State of Western Australia v Galati

GILMOUR J: 1 The Potato Marketing Corporation of Western Australia (PMC), the original applicant, sought an order pursuant to r 30.01 of the Federal Court Rules 2011 (Cth) for a separate trial of the questions set out in the minute attached to the orders of McKerracher J made on 7 December 2016 (Minute). This proceeding was transferred in August 2016 to this Court from the Supreme Court of Western Australia. 2 The application is supported by the affidavit of Mr Timothy Lethbridge, sworn on 12 December 2016. 3 PMC is no longer the applicant. It was abolished on the "transition day" pursuant to s 46 of the Marketing of Potatoes Act 1946 (WA) (MPA) amended by 2(c) of the Marketing of Potatoes Amendment and Repeal Act 2016 (WA). The "transition day" by s 5(1) of the amended MPA was the day when s 12 of the Marketing of Potatoes Amendment and Repeal Act (WA) came into operation, which occurred on 31 December 2016. Section 49(2) of the amended MPA provides, relevantly, that on and after the transition day, any proceedings that might have been continued by the PMC prior to the transition day may be continued by the State, meaning the State of Western Australia. 4 Accordingly, and without opposition, the State of Western Australia was substituted as the applicant. Nonetheless, where appropriate, I will continue to use 'PMC' in these reasons for ease of reference and cross-reference to relevant documents.

Background 5 The broad purpose for which the MPA was introduced was to govern the production and marketing of ware potatoes in Western Australia: Western Australia, Parliamentary Debates, Legislative Assembly, Eighteenth Parliament, 3rd sess, 5 November 1946, 1743-1744 (The Honourable J. T. Tonkin). The PMC was established under the MPA, among other things, to regulate the production of ware potatoes, take delivery of potatoes, and regulate commercial producers of potatoes and the licences they would be granted: s 17A. 6 The first respondent, Mr Galati, was a commercial producer of ware potatoes and was authorised as such by the PMC under the MPA. Mr Galati was also a director and shareholder of the second respondent, Galati Nominees. The PMC, Mr Galati, and Galati Nominees were all parties to an agreement dated 26 July 2013 (Agreement) which regulated the PMC's allocation of ware potatoes to Mr Galati. 7 Mr Galati would deliver ware potatoes grown by him to Galati Nominees in accordance with the Agreement. It was a further term of the Agreement that Galati Nominees, in turn, receive and sell Mr Galati's potatoes. Section 22(1) of the MPA prohibits the delivery and sale of ware potatoes to anyone other than the PMC or an agent of the PMC. Under s 19(3) of the MPA, the PMC had the power to appoint persons to act as the PMC's agents, and it had appointed Galati Nominees as one such agent. The relevance of the agency relationship between the PMC and Galati Nominees to the present question was not explained by any of the parties in their submissions.

