusive dealing arrangements which were dealt with at greater length in Chapter 7. Section 46 in its pre-1986 form was explained in reasonably comprehensible language. Refusal of supply was not addressed under this heading, but was mentioned later in the booklet. There was no evidence that the guide has been updated, nor was there anything to suggest that any educational program had been conducted in Western Australia since 1985. Despite the undoubted quality of the 1980 guide, the impression was created on the evidence that the compliance program was less than vigorous. Further, there was no evidence of any steps taken within the company to avoid a repetition of the kind of conduct which has led to the present proceedings.

37. The parts of ss.46 and 47 of the Act relevant for present purposes are as follows:

"46(1) A corporation that has a substantial

degree of power in a market shall not take advantage

of that power for the purpose of -

(a) eliminating or substantially damaging

a competitor of the corporation or of a body

corporate that is related to the corporation in

that or any other market;

(b) preventing the entry of a person into

that or any other market; or

(c) deterring or preventing a person from

engaging in competitive conduct in that or any

other market.

.

.

.

(3) In determining for the purposes of this

section the degree of power that a body corporate or

bodies corporate has or have in a market, the Court

shall have regard to the extent to which the conduct

of the body corporate or of any of those bodies

corporate in that market is constrained by the

conduct of -

(a) competitors, or potential competitors,

of the body corporate or of any of those bodies

corporate in that market; or

(b) persons to whom or from whom the body

corporate or any of those bodies corporate

supplies or acquires goods or services in that

market.

(4) In this section -

(a) a reference to power is a reference to

market power;

(b) a reference to a market is a reference

to a market for goods or services; and

(c) a reference to power in relation to,

or to conduct in, a market is a reference to

power, or to conduct, in that market either as a

supplier or as an acquirer of goods or services

in that market.

.

.

.

(7) Without in any way limiting the manner

in which the purpose of a person may be established

for the purposes of any other provision of this Act,

a corporation may be taken to have taken advantage of

its power for a purpose referred to in sub-section

(1) notwithstanding that, after all the evidence has

been considered, the existence of that purpose is

ascertainable only by inference from the conduct of

the corporation or of any other person or from other

relevant circumstances.

47(1) Subject to this section, a corporation

shall not, in trade or commerce, engage in the

practice of exclusive dealing.

.

.

.

(3) A corporation also engages in the

practice of exclusive dealing if the corporation

refuses -

(a) to supply goods or services to a

person;

.

.

.

for the reason that the person or, if the

person is a body corporate, a body corporate related

to that body corporate -

(d) has acquired, or has not agreed not to

acquire, goods or services, or goods or services

of a particular kind or description, directly or

indirectly from a competitor of the corporation

or from a competitor of a body corporate related

to the corporation;

(e) has re-supplied, or has not agreed not

to re-supply, goods, or goods of a particular

kind or description, acquired directly or

indirectly from a competitor of the corporation

or from a competitor of a body corporate related

to the corporation;

.

.

.

(10) Sub-section (1) does not apply to the

practice of exclusive dealing constituted by a

corporation engaging in conduct of a kind referred to

in sub-section (2), (3), (4) or (5) or paragraph

(8)(a) or (b) or (9)(a), (b) or (c) unless -

(a) the engaging by the corporation in

that conduct has the purpose, or has or is

likely to have the effect, of substantially

lessening competition;"

Penalties are provided for by s.76, the relevant parts of which

are as follows:

"76(1) If the Court is satisfied that a person

-

(a) has contravened a provision of Part

IV;

.

.

.

the Court may order the person to pay to the

Commonwealth such pecuniary penalty (not exceeding

$50,000 in the case of a person not being a body

corporate, or $250,000 in the case of a body

corporate, in respect of each act or omission by the

person to which this section applies) as the Court

determines to be appropriate having regard to all

relevant matters including the nature and extent of

the act or omission and of any loss or damage

suffered as a result of the act or omission, the

circumstances in which the act or omission took place

and whether the person has previously been found by

the Court in proceedings under this Part to have

engaged in a similar conduct.

.

.

.

(3) If conduct constitutes a contravention

of two or more provisions of Part IV, a proceeding

may be instituted under this Act against a person in

relation to the contravention of any one or more of

the provisions but a person is not liable to more

than one pecuniary penalty under this section in

respect of the same conduct."

