Trade Practices Commission v Ansett Transport Industries (Operations) Pty Ltd & Ors [1978] FCA 40

AVIS RENT-A-CAR SYSTEM PTY. LTD. Respondents ORDER JUDGE MAKING ORDER: Northrop J. DATE OF ORDER: 13th June 1978 WHERE MADE: Melbourne

THE COURT ORDERS: That the rule nisi be discharged.

ANSETT TRANSPORT INDUSTRIES (OPERATIONS) PTY, LTD., ANSETT TRANSPORT INDUSTRIES LTD., SHELLBANK HOLDINGS PTY. LTD., SIXTY MARTIN PLACE PTY. LTD. AND AVIS RENT-A-CAR SYSTEM PTY. LTD. Respondents

By a letter of agreement dated 7th December 1977 Ansett Transport Industries Ltd. (Ansett Industries) offered to purchase for cash, upon the terms contained in the letter, all the ussued shares in the capital of Avis Rent-A-Car System Pty. Ltd. (Avis). The shares are held by Shelibank Holdings Pty. Ltd. and Sixty Martin Place Pty. Ltd. (the Vendors). In the same letter of agreement, the Vendors signified their acceptance of the offer subject to the approval of the Minister for Transport. By letter dated 13th December 1977, Avis formally notified the Minister for Transport of the acquisition by Ansett Industries of all the issued Shares in the capital of Avis and sought his written confirmation of the verbal approval previously given that the authority under the Airports (Business Concessions) Act 1959 held by Avis and dated

30th June 1969 would not be determined "by reason of the change in ownership or control of Avis" resulting from the transaction. By letter dated 14th December 1977, Ansett Industries notified the Minister for Transport of the purchase, advised him that the purchaser would be Ansett Transport Industries (Operations) Pty. Ltd. (Ansett Operations), a wholly owned subsidiary of Ansett Industries, and sought his approval to the "substantial ownership" change in Avis shareholding to enable the airport franchise to continue in operation until its expiry on 30th June 1979, By letter of the

same date, Ansett Industries notified the stock-exchange of Melbourne of the agreement. By a news release of the same date,

Ansett Industries announced the purchase to the public, The news

release stated that on completion of the purchase, Avis would become a wholly owned subsidiary of Ansett Industries, that Avis was "by far the major car rental organisation in Australia", that it was "the most successful car and truck rental business in Australia" and that 1t had "an exclusive car rental franchise at all Commonwealth airports, 33 local ownership airports and many

On the 19th December 1977 1n Sydney and on 21st December 1977 1n Melbourne officers of the Trade Practices Commission (the Commission) held meetings with officers of Ansett Industries, Avis and the Vendors, The Commission had sought the meetings to obtain information on how Avis operated and what effect the acquisition by Ansett Industries of the shares in Avis would have on the market. Ansett Industries and Avis each undertook to defer completion of the acquisition of the shares until 13th January 1978 to enable the Commission to complete investigations into whether the acquisition of the shares contravened s.50 Trade Practices Act 1974 as amended (the Act). On 13th January 1978, the Commission commenced these proceedings under s.80 of the Act seeking an injunction restraining Ansett Operations from acquiring the shares in the capital of Avis and seeking consequential injunctions against the other respondents. Apart from certain interlocutory matters, the hearing of the Proceedings commenced on 27th February 1978 and concluded on 21st April 1978.

Section 50 of the Act in its present form came into operation on Ist July 1977, see s.27 Trade Practices Amendment Act 1977 (the 1977 Act). Section 50, which 1s within Part IV of the

"50.(1) A corporation shall not acquire, directly or indirectly, any shares in the capital, or any assets, of a body corporate if -

(a) as a result of the acquisition, the corporation would be, or be likely to be, in a position to control or dominate a market for goods or services; or

(b) aun a case where the corporation 1S 1n a position to control or dominate a market for goods or services -

(2) the body corporate or another body corporate that 1s related to that body

competitor of the corporation or of a body corporate that is related to the corporation; and

(i1) the acquisition would, or would be likely to, substantially strengthen the power of the corporation to control or dominate that market.

(a) a body corporate that is related to a corporation 1s, or two or more bodies corporate each of which 1s related to the one corporation together are, in a position to control or dominate a market for goods or services; or

(b) a corporation, and a body corporate that 1s, or two or more bodies corporate each of which is, related to that corporation, together are ina position to control or dominate a market for goods or services,

the corporation shall be deemed for the purposes of this section to be in a position to control or dominate that market.

(a) a reference to a market for goods or services shall be construed as a reference to a substantial market for goods or services in Australia or ina State; and

(b) a reference to controlling or dominating a market for goods or services shall be construed as a reference to controlling or dominating such a market either as a supplier or as an acquirer of goods or services in that market."

Sub-sections (4) and (5) apply to cases where an authorisation 1S being sought under s.88(9) of the Act.

Ansett Operations 1s a body corporate and is a corporation within the meaning of the definition of that word contained in s.4 of the Act. Avis 1s a body corporate. If Ansett Operations acquires all the issued shares in the capital of Avis, Avis will be a subsidiary of Ansett Operations within the meaning of the Act, see s.4A, and for the purposes of the Act, Ansett Operations and Avis will be related to each other, s.4A(4) and (5) and s.50(2) of the Act. Section 4E of the Act 1s as follows :-

a market in Australia and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with,

None of the respondents submitted that the relevant market for services was not a substantial market for services in Australia or in a State and accordingly I make no further reference to s.50(3) (a) of the Act.