The Questions 8 The two questions posed in the Minute are, in summary, whether the PMC was an authority of the Crown and, if so, whether the Agreement was entered into in the course of a business. The answers to these questions will determine whether the PMC is amenable to the provisions of ss 45(2)(a) and (b) of the Competition and Consumer Act 2010 (Cth) (CCA) and their identical counterparts in the Competition Policy Reform (Western Australia) Act 1996 (WA) (Competition Act) at ss 45(2)(a) and (b). This, in turn, will inform the outcome of part of the respondents' defence as well as their cross-claim. 9 The principles which generally inform the exercise of the court's discretion under r 30.01 are well known and are not in issue. A convenient summary of these is to be found in Reading Australia Pty Ltd v Australian Mutual Provident Society (1999) 217 ALR 495 at 497-498 [7]-[8]. It will suffice to mention only some of these: (a) ordinarily all issues of fact and law will be determined at the one time by the court following a trial; (b) the judicial determination of a question must nonetheless involve a conclusive or final decision based on concrete and established or agreed facts for the purpose of quelling a controversy between the parties; (c) where the question is one of mixed fact and law, it is necessary that the question can be precisely formulated and that all of the facts that are on any fairly arguable view relevant to the determination of the question are ascertainable either as facts assumed to be correct for the purposes of the separate determination, or as agreed facts or as facts to be judicially determined; (d) a factor which tends to support the making of an order for the trial of a separate question includes that the separate determination of the question may contribute to the saving of time and cost by substantially narrowing the issues for trial, or even lead to disposal of the action; and (e) factors which tell against the making of such an order include that the separate determination of the question may: (i) give rise to significant contested factual issues both at the time of the hearing of the separate question and at the time of trial; or (ii) result in significant overlap between the evidence adduced on the hearing of the separate question and at trial - possibly involving the calling of the same witnesses at both stages of the hearing of the proceeding. 10 The party seeking to have a question determined separately bears the onus of demonstrating that there should be a departure from the ordinary course: Liberty Financial Pty Ltd v Scott [2003] FCA 226 at [35]; University of Sydney v ResMed Ltd (No 5) [2012] FCA 232 at [42]. 11 Importantly, in Tepko Pty Ltd v Water Board (2001) 206 CLR 1 at 55 [168] and [170], Kirby and Callinan JJ, Gaudron J concurring at 18 [52], stated that: (a) the attractions of trials of issues rather than of cases in their totality, are often more chimerical than real; (b) the additional potential for further appeals to which the course of the trial on separate issues may give rise is a factor militating against a split trial; and (c) single-issue trials should only be embarked upon when their utility, economy and fairness to the parties are beyond question. 12 Similar opinions were expressed in Landsdale Pty Ltd v Moore [2009] WASCA 176, where Newnes JA (Buss JA agreeing) observed at [20] that "experience has shown that the attraction of the separate trial of issues is often illusory; it is a course that often causes the very delay, additional expense and uncertainty of outcome it was intended to avoid". 13 Generally, a party applying for a separate hearing of issues should put before the court evidence or other material to enable an informed assessment to be made about the scope and likely length of the trial of the action as a whole, as against the scope and length of the issues the subject of the application for a separate hearing of those issues: Landsdale [12]; [26]. The applicant has not done this in any meaningful way. 14 It is also usually desirable for the party seeking a separate hearing to provide a draft statement of the facts said to be relevant to the issue: Moore v Stockland South Beach [2011] WASC 337 at [37]. Again, this has not occurred here. 15 The State submits that the circumstances warrant the separate hearing of the proposed questions because: (a) the evidence will largely, if not completely, be confined to a consideration of the terms of the provisions of the MPA, the construction of the Agreement and facts which are not in issue in any material respect; and (b) the determination of these questions has the potential to determine the respondents' cross claim in its entirety with clear and substantial savings of time and costs.

First proposed question - Was the PMC an authority of the State? 16 In order to succeed in resolving certain issues raised by the defence as well as disposing of the cross-claim, the applicant would require to have both questions resolved in its favour, and, for present purposes, must persuade the Court that both questions are ripe for trial as separate issues. I am not persuaded that the second question is amenable to this course for reasons I will explain. Accordingly, it is unnecessary for me to consider the first question other than to observe that it raises issues of statutory construction of some complexity. These issues alone, however I might determine them, are very likely to attract resort to the Court's appellate jurisdiction, which is a factor militating against a split trial: Tepko at 55 [170]. 17 I will now turn to the second question.