Recovery proceedings for pecuniary penalties are authorised by s.77:

"77(1) The Minister or the Commission may

institute a proceeding in the Court for the recovery

on behalf of the Commonwealth of a pecuniary penalty

referred to in section 76.

(2) A proceeding under sub-section (1) may

be commenced within 6 years after the contravention."

And in s.78 it is provided inter alia that:

"78. Criminal proceedings do not lie against a

person by reason only that the person -

(a) has contravened a provision of Part

IV;"

38. The provisions of Pt. IV of the Trade Practices Act 1974 are directed to procuring and maintaining competition in trade and commerce - Refrigerated Express Lines (Australasia) Pty Ltd v. Australian Meat and Live-stock Corporation (No. 2) [1980] FCA 38; (1980) 44 FLR 455 at 460 (Deane J.). They are of a regulatory rather than penal character. Proceedings for their enforcement by recovery of pecuniary penalties are not classed as criminal prosecutions. That appears from s.78 of the Act - Heating Centre Pty Ltd v. Trade Practices Commission (1986) 9 FCR 153 at 160 (Pincus J.); Concrete Constructions Pty Ltd v. Plumbers and Gasfitters Employees' Union (1987) 15 FCR 31 at 46 (Wilcox J.). Unlike many kinds of criminal prosecution, therefore, it is not necessary to measure the contravening conduct against some general communal morality in which the law is embedded. Aspects of some commercial behaviour, such as ruthlessness and expansionary ambition, are not elements of the classes of conduct prohibited by Pt. IV nor even aggravating factors. For those same attributes may be found in vigorous and lawful competition.

39. Counsel for the Commission at one point described CSR's conduct as "a cold blooded act of targeting North Perth Plaster and through it Boral". It was also said that CSR saw fit "to trample over North Perth" to get to its larger target, which was Boral. To the extent that the expression "cold blooded" suggests deliberation, it is relevant to penalty. But characterisation of contravening conduct in terms of a morality larger than that which is defined by the legislative purpose is misplaced. And specifically in relation to s.46, it is not necessary, in order to establish a contravention, to show that the contravenor took advantage of its power in the market in a way that was reprehensible, predatory or unfair, or regarded in commerce as deserving of criticism. In Queensland Wire Industries Pty Ltd v. Broken Hill Proprietary Co. Ltd [1989] HCA 6; (1989) 167 CLR 177 at 191, Mason C.J. and Wilson J. said:

"..the object of s.46 is to protect the

interests of consumers, the operation of the section

being predicated on the assumption that competition

is a means to that end. Competition by its very

nature is deliberate and ruthless. Competitors jockey

for sales, the more effective competitors injuring

the less effective by taking sales away. Competitors

almost always try to "injure" each other in this way.

This competition has never been a tort (see Keeble v.

Hickeringill ((1809) [1809] EngR 7; 11 East 574) and these injuries

are the inevitable consequence of the competition

s.46 is designed to foster....The question is simply

whether a firm with a substantial degree of market

power has used that power for a purpose proscribed in

the section, thereby undermining competition, and the

addition of a hostile intent inquiry would be

superfluous and confusing."

"Read in context, the words "take advantage

of...power" are simply inadequate to superimpose upon

the economic notions and objectives which s.46(1)

reflects some indefinite moral or public purpose

qualification requiring circumstances where the

active or passive use of the relevant market power

for one or other of the designated anti-competitive

purposes is morally or socially undesirable."

Dawson J. at 202 agreed with Deane J. on the question, and like views were expressed by Toohey J. at 213-214. Although the passages cited and referred to were dealing with one of the necessary elements of a contravention of s.46, they are of assistance in identifying the role of moral or amoral components of the contravenor's behaviour in fixing penalty. They suggest that those matters have no part to play. That proposition extends, in my opinion, to the provisions of Pt. IV generally and reflects upon the purpose of the penalties provided by s.76.

40. Punishment for breaches of the criminal law traditionally involves three elements: deterrence, both general and individual, retribution and rehabilitation. Neither retribution nor rehabilitation, within the sense of the Old and New Testament moralities that imbue much of our criminal law, have any part to play in economic regulation of the kind contemplated by Pt. IV. Nor, if it be necessary to say so, is there any compensatory element in the penalty fixing process - Trade Practices Commission v. Mobil Oil Australia Ltd [1984] FCA 363; (1984) 4 FCR 296 at 298 (Toohey J.). The principal, and I think probably the only, object of the penalties imposed by s.76 is to attempt to put a price on contravention that is sufficiently high to deter repetition by the contravenor and by others who might be tempted to contravene the Act.