The 1ssue raised therefore 1s whether, as a result of the acquisition of the shares in the capital of Avis (the target body corporate) Ansett Operations (the acquiring corporation) "would be, or be likely to be, in a posation to control or dominate" the relevant market for services, s.50(1)(a) of the Act. In further support of its case, the Commission relied on s.50(2)(b) of the Act and, in this respect, Ansett Operations 1s the corporation and Avis, Ansett Industries and other subsidiaries of Ansett Industries and of Ansett Operations are related to Ansett Operations. Relevant Market

In order to resolve the issue raised, initially it 1s necessary to determine what 1s the relevant market, Prior to lst July 1977, the word "market" was defined in s.4 of the 1974 Act as meaning "a market in Australia". The 1977 Act deleted that definition and inserted s.4E of the Act. The parties did not dispute the principles to be applied in determining the relevant market. Reference was made to what was said by the Trade Practices Tribunal in two decisions arising under the 1974 Act namely Re Queensland Co-operative Milling Association Ltd. (1976) 25 F.L.R. 169 and Re Howard Smith Industries Pty. Ltd. (1977) 15 A.L.R. 645. In the first of those matters the Tribunal, comprising Woodward J., President and J.A.F. Shipton, Esq,

and Professor M.D. Brunt, Members, when discussing the concept of a market for goods in relation to the provisions of s.50 of the 1974 Act and the granting of an authorisation said at pp.190-191 :

"Before giving our reasons we should explain our understanding of the market concept, and of the relationship between "markets" and 'Sub-markets". We take the concept of a market to be basically a very simple idea. A market is the area of close competition between firms or, putting it a little differently, the field of rivalry between them.

(If there 1s no close competition there is of course a monopolistic market.) Within the bounds

of a market there 1S substitution - substitution between one product and another, and between one

changing prices. So a market 1s the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive. Let us suppose that the price of one supplier goes up. Then on the demand side buyers may switch their patronage from this firms's product to another, or from this geographic source of supply to another. As well, on the supply side, sellers can adjust their production plans, substituting one product for another in their output mix, or substituting one geographic source of supply for another. Whether such substitution is feasible or likely depends ultimately on customer attitudes, technology, distance, and cost and price incentives.

It 1s the possibilities of such substitution which set the limits upon a firm's ability to "give less and charge more". Accordingly, in determining the outer boundaries of the market we ask a quite simple but fundamental question: If the firm were to "give less and charge more" would there be, to put the matter colloquially, much of a reaction? And if so, from whom? In the language of economics the question 1s this:

From which products and which activities could we expect a relatively high demand or supply response to price change, 1.e. a relatively high cross-elasticity of demand or cross-elasticity of supply?

The distinction between markets and sub-markets can be merely one of degree. Sub-markets are the more narrowly defined, typically registering some discontinuity in substitution possibilities. Where the defining feature of a market 1s the existence of close substitutes (whether in demand or supply), the defining feature of

a sub-market 1s the existence of still closer and more immediate substitutes. Sub-markets may be especially useful in registering the short-run effects of change; but they may be misleading if used uncritically to assess long run competitive effects."

In the second of those matters, the Tribunal comprising Northrop J., President and J.N. Walker, Esq. and Professor B.L. Johns, Members, when discussing the concept of a market for services in relation to s.50 of the 1974 Act and the granting of an authorisation said at Ppp.662:

"Before proceeding to examine these arguments, we need to define the concept of a market. From the point of view of buyers, a market represents a range of goods or services which are good substitutes for one another in satisfying the buyers' requirements of a particular type. If there 1s a variation in

the relative prices of the goods or services offered for sale in a given market, then buyers can be expected readily to switch their custom from one seller to another or from one product to another."

The word "market" can have many meanings and in s.4E of the Act the meaning given to that word when used in relation to any goods or services is to be extended in the way defined. Having regard to the history and nature of the legislation the use of the words "means ..... and ..... includes" 1s not to be read as a phrase of limitation or as exhaustive of the meaning of the word "market", The definition contained in s.4E of the Act does not limit the concept of a market when that word 1s used in relation to any goods or services and more particularly as the meaning 1s discussed in the two decisions of the Tribunal. I adopt the views

In the present case all parties agreed that the relevant service 1s that provided by the business of hiring motor vehicles, being motor cars, otherwise than under a hire purchase agreement, without the services of a driver. This type of business is commonly called the car rental business and provides a service whereby a member of the public is able to obtain the use of a motor car in return for the payment of a sum of money. There was a faint suggestion that the use of public transport or of taxis could be substitutable for the service provided by the car rental business but this suggestion was not pressed and I find that the relevant service is that provided by the car rental business. The identity

of the car rental market in Australia, however, must be determined.

At the hearing evidence was given by affidavit, which an many cases was augmented by oral evidence, and orally and each witness was cross-examined, A number of witnesses were subjected to extensive cross-examination. Appended to these reasons is a list of the names of the witnesses and their identification. I find that all witnesses attempted to give a truthful and honest account of the matters the subject of their evidence. In addition voluminous exhibits were tendered. Much of the evidence before the Court was of a confidential nature and orders were made under s.50 Federal Court of Australia Act 1976 restricting the publication of particular

evidence while on other occasions orders were made under s.17 and

s.50 Federal Court of Australia Act 1978 excluding all persons

other than those specified in the order from the Court and restricting the publication of evidence given at those closed hearings. In giving these reasons for judgment it 1S proposed, as

far as possible, that the restricted material will not be made public.

Car rental businesses are conducted throughout Australia by a large number of operators estimated in all to number over 160. Most of the operators, identified as the local operators, conduct their activities within a limited geographic area. The area may comprise a capital city, a country city or town or a geographic region. A limited number of operators, identified as the national operators, conduct their activities on an Australia-wide basis. Mr. Searby submitted that on the evidence the relevant car rental market should be identified as the national car rental market. He submitted that this market extended throughout Australia and was to be identified by reference to the operators who conducted their business on a national basis throughout Australia. These operators he said all had similar features namely pricing structures based on an Australia-wide operation resulting in higher costs of management, national advertising throughout Australia, national rates which applied throughout Australia, their own credit facilities apart from credit facilities controlled by other persons, the facility to provide a car anywhere throughout Australia, a network of servicing and emergency facilities to enable the speedy replacement of a rented car in the event of a breakdown anywhere within Australia, the service of providing a booking system throughout Australia through their national operations, the benefit of international credit facilities and the provision of one way rentals, 1.e. a service whereby a car can be rented at one place and the rental terminated at another place. He said that the national operators comprised Avis, Kay Rent-a-Car Pty. Ltd. (Kay-Hertz), Budget Rent-a-Car System Pty. Ltd. (Budget) and possibly Letz Rent-a-Car System Pty. Ltd. (Letz). The other car rental operators he said conducted their business within discreet markets having limited geographic boundaries being the capital city, country city or town or regional area respectively and should not be included as operators in the national car rental market.