Second proposed question - Was the State acting in the course of a business? 18 The respondents rely, in their amended defence and cross claim filed on 13 December 2016, on the application of ss 45(2)(a) and (b) of the CCA, and ss 45(2)(a) and (b) of the Competition Act. 19 By section 2B(1) of the CCA, Part IV (which includes s 45(2)) binds the Crown in right of the State of Western Australia only to the extent that the State, either directly or by an authority of the State, carries on a business. Similarly, the Competition Act binds the Crown to the extent that it, either directly or indirectly by an authority of the State, carries on a business: s 13. 20 Section 2C(1)(d) of the CCA and s 15(1)(d) of the Competition Act are in identical terms. It is accordingly sufficient to set out the provisions of the CCA. 21 By s 2C(1)(d) of the CCA, an authority of the State does not carry on a business for the purposes of s 2B by acquiring primary products that the authority acquires under legislation. The applicant relies on these provisions. 22 The respondents allege that, to the extent that the PMC was an authority of the State, the PMC was carrying on a business and that, accordingly, the PMC was bound by the provisions of the CCA and the Competition Act. This plea is supported by the particulars pleaded in paragraph 2(a) of its Rejoinder. They also plead reliance upon one of the exceptions to the carve out provision in s 2C(1)(d) by reference to s 2C(1)(d)(i) of the CCA, and the equivalent in s 15(1)(d) by reference to s 15(1)(d)(i) of the Competition Act, namely that the PMC chose to acquire the primary products. 23 Paragraph 2 of the Rejoinder is as follows: As to paragraphs 2(b) and 2(c) of the amended reply, the respondents say that to the extent that the PMC was an authority of the State of Western Australia (which is otherwise denied): (a) at all material times, including in entering into and enforcing, or otherwise giving effect to, the Agreement, or alternatively the Galati Supply Term and the Excess Supply Term, the PMC was carrying on a business within the ordinary meaning of that term; (i) the PMC appointed agents, pursuant to section 19(3) of the Act, to receive delivery of ware potatoes on the PMC's behalf from growers; (ii) the PMC received payments from agents, and others, for ware potatoes delivered by growers to agents on the PMC's behalf; (iii) the PMC (including through agents) and its agents sold ware potatoes to retailers in Western Australia, including Coles, Woolworths, IGA and Spudshed; (iv) the PMC paid growers compensation in respect of potatoes delivered to, and accepted by, the PMC, unless a contract between the grower and the PMC provided otherwise; (v) the PMC paid rebates to growers; (vi) the PMC sold potatoes to processors and exporters; and (vii) further particulars may be provided after discovery. (b) in entering into and enforcing, or otherwise giving effect to, the Agreement, or alternatively the Terms, the PMC's conduct did not constitute or involve the acquisition of primary products by a government body under legislation, for the purposes of section 2C(1)(d) and (3) of the CCA and sub-sections 15(1)(d) and (3) of the Competition Act, as: (i) the PMC purchased potatoes under the Agreement, not the Act; and (ii) any acquisition of potatoes under the Agreement occurred because the PMC chose to acquire those potatoes; Particulars (A) the DME figures submitted by the PMC to the Minister pursuant to section 26 of the Act, and the quantity of ware potatoes gazetted; and (B) further particulars may be provided after discovery. (c) in the premises, the Agreement and the Terms were entered into and given effect to in the course of the PMC carrying on a business within the meaning of section 2B(1) of the CCA and section 13 of the Competition Act.

Particulars under Rejoinder 2(a) 24 Whilst the applicant appears to accept, at a general level, some of the particulars relied on by the respondents, this does not establish the extent to which, for each of those matters which cannot be agreed, discovery and evidence will be necessary. It is not sufficient merely to know what were the activities of the PMC as described generically in these particulars. It is necessary, to resolve the factual question, to know the extent of those activities: NT Power Generation v Power and Water Authority (2002) 122 FCR 399, 420 [87] per Branson J. 25 This may give rise to substantial discovery. I am not persuaded that the factual content is as narrow as the applicant submits. Moreover, it appears from particular (vii) that these are the best particulars the respondents can give at this time and may be added to after discovery.

Particulars under Rejoinder 2(b) 26 It is necessary in order to understand the plea in Rejoinder [2(b)] to consider the relevant statutory scheme.