41. There has been a significant number of decisions of the Court which have considered the operation of s.76, largely in relation to breaches of the provisions of s.48 of the Act relating to resale price maintenance. The primacy of the deterrent purpose in the imposition of penalty was identified at an early stage by St. John J. in Trade Practices Commission v. Pye Industries Sales Pty Ltd (1978) ATPR 40-089 at 17,859:

"It is clear that the maximum penalty of

$250,000 was arrived at by the legislature so that

large corporations would be made to feel the impact

of a pecuniary penalty which would deter the

defendant company and others from committing breaches

of the Act which might otherwise be profitable if

small penalties only were provided."

The case was one of refusal to supply imposed in aid of resale price maintenance. His Honour made reference in passing to the respondent's ruthlessness as to the consequences of its conduct to a small distributor. Even allowing for that pejorative element, it is notable that a fine of $120,000 was imposed (about $300,000 on present day values).

42. The assessment of a penalty of appropriate deterrent value will have regard to a number of factors which have been canvassed in the cases. These include the following:

1. The nature and extent of the contravening conduct.

2. The amount of loss or damage caused.

3. The circumstances in which the conduct took place.

4. The size of the contravening company.

5. The degree of power it has, as evidenced by its

market share and ease of entry into the market.

6. The deliberateness of the contravention and the

period over which it extended.

7. Whether the contravention arose out of the conduct of

senior management or at a lower level.

8. Whether the company has a corporate culture conducive

to compliance with the Act, as evidenced by educational

programs and disciplinary or other corrective measures in

response to an acknowledged contravention.

9. Whether the company has shown a disposition to co-operate

with the authorities responsible for the enforcement of
the Act in relation to the contravention.

The first three factors are all expressly mentioned in s.76. They can be regarded as measures of the scope and impact of the conduct and it is conducive to deterrence that the greater the significance of these elements, the heavier the penalty should be. A similar distillation is set out in Trade Practices Commission v. Annand and Thompson Pty Ltd (1987) ATPR 40-772 at 48,394 (Spender J.). The need for commercial realism in fixing penalties has been mentioned in more than one decision of the Court. In Trade Practices Commission v. Stihl Chain Saws (Aust) Pty Ltd (1978) ATPR 40-091, Smithers J. at 17,896 said:

"The penalty should constitute a real

punishment proportionate to the deliberation with

which the defendant contravened the provisions of the

Act. It should be sufficiently high to have a

deterrent quality, and it should be kept in mind that

the Act operates in a commercial environment where

deterrence of those minded to contravene its

provisions is not likely to be achieved by penalties

which are not realistic. It should reflect the will

of Parliament that the commercial standards laid down

in the Act must be observed, but not be so high as to

be oppressive."

See also Trade Practices Commission v. Massey Ferguson (Australia) Ltd [1983] FCA 124; (1983) ATPR 40-369 at 44,408 (Smithers J.). The determination of penalty is also a matter of public interest in the enforcement of the Act - Trade Practices Commission v. Stihl Chain Saws (Aust) Pty Ltd (1978) ATPR 40-091 at 17,896 and Trade Practices Commission v. Bata Shoe Co. of Australia Pty Ltd (No. 2) [1980] FCA 18; (1980) 44 FLR 149 at 180 (Lockhart J.).