Mr. Rogers, supported by Mr. Gobbo, submitted that on the evidence there was one car rental market only throughout Australia and that within this market all car rental operators competed. He submitted that within capital cities, country cities and towns and regional areas the local operators were in keen competition with the national operators and were in fact competing for the custom of the samc persons. He submitted that the lower rates charged by local operators were a strong factor in inducing potential customers to make use of their services rather than that of the national operators. He said that this was a strong feature in establishing the identity of a market, He said there was substitutability of the service provided by local operators and national operators.

On the evidence I find that the relevant market is the Australian car rental market. Within this market the national operators carry on their business throughout Australia. Within this market the local operators carry on their business within lamited areas. In all areas within Australia there 1s substitutability for the service provided by the national operators and the local operators providing that service in that area, 'There 1S competition between the national operators and the local operators in the areas

in which they operate and between the local operators themselves.

The principal features influencing a customer's choice of service are the convenience and ease of renting a car when required and the fact that a car will be available when required, the cost of renting a car, the quality of the service provided, that ais the fact that a clean and reliable car will be provided when required, the possibility of one way rentals, the availability of replacement in the case of a car breaking down and whether the car will be delivered and collected or not and the existence of credit facilities. Of these features the most important appear to be the price and the fact of obtaining a clean and reliable car. The importance placed on any one of these features varies from potential customer to potential customer, for example a businessman may be more concerned with the delivery of a car than with the cost of renting a car while the holidaymaker may be more concerned with the cost of renting a car. There was no suggestion in the evidence that

generally speaking the cars provided were not clean and reliable,

In some areas special types of cars may be provided by some

operators, for example mini-mokes at the Gold Coast and campervans

in Tasmania. The cost of renting cars varies according to the size and power of the cars rented but most cars appeared to be provided with a radio,were of recent make and some of the larger cars had the benefit of air-conditioning. Generally speaking the evidence disclosed that the service provided was of a high order but that

some operators provided extra services;for example Avis provided a 24-hour service and delivery of cars within certain areas and within certain times. A number of the local operators have their own credit facilities while many accept credit cards from other credit : organisations,

The evidence of all the witnesses who were engaged in the car rental business supported the view that car rental operators were in direct competition with other car rental operators conducting their business within their areas, The local operators were in competition with the national operators at airports and at downtown and suburban locations. The expression downtown locations was used to signify business written at the capital cities while the expression suburban locations was used to describe contracts entered into in the suburbs. There appears to be very little difference between these two types of operations, the more clearly defined distinction being between the airport locations and the non-airport locations. The national operators tend to make a feature of the provision of their services at the airports but at the same time many local operators seek custom from airline passengers and are prepared to deliver and collect cars at airports, 'MThe customers of the local operators are not limited to persons living within the local area but come from areas outside the relevant city or town or region and often come from interstate. Some local operators provide one way rentals, especially so in Tasmania. The nature of the competition was stated by many of the witnesses but emerges very clearly from the evidence given by Mr. Cook, a proprietor of the firm Manx Rent~a- Car. He conducted his business in Brisbane but sought business not only from the city area but from anywhere within Australia. He also

provides a one way rental service on special terms.

One of the car rental operators namely Thrift Rent-a-Car Pty. Ltd. (Thrifty) carries on business 1n more than one State.

Thrifty 1s not accepted yet as being a national operator but 1s

seeking to extend its operations throughout Australia. In some /10

respects 1t can be likened to a local operator and in others to a national operator. Its existence supports the view that the relevant car rental market 1s the Australian market and 1s not to be limited to that conducted by the national operators within that market. Finally particular emphasis and reliance is placed upon the material contained in management reports prepared by the senior management of Avis for presentation to the monthly meetings of directors of that company. Copies of these reports extending over several years prior to December 1977 are in evidence. They contain contemporaneous statements made at times long before s.50 of the Act in 1ts present form was enacted. These reports make numerous references to the competition from local operators and how that competition is affecting Avis, the need to consider the rates charged by the local operators when determining the national rates to be charged by Avis and the fact that on occasions Avis was losing part of 1ts market share to local operators. Also, in the past the Vendors incorporated and managed Budget in an attempt to compete more effectively with the other national operators and the local operators. The expression used in evidence was that Budget was incorporated to enable Avis to be more effective in finding custom at "the lower end of the market", Further I accept the evidence

of Mr. Reid, a trustee of the trust for the McIllree family anda director of Avis, Mr. Maher, the managing director of Avis,

Mr. Mitchell, the general manager - administration of Avis, and

Mr. Robert Ansett, the managing director of Budget, that competition exists not only between the national operators but also betwecn

On these facts, applying the principles earlier set out, the relevant market is far wider than that conducted by the national operators and extends to all car rental business within Australia. Further facts supporting this conclusion are referred to in that part of these reasons for judgment which deal with the question of whether Avis is in a position to dominate the car rental market in Australia.

The relevant market having been identified, 1t 1s necessary to determine whether, as a result of the acquisition of the shares in the capital of Avis, Ansett Operations "would be or

be likely to be, in a position to control or dominate" that market.

Before turning to the evidence, 1t 1s necessary to discuss the

The submission by Mr. Searby, Q.C., who with Dr. Emmerson appeared for the Commission, 1S summarised, He said that on the evidence, Avis, at the present time, 1S a body corporate in a position to control or dominate the car rental market; that by the acquisition of all the shares in the capital of Avis, Ansett Operations would be in a position to control Avis and therefore as a result of the acquisition would be in a position to control or dominate that market. If necessary he relied on s.50(2) (b) of the Act. He submitted further that in this respect the wording of s.50(1) (a) of the Act was clear and unambiguous and in particular . the section did not require some additional factor to be contributed by the acquiring corporation to strengthen the existing power of the target body corporate to control or dominate that market. I shall return later to the question of the meaning of the phrase or words