The Statutory Scheme 27 The MPA provides the statutory scheme for the PMC's acquisition of ware potatoes from wholesalers. 28 As I have stated earlier in these reasons, under s 22 of the MPA, the PMC, directly or through its agents, was to be the sole buyer of ware potatoes from growers in WA. The PMC's purchase and acceptance of ware potato deliveries was regulated by the following provisions of the MPA. 29 First, the PMC was obliged to advise the Minister of an amount of potatoes that was required for the supply of potatoes to the public of Western Australia. This advice was to be provided in the form of a written statement including the following information, as set out in s 26(2): (a) an estimate by the [PMC] of - (i) the quantity, expressed in tonnes; or (ii) the area to be licensed, required to satisfy the anticipated domestic demand for ware potatoes in that pool period; and (b) the recommendations of the [PMC] as to whether any, and what, additional provision, not exceeding 5% of the quantity or area so estimated, should be made so as to ensure that, if the anticipated domestic demand is exceeded, the actual requirement of consumers in the State can be met, … 30 Then, based on the advice provided to the Minister in the PMC's written statement, the Minister would establish the quantity of ware potatoes that the PMC was required to accept in accordance with s 23 - this quantity was the "domestic marketing pool", which the PMC was obliged to advertise by public notice: MPA ss 26(2). Under s 5(1) of the MPA, "Public notice" is defined to mean a notice published in the government gazette and in one newspaper circulating in the districts in which potatoes are grown or produced. 31 Before considering the requirement for the PMC to accept potatoes in s 23, it is important to note the PMC's duty to allocate domestic market entitlements (DMEs), as set out in s 28(1) in the following terms: For each domestic marketing pool established under section 26(2) the [PMC] shall allocate domestic market entitlements specifying the quantity of ware potatoes that the [PMC] is required to accept if delivered in accordance with section 23(1) by or on behalf of a registered business during the relevant pool period. (emphasis added) 32 Section 28(1), by virtue of its opening phrase, strictly limits what quantities of ware potatoes the PMC could allocate as DMEs to a particular domestic marketing pool. This is significant when considering the operation of s 23, which sets out a requirement for the PMC to accept delivery of ware potatoes in the following terms in subsection 3: The [PMC] is not required to accept delivery from any grower of potatoes that have been produced, or are tendered for delivery, otherwise than - (a) by or on behalf of a business registered under this Act; and (b) within the terms of the domestic market entitlement allocated to that business; and (c) in accordance with the terms, conditions and restrictions applying to the registration of that business and to the area licence in respect to the land where the potatoes were produced. (emphasis added) 33 Section 23(4) further provides that: The [PMC] may accept delivery from any grower of potatoes - (a) not being within the terms of a domestic market entitlement allocated to the business by or on behalf of which the delivery is made; or (b) for use by potato product manufacturers; or (c) for export, but is not under any duty to do so. (emphasis added) 34 The effect of s 23(4) is to give the PMC a discretion or choice to acquire ware potatoes beyond the quantity specified in a DME allocated to a business, with the proviso that the PMC is not required to make such an acquisition. However, it must be borne in mind that there is, as I will explain, an immediate and direct relationship between the tonnages in each domestic marketing pool and the tonnages the subject of allocations of DMEs. 35 Taking these provisions together, it is arguable that the statutory scheme required the PMC to accept from growers only the quantity of ware potatoes that was set out in DMEs which the PMC had allocated to growers from the domestic marketing pool created by the Minister, and advertised by the PMC, under s 26(2). Thus, arguably, the total tonnage produced by combining the various tonnages set out in the DMEs must correlate to the tonnage in a domestic marketing pool under s 28. Any acquisition by the PMC of ware potatoes from Mr Galati in excess of any domestic marketing pool would arguably be outside the scope of what the statutory scheme required the PMC to acquire, even if the PMC might accept delivery under s 23(4). 36 In this regard, it is significant that the PMC amended its statement of claim to reflect that the DME figures submitted by the PMC to the Minister pursuant to s 26 of the MPA, and the quantity of ware potatoes advertised by public notice, were exclusive of the DME issued to Mr Galati. A letter from the applicant's solicitors, Kott Gunning, to the Supreme Court of Western Australia dated 7 April 2016, when this proceeding was pending before that Court, contains the following: (1) In paragraph 9 of the affidavit sworn by Mr Evans on 29 September 2015, Mr Evans refers to the PMC "submit[ting] a statement to the Minister setting out the estimated tonnage of ware potatoes needed to satisfy anticipated domestic demand ("the Estimated Tonnage")." It has since come to our attention, and to the attention of Mr Evans that, after the agreement referred to in paragraph 27 of Mr Evans' affidavit was entered into, the DME figure that was submitted in statements made to the Minister was exclusive of DME issued to Mr Galati. … (2) In paragraphs 34 and 40 of Mr Evans' affidavit sworn 29 September 2015, the total quantities of ware potatoes required to be accepted by the PMC for Pools 1 and 2 respectively are stated to be 12,217 and 13,275 tonnes respectively. These figures do not include DME issued to Mr Galati or other DME issued after the statement is submitted to the Minister. … (3) For the same reason, paragraph 14 of Mr Hegarty's affidavit is incorrect to the extent that it does not also refer to Mr Galati's DME which, since the commencement of the agreement referred to in paragraph 27 of Mr Evans' affidavit, has routinely been issued "in excess to that which has been published in the Government Gazette". 