43. In considering the penalty range for which s.76 provides it is necessary to bear in mind that it covers a range of different classes of contravention under Pt. IV. Resale price maintenance tends to dominate the history of litigation under s.76. The range of penalties imposed for that contravention is wide and reflects the variety of circumstances and ways in which it may arise. At the high end of the scale by reference to present day money values, was the penalty of $120,000 imposed by St. John J. in 1978 in Trade Practices Commission v. Pye Industries Sales Pty Ltd (supra). But substantial cumulative penalties have also been imposed by Sweeney J. in Trade Practices Commission v. Bamix Australia Pty Ltd (1985) ATPR 40-534 - $110,000 for four contraventions (about $160,000 in present day values) and Einfeld J. in Trade Practices Commission v. Commodore Business Machines Pty Ltd (1989) ATPR 40-976 - $250,000 reduced on appeal to $195,000 on the basis that certain of the contraventions should have been treated as one - Commodore Business Machines Pty Ltd v Trade Practices Commission (1990) 92 ALR 563. In Trade Practices Commission v. General Corporation Japan (Aust) Pty Ltd (1989) ATPR 40-922, Fisher J. imposed penalties totalling $130,000 for six contraventions of s.48 of the Act. The case involved a refusal by a substantial company to supply one of its retailer customers which would not comply with a minimum price requirement. In particular, his Honour had regard to the fact that the offending conduct extended over a considerable period of time and was committed by General Corporation's manager in South Australia. The company had taken inadequate steps to educate its employers prior to the contravention. The contravention was not, however, the result of any mistake. Defences unequivocally denying all crucial allegations in the Commission's statement of claim were filed in February 1988, but withdrawn in April. More recently in Trade Practices Commission v. Sony (Australia) Pty Ltd (1990) ATPR 41-053, Pincus J. imposed penalties totalling $250,000 on Sony for six contraventions of s.48. The deterrence principle was reflected in his Honour's observation that it would seem desirable that penalties be set at such a level as to make contravention of s.48 "of at least doubtful commercial value". He went on to say at 51,690-691:

"Were it not for the desirability of setting

penalties conforming to the level found in the

authorities (and in particular in the recent decision

of the Full Court in Commodore Business Machines Pty

Ltd v. Trade Practices Commission (1990) ATPR 41-019

I should have been inclined to assess penalties

at higher sums than have in fact been fixed. When

one finds deliberate breaches of the price

maintenance provisions of the Trade Practices Act

committed by a subsidiary of one of the greatest

manufacturers of electronic consumer goods, after

years of attempts to enforce compliance with these

provisions, one can only suspect that the penalties

have not been taken very seriously. Their deterrent

effect has been insufficient, it appears, to

counterbalance the profit apparently derived from

protecting recommended prices against the effect of

competition between their dealers."

The same background of penalty decision does not exist in relation to s.46. In fact there is only one reported case, Trade Practices Commission v. Carlton and United Breweries Ltd [1990] FCA 248; (1990) ATPR 41-037, and that was apparently the first in which application has been made for the imposition of a pecuniary penalty for a contravention of s.46. Northrop J. who imposed a penalty of $175,000 observed at 51,549:

"In considering this matter, it must be

remembered that the conduct proscribed by s.46 cannot

be authorised by the Commission under Pt. VII of the

Trade Practices Act. Further, it must be accepted

that discovering and obtaining evidence to support an

application for a penalty for contravention of s.46

is very difficult and expensive. A contravention may

take many forms and in many cases a wink, a look or a

nod may be more effective than the written or

expressed word. Proof of those aspects may be

difficult to obtain. This is relevant in considering

the pecuniary penalty and its deterrent effect on

other corporations which may engage in conduct in

contravention of s.46."

His Honour noted that the conduct in that case was engaged in by CUB's managing director, that the section had been recently amended at the time, and that there was no evidence that legal advice had been sought on the amendment. But, as he said, little weight can be given to ignorance of the law by a corporation of the size and strength of CUB (and I interpolate here that the same observation applies to CSR). He adverted to the fact that the High Court had not given its judgment in the Queensland Wire case until 1989, and that the relevant market may not have been fully understood at the time of the conduct in question. His Honour regarded as important considerations the fact that CUB had admitted the contravention and had not forced the Commission to engage in long and expensive litigation to establish it in Court. The most serious aspect of the case was that the conduct was not accidental or unintended. There was no evidence of any resulting loss or damage.

44. It is too early in the history of penalty actions under s.46 to identify what might be called a tariff range of penalties imposed for its contravention. And each case will fall to be decided according to its own circumstances. But the approach taken in the CUB case suggests, and I think it right, that large corporations contravening s.46 of the Trade Practices Act can expect penalties in the upper reaches of the range for which the law presently provides. Indeed having regard to the size and strength of some of the corporations to which the section is addressed, it may be concluded that the present day value of the maximum penalty no longer reflects the seriousness with which Parliament intended contraventions of Pt. IV to be treated when the Act was passed in 1974. Against that background it is necessary now to turn to the penalty appropriate in the present case.