The submission by Mr. Rogers, Q.C., who with Dr. Griffith appeared for Avis and the Vendors, and which was adopted by Mr. Gobbo, Q.C., who with Mr. Hayne appeared for Ansett Operations and Ansett Industries, 1S summarised, He referred to the provisions of Part IV of the Act and said that although a contravention of s.50 did not constitute a criminal offence nevertheless a corporation which contravened the section, as well as persons, including directors of the corporation and body corporate, who aided, abetted, counselled or procured a contravention of s.50, could be ordered to pay substantial sums of money by way of penalty, s.76, s.77 and s.78 of the Act. He said that where a contravention of s.50 had occurred, the Court had power to direct divestiture of the shares acquired in contravention of that section. He submitted that the sections contained in Part IV of the Act should be read together and that, having regard to the fact that the Act did not make a monopoly unlawful but that the provisions of the Part were directed to the prevention of specified conduct, on its proper construction s.50(1) (a) should be interpreted as applying only to those cases where the acquiring corporation, by its input subsequent to the acquisition, was able to contribute or add to the strength of the power of the target body corporate to control or dominate the relevant market, He said that otherwise a controlling interest of shares in the capital of a body corporate which was in a position to control or

dominate a market could never be acquired by a corporation without there being a contravention of the Act. He submitted that this /12.--

interpretation would prevent the effective operation of the provisions of State Companies Acts, for example the provisions applicable to arrangements and re-constructions of companies, as well as preventing the effective administration of trusts as in this case where 1t 1s the desire of the trustees of the estate of the late Eric Edward McIllree to dispose of the business of Avis to enable distribution of the capital of the trust to the beneficiaries and constituted an expropriation of property without compensation.

For the purposes of considering the proper construction ° of s.50 of the Act, I will assume for the moment that at the present time Avis 1S in a position to control or dominate the car rental market and that as a result of the acquisition of the shares in the capital of Avis by Ansett Operations, that power to control or dominate would not cease. Later I shall consider the matter on the basis that at the present time Avis 1s not in a position to control

Section 50 as contained in the 1974 Act was markedly different from s.50 as introduced by the 1977 Act. The former s.50(1) was in the following form :

"50.{(1) A corporation shall not acquire, directly Or indirectly, any shares in the capital, or any

assets, of a body corporate where the acquisition 1s likely to have the effect of substantially

lessening competition in a market for goods or services."

That section proscribed the acquisition of shares where the acquisition was "likely to have the effect of substantially lessening competition 1n a market". The present s.50(1) of the Act makes no express reference to "competition" or to "the lessening of competition" in a market. Each of the sections 45 to 50 inclusive contained in Part IV of the 1974 Act proscribed conduct which directly was referrable to the lessening of competition or was discriminatory. Following the amendments made by the 1977 Act each of the sections 45 to 49 in Part IV of the Act proscribe conduct which 1s directly referrable to the lessening of competition or discrimination. Section 50 of the Act, while still within Part IV of the Act, no longer makes direct reference to competition or rather to the lessening of competition. Nevertheless whatever meaning 1s to be

given to the phrase or words "control or dominate" contained in ne

s.50 of the Act, the existence of a body corporate which controls or dominates a market directly affects that market. Such a body corporate does not suffer the inhibitions or restraints normally found in a market and to that extent competition is lessened in that market.

In applying s.50 of the Act, the position of the acquiring corporation must be considered. Section 50(1)(a) applies where the acquiring corporation previously was not in a position to control or dominate the relevant market while s.50(1)(b) applies where the acquiring corporation waS 1n a position to control or dominate the relevant market. Section 50 is concerned with the power to control or dominate a market. The unexpressed major premise contained in the section is that 1t 1S undesirable for a body corporate to be in a position to control or dominate a market or in other words to have the power to control or dominate a market since the existence of that power tends to lessen competition in that market. Section 50(1) (b) expressly proscribes conduct which would or would be likely to substantially strengthen the power of a corporation to control or dominate the relevant market. Section 50(1)(a) makes no express reference to the power to control or dominate a market existing ina body corporate being substantially strengthened when acquired by a corporation. The section 1s directed to the acquiring corporation and its power to control or dominate a market as a result of the acquisition. The question then 1s whether there should be read into s.50(1) (a) a requirement that the section does not proscribe the acquisition of shares in the capital of a body corporate which has the power to control or dominate a market unless, as a result of the acquisition, the existing power to control or dominate that market 1s substantially strengthened, In my opinion no such

requirement should be read into or implied in s.50(1) (a) of the Act,

In my opinion, subject to any authorisation that may have been granted under Part VII of the Act, a corporation which, by the acquisition of shares in the capital of a body corporate, acquires a controlling interest in a body corporate which is in a position to control or dominate a market for services, thereby contravenes s,50(1) (a) of the Act.

Section 50 of the Act relates to a different subject

Matter to those referred to in the other sections contained in ~/14..-

Part IV of the Act. The heading to Part IV of the Act reads "Restrictive Trade Practices". Although the headings of Parts

unto which an Act is divided shall be deemed to part of the Act, s.13 Acts Interpretation Act 1901, limited use 1S permitted to be made of a heading as an aid to the interpretation of a section of

an Act coming within that heading. On 19th April 1978 the High Court delivered judgment in Hornsby Building Information Centre Pty.

Ltd. v. Sydney Building Information Centre Ltd. That case involved

the interpretation of s.52 of the 1974 Act. The section was within Part V "Consumer Protection" of the Act. Stephen J. at pp.5-6 of the ,

"Because of some of the differences appearing in the descriptions in s.4(3) of consumers of goods and consumers of services, any general limitation upon the operation of Part V which is said to result from these quasi-definitions of "consumer", working through the effect of the heading "Consumer Protection", would be one the boundaries of which would be both obscure and intricate. But it 1s not upon this ground that I reject this suggested limitation; it 1s rather because I do not regard it as appropriate that the unambiguous words of s.52 should be given some unnaturally confined meaning because of the heading to Part V. Even were that heading to be regarded as controlling, it 1s, I think, by no means clear that it would be appropriate to import into the heading the quasi-definitions of "consumer" in s.4(3). Be that as it may, I would adopt what was said by Latham C.J. in Silk Bros. Pty. Ltd. v. State Electricity Commission of Victoria (1943) 67 C.L.R. 1 at p.16 concerning the use of headings in the interpretation of statutes.

"The headings in a statute or in Regulations can be taken into consideration in determining the meaning of a provision where that provision 1S ambiguous, and may sometimes be of service in determining the scope of a provision (see In re Commercial Bank of Australia Ltd. (1893) 19 V.L.R. 333, at p.375). 'But where the enacting words are clear and unambiguous, the title, or headings, must give way, and full effect must be given to the enactment' (Bennett v. Minister for Public Works (N.S.W.) (1908) 7 C.L.R. 372, at p.383, per Isaacs J.).".