37 In other words, in dealing with Mr Galati, at least arguably, the PMC was operating outside of the MPA statutory regime. The DMEs allocated by the PMC to Mr Galati were not related to any domestic marketing pool. 38 The pleadings disclose an issue as to whether the PMC entered into, and gave effect to, the Agreement in the course of acquiring primary products under legislation. As I mentioned, pursuant to s 2C(1)(d) of the CCA, such acquisition does not amount to carrying on a business for the purposes of, amongst other provisions, s 2B, unless, relevantly, the body in question chose to acquire the relevant products. If the PMC was operating outside of the regime provided for under the MPA, in its dealings with the respondents, which in my opinion is arguable, then I am satisfied that discovery of documents by the PMC relating to the making of the decision to operate outside the MPA would likely be necessary as being relevant to whether, for the purposes of the exception set out in s 2C(1)(d)(i), the PMC chose to acquire ware potatoes. 39 By reference to the applicant's amended reply and defence to cross claim dated 15 December 2016, it is not in issue that Galati Nominees also acted as a merchant and as an agent for the PMC. Whilst in its submissions the PMC identified this correctly, it was not made clear where this fact fits in to the overall circumstances of the case. 40 Moreover, the factual background to the allegation that the PMC chose to acquire ware potatoes from Mr Galati may well be in dispute. The respondents foreshadowed that this will require them to withdraw certain admissions and make further amendments to their pleadings. I have taken this into account because the issue under s 2C(1)(d)(i) has been squarely raised by the respondents. This introduces the question whether the DME certificates provided to Mr Galati were statutorily valid. It is accepted as a fact that those certificates were not related to the relevant domestic marketing pool which was established by the Minister and advertised by public notice pursuant to s 26(2). There does not appear to be any other statutory warrant for issuing DMEs. 41 Furthermore, if the PMC was acting outside the statutory regime in its dealing with the respondents, then that fact alone and/or the circumstances surrounding the PMC's decision to so operate are also relevant to the question of the applicant's claim for damages for breach of the Agreement. That claim proceeds upon the premise that by reason of the respondents' breaches, the wholesale market for ware potatoes in Western Australia was supplied with an excess of such potatoes, with the result that the PMC was required to pay more rebates, or to sell the potatoes at a lower price, than would have been the case had there been no oversupply, or to destroy potatoes that it had acquired without any financial return. However, if it can be established that in acquiring potatoes from Mr Galati, the PMC was exercising a choice to acquire ware potatoes, rather than acting pursuant to a statutory obligation, then there is a very real question as to whether the respondents' alleged breaches caused the PMC to suffer any loss or damage. That being so, there is a likely overlap of some significance between the evidence relevant to the second of the proposed questions and the evidence pertaining to damages. 42 The applicant accepts that there is potential for the evidence led in the proposed separate hearing of the questions to overlap with the evidence in the final hearing. I am not satisfied, for reasons I have explained, that any overlapping evidence would be confined to the records of the PMC. That it would be so confined was a matter of mere assertion by the applicant. 43 Finally, the applicant accepts that, as matters standard presently, there are factual contests relevant to the two questions the subject of this separate issues application. In part, in its response, the applicant submits that some matters appear capable of resolution by agreement between the parties, or if not agreed, then there is no reason to believe that any significant oral evidence would be required in addition to the PMC's records. 44 Such optimism is not shared by the respondents. No attempt has been made by the applicant to reach such agreement nor has full discovery been provided to test the submission as to whether the answers are all to be found in the PMC's records. 45 I am far from satisfied that the utility, economy and fairness to the parties of a trial of the second question as a separate issue is beyond question. A separate determination of the question at hand is instead likely to give rise to contested factual issues, with significant overlap in the evidence to be adduced. As I mentioned, it is also highly likely that whatever decision was made following a trial of the first question as a separate issue would attract the appellate jurisdiction of the Court by the losing party. This prospect is inimical to the relief sought by the applicant, and I am not satisfied that there should be a departure from the ordinary course of determining all issues of fact and law in a single trial.

Conclusion 46 I would for these reasons determine and direct that: (1) The application for a separate hearing of the questions set out in the Minute be dismissed with costs. (2) The applicant pay the respondents' costs of the application. 47 The application will be dismissed with costs. I certify that the preceding forty-seven (47) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gilmour.