45. The application proceeds upon the basis that there has been one continuing contravention of s.46 and that essentially the same conduct constituted one continuing contravention of s.47. Sub-section 76(3) has the effect that CSR is not liable to more than one penalty in respect of that conduct. It was submitted by counsel for CSR, that where the same conduct is said to constitute two or more contraventions of Pt. IV the penalty should not be increased because of that fact. Counsel for the Commission argued however that the existence of multiple contraventions ought to be taken into account. So far as the present case is concerned, the circumstance that there are admitted contraventions of both s.46 and s.47 does not affect the outcome. I would accept however that there may be cases in which the fact that conduct constituted multiple contraventions could be relevant to penalty. In the event, on the facts already found and having regard to the general principles applicable to s.76, I am of the opinion that the contraventions in this case should attract a most substantial penalty.

46. The first of the factors relevant to penalty is the nature and extent of the conduct. While immediately focussing on one trader the conduct was aimed at one competitor, was extended in time and addressed to other operators in the market. It was engaged in for admitted anti-competitive purposes and in the knowledge that the refusal of supply would become known in the ceiling materials market and be a deterrent to any wholesaler who might otherwise have been interested in stocking Boral's plasterboard and related products. There was, as I have found, no clear evidence of loss or damage to Boral, North Perth or the consuming public. I am prepared to infer that there would have been some profit foregone by North Perth and a restriction on the range of outlets at which prospective purchasers could have acquired CSR products, but I do not attach great weight to these essentially unquantified, and to some degree speculative, consequences. The absence of evidence of loss is of considerably less significance than the fact that CSR's conduct was directed at Boral at a time when it was seeking to enter the market through its association with North Perth and at North Perth at a time that it was vulnerable to any discontinuity in supply from Boral. The Commission in its submission described CSR's conduct as attempting deliberately to nip competition in the bud and I accept that characterisation.

47. The contravening conduct was also that of a company which describes itself as one of Australia's biggest. In the ceiling materials market in Western Australia it is a behemoth. And its size and the size of its market share are elements in its market power which was in this case enhanced by the geographical isolation of the market and the associated barriers to new entrants. Its conduct was deliberate. Purpose is admitted and the involvement of senior management, not limited to management in Western Australia, is clear. It seemed to be CSR's case at one point that it refused to supply North Perth because it would not carry a full range of CSR products and because CSR products would only be acquired to top up or meet shortfalls in Boral's supplies and be sold to the public on a second choice basis. On this argument, North Perth was at all times going to promote Boral over CSR products. If that were CSR's rationale then it could not have intended that the refusal of supply would have any effect on the relationship between North Perth and Boral or their ability to function in the market. But that rationale is not consistent with the admitted facts as to purpose. I can accept as a mitigating factor that the local CSR management may have been faced with a situation which was commercially difficult. But their resolution of it involved contraventions of the Act with whose provisions they were familiar. Legal advice was apparently taken, but appears to have been in the form of some telephone conversations and aimed at finding ways of terminating supply legally. In the event, as I have found, despite the language of the letter of 30 March, its practical effect and real intent was to announce a general refusal to supply, qualified by an apparent limitation of that refusal which was in essence a device to avoid the possibility of a complaint that CSR had breached the Act.

48. There was little convincing evidence of a corporate culture seriously committed to the need to comply with the requirements of the Act. The compliance program as indicated by the evidence appeared desultory and in need of reinforcement. No indication of any corrective measures or revitalisation of that program was offered. The corporate culture was, I think, reflected in CSR's dealings with the Commission and the conduct of this litigation. It is to its credit that it has withdrawn its defences and submitted to injunctions restraining further contravention. However that withdrawal and submission came nearly two years after proceedings were instituted and followed a period of protracted stonewalling in CSR's dealings with the Commission. I have no doubt that the preparation of the case by the Commission has consumed an enormous amount of time and financial resources. CSR's conduct in its dealings with the Commission and in relation to these proceedings, when viewed in the light of the admissions it now makes, is an aggravating factor.

49. Applying the principle of deterrence which I have already adverted to and recognising the size and importance of CSR in the ceiling materials market, as well as those other factors to which reference has been made, I am of the opinion that the appropriate penalty for this contravention is $220,000. Orders will be made accordingly.