To subject the clear and quite general words of s.52 to some limitation derived from the heading to Part V 1s,

I think, especially inappropriate in the case of this particular legislation. The Act 1s intricately drafted, some of its provisions being expressed in terms of broad generalities, as 1S s.52, others in elaborate detail. Each may be seen to take the precise form it does

That s,.52(1) 1S intended to be a provision having a broad reach is made clear by the express provision in s.52(2) preserving its "generality" from any limitation which might

be thought to arise from the more specific provisions of succeeding sections. It 1s also significant that the quasi-definitions of "consumer" in s.4(3) appear to have little application to most of the provisions of Division 1 of Part V; 1t 1S on Davision 2

that they principally operate. To interpret the provisions of Division 1 in the laght of the quasi-definitions, applied, through this heading, to the entire Part, will be to distort in numerous respects the otherwise clearly apparent legislative pattern manifest in Part V."

See also Re Credit Tribunal ex parte General Motors Acceptance

Corporation, Australia (1977) 14 A.L.R. 257 per Mason J. at pp.267-8 when discussing the meaning of the word "misleading" contained in

In the light of the clear words of s.50(1) (a) of the Act, I @raw no assistance from the heading to Part IV of the Act. The general canon of construction 1s clearly stated in the Australasian Temperance and General Mutual Life Assurance Socicty v. Howe (1922) 31 C.L.R. 290 per Knox C.J. and Gavan Duffy J. at p.294:

"The rule 1s that words used by the Legislature should be given their plain and natural meaning unless it 1s manifest from the general scope and untention of the statute that injustice and absurdity would result from so construing them (per Jervis C.J. in Mattison v. Hart (1854) 14 C.B., 357, at p.385). By plain and natural meaning 1s meant the literal and popular, as opposed to a figurative or technical, meaning."

In my opinion on this part of the case there 1s no reason to depart from that canon of construction. Section 50(1)(a) of the Act is directed to preventing a corporation from acquiring any shares un the capital of a body corporate if as a result of the acquisition the corporation would be or be likely to be in a position to control or dominate a market for services. It has application irrespective of whether the acquiring corporation already operates in the same market as the target body corporate or not. It has application where the target body corporate 1s 1n a position to control or dominate a

market 1rrespective of whether the acquiring corporation operates 1n

that market or not. The sub-section cannot apply however where

the acquiring corporation already 1s 1n a position to control or dominate the market in which the target body corporate operates since, following the acquisition, the power to control or dominate that market does not result, in a casual sense, from the acquisition. In this latter case s.50(1)(b) applies to proscribe the acquisition where the acquisition would, or would be likely to, substantially strengthen the power of the acquiring corporation to control or dominate that market. There 1s no warrant for implying any similar requirement into s.50(1) (a) of the Act.

Section 50(1)(a) of the Act is directed to restricting the power of corporations to acquire property. If as a consequence other persons are prevented from disposing of their property in a Manner most advantageous to them, 1t cannot be said that the section amounts to an expropriation of property without compensation and therefore a different construction should be given to the section. Many statutes restrict the power of owners of property to dispose of property 1n a manner desired by the owner. Further, many of the provisions of Part IV of the Act impose restrictions on the business activities of corporations and this again 1S not an unusual feature of statutes. The construction I have adopted is not contrary to the rule of construction stated by the Chief Justice in Tickle Industries Pty. Ltd. v. Hann (1974) 130 C.L.R. 321 at p.331 as follows:

"It 28, 1n my opinion, a sound rule of statutory construction that a meaning of the language employed by the legislature which would produce an unjust or capricious result is to be avoided. Unless the statutory language is intractable, an intention to produce by its legislation an unjust or capricious result should not be attributed to the legislature."

See also Phosphate Co-operative Co. of Australia Ltd, v. Environment Protection Authority (1977) 18 A.L.R. 210.

The construction adopted, 1n my opinion, is supported by reference to other sections of the Act. The provisions of s.88(9) and s.90(9) enabled an authorisation to be granted in cases where the proposed acquisition would result or be likely to result in such a

benefit to the public that an acquisition should be allowed to take

Place. Where an authorisation is granted, s.50 of the Act does not

prevent the corporation from acquiring shares in the capital, or from acquiring assets, of a body corporate in accordance with the authorisation.

On this construction of s.50 of the Act, 1t becomes necessary to determine whether Avis 1S 1n a position to control or dominate the relevant market. It 18 not necessary that Avis in fact controls or dominates the market, It is sufficient if it is in a position, in the sense of having the power, to control or dominate the market. If in fact 1t does control or dominate the market, it follows that it 1s 1n a position to control or dominate the market. The difficulty of construction arises from the words "to control or dominate". Neither word is defined in the Act.

The section 1S in an Act which directly affects commercial transactions and the words in question are to be understood in that context. The common or ordinary meaning of the words as appearing in the Oxford

Control - "4. To exercise restraint or direction upon the free action of; to hold sway

over, exercise power or authority over; to dominate, or command."

Dominate - "l. trans. To bear rule over, control, sway; to have a commanding influence on; to master.

2. auntr. To bear sway, exercise control; to predominate, prevail; to lord over."

Definitions of the words in question appearing in the 1972 Supplement to the Oxford English Dictionary and in the Addenda to the 1972 Edition of the Shorter English Dictionary do not assist

Evidence by Professor Hogan and Dr. Norman was admitted on the issue of whether the words in question had acquired a Particular usage in the sphere of commerce or economics. Each said that the word "control" had no such particular usage but tended to suggest something stronger than the word "dominate" and often identified with the existence of a monopoly power. Each said that the word "dominate" and the concept of "dominance" was common in the literature of economics. Professor Hogan gave no definition

of "dominate" which had acquired general acceptance. Dr. Norman said "dominance" had a strict objective and precise meaning and referred to a situation in which a participant in a market could affect the situation of another or others in that market while

those others remained completely unable to exert any influence on the dominant participant. In developing that thesis, Dr. Norman expounded the theory of dominant firm price leadership, the word "firm" being used in the sense of a person engaged in business within the market. The theory postulates that the dominant firm is able to determine prices for its products without reference to other firms within the market which firms, being the followers, must inevitably and without delay adjust their prices to maintain the pre-existing relationship of prices within that market, The theory 1s strict and specific in 1ts application and in practice it is difficult to know to what extent it applies. It can be used to determine whether a particular firm 1s dominant, but is of little assistance in

determining whether in the future a firm is likely to dominate.

In my opinion in s.50 of the Act the word "dominate" 1s not used in the sense described by Dr. Norman. In that section the word "control" is not used in any technical sense and it would be unusual for the word "dominate" to be used in a technical sense when used in the phrase "to control or dominate". Accordingly the word "dominate" should not be given such a strict and narrow meaning. Further, in one of the references given by Dr. Norman, F.M. Shearer,

Industrial Market Structure and Economic Performance (1970), the

theory 1s discussed in a chapter headed "Conditions Facilitating Oligopolistic Co-ordination". The word "oligopoly" is used frequently in the literature of economics and appears to be used to describe

a type of market where a small number of firms account for a large proportion of the output of that market. The word "monopoly" 1s in common use and 1s used as meaning the exclusive possession of the trade 1n some commodity. The word "oligopoly" 1s not included in

the Oxford English Dictionary but in the Addenda to the Shorter

Oxford English Dictionary 3rd Ed. (1974 Printing) the word "oligopoly" appears and 1s given the meaning of "a state of limited competition when a market 1s shared by a small number of producers or sellers". The oligopoly market 1s described by Phillip Areeda in the text

book Antitrust Analysis, Problems, Text, Cases (1974). In a section

of that book headed "Oligopoly or Shared Monopoly" at p.224

Professor Areeda describes the oligopoly or shared monopoly market

as a market "where no single firm possesses sufficient power to be considered a monopoly but where the behaviour and economic performance of several firms approaches that of a single-firm

Coming back to the text book "Industrial Market Structure

and Economic Performance" in the chapter headed "Conditions

Facilitating Oligopolistic Co-ordination" Shearer says at p.165:

Dr. Norman lists as one of the main characteristics of that theory the necessity of a product that is undifferentiated in the minds of the buyers being supplied from two sources, a single dominant firm and from a large number of relatively small competitors, the latter group being known as "the fringe". Earlier I have

The legislature cannot have intended the word "dominate" un s.50 of the Act to have the limited meaning ascribed to 1t by

It would have been useful if, in the phrase "to control or dominate" the word "control" related to a monopoly market and the word "dominate" related to all other markets. This definition

however 1S not possible. Section 46(1) of the Act is as follows:

"46.(1) A corporation that 1S in a position substantially to control a market for goods or services shall not take advantage of the power in relation to that market that 1t has by virtue of being in that position for the purpose of - "

Certain purposes are then specified in s.46(1). Section 46(3) is as follows:

"(3) A reference in this section to a corporation or other body corporate being in a position substantially to control a market for goods or services includes a

reference to a corporation or other body corporate, as

the case may be, having, by reason of its share of the market, or 1ts share of the market combined with the availability to 1t of technical knowledge, raw mater1als or capital, the power to determine the prices, or control the production or distribution, of a substantial part of the goods or services in that market."

Sub-section 3 extends the meaning of the phrase "a corporation being an a position to control a market" but 1t does not follow necessarily that the extended meaning would not have been within the original phrase without the extending definition. In s.46 of the Act, the phrase "in a position substantially to control a market", by the use of the word "Substantially" appears to widen the meaning of the word "control" to enable the section to apply to markets other than those where a monopoly exists. The marginal note to the section is to be 1gnored, s.13(3) Acts Interpretation Act 1901. Further, the inclusion

of the word "control" in s.50(1)(b) of the Act and the reference to "substantially strengthen the power of the corporation to control" appears to prevent the meaning of the word "control" in s.50(1) (a) of

the Act to be limited to cases where a monopoly exists.

The correct construction of the words "control" and "dominate" 1s made more difficult when reference 1s made to the

decision Re Continental Can Company Incorporated (1972) C.M.L.R. D 11,

a decision of the Commission of the European Communities. In considering the decision of that Commission, it must be remembered that difficulties may arise from translations from the French language. The decision referred to arose out of the application of Article 86

of the Treaty instituting the European Economic Community. The

"Any abusive exploitation by one or more enterprises of a dominant position within the Common Market or within a substantial part of 1t shall be deemed to be incompatible with the Common Market and shall he prohibited, in so far as trade between Member States could be affected by it."

3. Undertakings are in a dominant position when they have the power to behave independently, which puts them 1n a position to act without taking into account

1s the position when, because of their share of the market, or of their share of the market combined

with the availability of technical knowledge, raw materials or capital, they have the power to determine prices or to control production or distribution for a significant part of the products in question. This power does not necessarily have to derive from an absolute domination permitting the undertakings which hold it to eliminate all will on the part of their economic partners, but it 1S enough that they be strong enough as a whole to ensure to those undertakings an overall independence of benaviour, even if there are differences in intensity in their influence on the different partial markets,"

Section 46 and s.50 of the Act in their present form were inserted 1n the year 1977. The wording of s.46(3) of the Act and the wording of the extract from the decision of the Commission in

Continental Can Company Incorporated are markedly similar despite

the fact that s.46(1) is concerned with "a corporation that 1S ina position substantially to control a market" while Article 86 1s concerned with "enterprises of a dominant position".

In the present case, no counsel suggested that the words "to control or dominate" appearing in s.50 of the Act should be read as a composite phrase. Counsel submitted that the words "control" and "dominate" should not be read as being synonymous. Mr. Searby did not attempt to establish that Avis was in a position to control the car rental market or that as a result of the acquisition, Ansett Operations would be or be likely to be in a position to control that market. The primary case for the Commission was that Avis presently 1s in a position to dominate the car rental market and that as a result of the acquisition, Ansett Operations would be ina position to dominate that market, Alternatively if Avis 1S not presently in a position to dominate that market, then as a result of the acquisition and the existence of other factors resulting therefrom, Ansett Operations would be or be likely to be in a position

The lengthy discussion relating to the meaning of the words "control" and "dominate" has been undertaken to enable the proper construction to be given to the word "dominate" as used in s.50 of the Act. In interpreting the word "dominate" 1t 1s not necessary to interpret the word "control" although regard must be

had to certain aspects of the meaning of that word. /22.65

I find that the word "dominate" as used in s.50 of the Act cannot be given any special meaning by reason of common usage an the literature of economics. The word "dominate" 1s to be construed as something less than "control". The word is to be

construed in its ordinary sense of having a commanding influence on. Dominance in a Market

The market concept has been discussed earlier. In order to decide whether any one firm in a market 1S 1n a position to dominate that market, 1t is necessary to make some reference to the

concept of competition. In Re Queensland Co-operative Milling ,

Association Ltd,, supra, at pp.187-189 the Trade Practices Tribunal,

in a very helpful passage, discussed the concept of competition. At p.189 the Tribunal said:

"Competition 1s a process rather than a situation. Nevertheless, whether firms compete 1s very much a matter of the structure of the markets in which

any case are these: (1) the number and size distribution of independent sellers, especially the degree of market concentration; (2) the height of barriers to entry, that 1s the ease with which new firms may enter and secure a viable market; (3) the extent to which the products of the industry are characterized by extreme product differentiation and sales promotion; (4) the character of "vertical relationships" with customers and with suppliers

and the extent of vertical integration; and (5) the nature of any formal, stable and fundamental arrange- ments between firms which restrict the1r ability to function as in dependent entities. Of all these elements of market structure, no doubt the most important 1s (2), the condition of entry. For 1t 1s the ease with which firms may enter which establishes the possibilities of market concentration over time; and it 1s the threat of the entry of a new firm or a new plant into a market which operates as the ultimate regulator of competitive conduct."

Competition at work and the application of the element of the threat of entry into a market is illustrated in Re Howard

In evidence, Professor Hogan said in substance, that according to economic theory, 1n order to determine whether a firm waS 1n a position to dominate a market, consideration whould be

given to a number of factors which can be summarised as follows:

• 23- (1) The market share of the firm over a period of years.

(2) The capacity of the firm to determine prices for its products without being consistently inhibited in its

(3) The relevant prices charged by the firm by comparison

(4) The profitability of the firm compared with that of

(5) The ability of new firms to enter the market and to

(6) The financial stability of the firm in relation to

(7) The related size of the firm by comparison with others

in the market to be measured by - (a) market shares; (b) gross revenues; (c) shareholders funds employed.

He said that there was no absolute measure by which dominance could be determined but that after a consideration of the factors enumerated a conclusion had to be made, in other words the final decision on whether a particular firm was in a position to dominate a market amounted to an act of judgment. No one factor was conclusive. The fact that any one of the specified factors did not support a finding of dominance did not deny a final conclusion that

Another factor that must be considered is the quality of the products or services provided, referred to as product differentiation. An aspect of product differentiation 1s illustrated in Re Howard Smith Industries Pty. Ltd., supra, in the passage just

The views expressed by Professor Hogan are supported generally by a recent judgment of the Court of Justice of the European Communities in United Brands Co. v. Commission of the

European Communities delivered on 14th February 1978. That case

anvolved the application of Article 86 of the E.E.C. Treaty. The relevant terms of Article 86 have been quoted above. The Court, after referring to Article 86, said:

article relates to a position of economic strength enjoyed by an undertaking which enables it to

the relevant market by giving it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers.

66. In general a dominant position derives froma combination of several factors which, taken separately, are not necessarily determinative.

67. In order to find out whether UBC is an undertaking in a dominant position on the relevant market 1t 1s necessary first of all to examine its structure and then the situation on the said market as far as competition is concerned."

The Court considered the structure of the United Brands Co. and

its vertical integration in a process of growing, distributing

and marketing bananas. It then considered the situation with regard to competition. It had regard to the market share had by United Brands Co. and said:

"107. A trader can only be in a dominant position on the market for a product if he has succeeded in winning a large part of this market.

108, Without going into a discussion about per- centages, which when fixed are bound to be to some extent approximations, it can be considered to be

an established fact that UBC's share of the relevant market 1s always more than 40% and nearly 45%.

109. This percentage does not however permit the conclusion that UBC automatically controls the market,

110. It must be determined having regard to the strength and number of the competitors."

The use of the word "controls" in paragraph 109 is intriguing.

The Court then considered aspects of competition and pointed out

that an undertaking did not need to have eliminated all opportunity for competition in order to be in a dominant position, but stressed the fact that the relevant competition in the banana case had not succeeded in increasing the market share of competitors of the United Brands Co. The Court then said:

"121. UBC's economic strength has thus enabled 1t to adopt a flexible overall strategy directed

against new competitors establishing themselves on the whole of the relevant market.

122. The particular barriers to competitors entering the market are the exceptionally large capital investments required for the creation and running of banana plantations, the need to increase sources of supply in order to avoid the effects of fruit diseases and bad weather (hurricanes, floods), the introduction of an essential system of logistics which the distribution of a very perishable product makes necessary, economies of scale from which newcomers

to the market cannot derive any immediate benefit and the actual cost of entry made up inter alia of all the general expenses incurred in penetrating the market such as the setting up of an adequate commercial network, the mounting of very large-scale advertising campaigns, all those financial risks, the costs of which are 1rrecoverable if the attempt fails.

123. Thus, although, as UBC has pointed out, it 1s true that competitors are able to use the same methods of production and distribution as the applicant, they

come up against almost insuperable practical and financial obstacles.

124. That 1s another factor peculiar to a dominant position."

"126. An undertaking's economic strength is not measured by its profitability; a reduced profit

margin or even losses for a time are not incompatible with a dominant position, just as large profits may be compatible with a situation where there is effective competition.

127. The fact that profitability is for a time moderate or non-existent must be considered in the light of the whole of UBC's operations.

128. The finding that, whatever losses UBC may make, the customers continue to buy more goods from UBC which 1s the dearest vendor, 1s more significant and this fact 1s a particular feature of the dominant position and its verification 1s determinative in this case."

"129. The cumulative effect of all the advantages enjoyed by UBC thus ensures that 1t has a dominant position on the relevant market."

I propose to determine the question of dominance by a method similar to that adopted by the Court in the United Brands Co.

case. I shall have regard to the car rental market in Australia, the structure of Avis and the nature of the competition in that market. In different markets, different approaches may be required but in .

this case, which relates to the provision of a service, the conclusions

drawn will be tested in the light of all the evidence. As the first step I shall have regard to -

l, The firms operating in the market and the degree of

2. The capacity of Avis to determine prices for 1ts services

without being consistently inhibited in its determination by other firms.

3. The height of barriers to entry, that is the ease with

which new firms may enter and secure a viable share of the market.

4. The extent to which the products of the industry are characterized by extreme product differentiation and sales promotion.

5. The character of corporate relationships and the extent of corporate integration, but this factor becomes relevant on the facts of the present case only if I find

In my opinion, the profitability of a firm 1s not of real assistance in determining dominance. In this market the national operators and some local operators give volume and other discounts to preferred customers and in providing the car rental component un fly-drive packages, The existence of these discounts, the amount

and extent of which are closely guarded trade secrets, must have an

effect on the gross revenues of operators and their profitability. As a result comparisons based on the financial return on car utilisation as well as profitability may be distorted. There is no yardstick by which profitability 1s to be measured. Further, I agree with the views expressed 1n paragraphs 126 and 127 in the judgment in the United Brands Co. case. The method of accounting adopted by different operators competing in the market may make unreal any comparison between them based on profitability. Further, non-recurring items of an abnormal or extraordinary nature affecting an operator in any one year may lead to distortion. In the last few years matters of this kind have affected operators within the car rental market in Australia. What 1s of more 1mportance, however,

1s the ability of operators to enter the market and sustain their entry.

Mr. Rogers raised the question of the degree of satisfaction required to establish the case made by the Commission. He referred to the grave consequences resulting from a finding that the acquisition of the shares by Ansett Operations contravened s.50 of the Act. I have made reference already to those consequences. Mr. Rogers referred to Briginshaw v. Briginshaw (1938) 60 C.L.R. 336 per Latham C.J. at p.,343 and Dixon J, at p.360 et seq., the well known

passages relating to the "degree of pursuasion of the mind according to the balance of probabilities and the gravity or otherwise of the fact of whose existence the mind 1s to be pursuaded", see Rejfek v. McElroy (1965) 112 C.L,R. 517 at p,521. This latter case does not

detract from the opinions expressed in Briginshaw v. Briginshaw. In

the present case the civil standard of proof 1s to be applied, but I keep in mind the gravity of the consequences resulting from a finding that the acquisition of the shares constitutes a contravention of s.50 of the Act.

In the light of the expressions of opinion already made, 1t 1S apparent that the Court 1S required to make findings of fact based on the evidence presented, to apply the principles which have been enunciated to those facts and then to draw the necessary conclusions. On this approach it is clear that the evidence given by Professor Hogan and Dr. Norman respectively directed to the issue of whether Avis is or 1s not in a position to dominate the car rental Market in Australia, not only becomes irrelevant but in all probability

was unadmissible. This evidence consisted of opinions based on 'factual material presented to the Court but not necessarily all that material, since all the witnesses had not been cross-examined at the time the opinion evidence, was given. At the time, the question of admissibility was raised but was deferred since the assues had not then been clearly defined and the principles to be applied had not been determined. The evidence was admitted. The evidence relating to whether the word "dominate" had acquired any special meaning in the literature of economics is admissible and relevant but I exclude from consideration the evidence given by Professor Hogan and Dr. Norman respectively directed to their opinions on the issue of whether Avis dominates the car rental market

No official statistical material is available relating to the car rental market in Australia nor to the market shares of operators within that market. Evidence was given by witnesses engaged in the market of the particular situation of their own businesses. Many of these witnesses expressed opinions as to the market shares of operators in the market. No evidence was given by any witness from the management of Kay-Hertz, a national operator and possibly the second largest operator in the market. Accounts of Kay-Hertz were tendered by accountants. In the absence of formal market figures, the lack of evidence on behalf of a major operator in the market makes more difficult the task of determining the

The car rental business in Australla commenced about the end of the Second World War. At that time, the late Mr. McIllree commenced a car rental business under the name "Airport Rent-a-Car". Avis was incorporated within the State of New South Wales in November 1955 for the purpose of acquiring the business of Airport Rent-a-Car and other car rental businesses then being conducted by Mr. McIllree. Avis acquired a right within Australian States to the use of the names "Avis", "Hertz", "Budget" and "National", being the names of large car rental businesses in the U.S.A. and other countries. During the 1950's, Avis established itself as the first car rental business with depots at all capital cities and at capital city airports. Apart from local operators, during the 1950's and 1960's, Kay Rent-a-Car Pty. Ltd. (until 1977 referred to as Kay) and Letz were established with depots at all capital cities. In 1964

Avis sold the name "Hertz" to the U.S.A. corporation and subsequently Hertz operated within Australia although under foreign control. In May 1965, Budget was established to serve the lower end of the car rental market. Budget was controlled by Avis. In June 1965, Mr. Robert Ansett was appointed general manager of Budget and retained this position until 1974 when Budget was sold to Australian Guarantee Corporation Ltd, and Mr, Ansett. Since 1974, Mr. Ansett has been the managing director of Budget. Avis retains control of the name "National", In 1976, Hertz ceased to carry on its own business which waS acquired subsequently by Kay, Kay~Hertz now has the right to use the name Hertz and conducts its business under the name Hertz. After Avis, Kay-Hertz and Budget are the next two largest car rental operators in Australia. Following these two the next two largest

car rental operators in the market are Letz and Thrifty.

The car rental business may be conducted in a number of different ways. Most local operators have one depot only. The larger operators including the national operators have company owned depots and also agency operated depots. In some cases the operator by means of a franchise agreement permits the franchisee to have the benefit of the name of the franchisor in return for a fee. Other types of franchise agreements provide for the franchisee receiving a commission. Variations exist as to the specific terms of franchise agreements, Various arrangements exist by which cars are obtained by the operators for rental purposes, In some cases the operator purchases the cars. In other cases the operator obtains cars under leasing agreements some of which may be under hire purchase agreements, but more often the leasing agreements are either of a residual or non residual type. Under the residual type leasing agreement, at the termination of the agreement, the operator is required to pay to the lessor the residual value and then has the burden of disposing of the car. Under the non residual type leasing agreement the operator 18 not liable to make any capital payment or to dispose of the car. Normally cars are replaced every 12 to 18 months. There are peaks of demand in the car rental business and most operators conduct their business in such a way that any overlap in the turnover of cars allows the maximum number of cars to be utilised during the

There has always been a close affinity between the airline

business and the car rental business. Airline passengers provide a

large source of potential customers for car rentals. The car rental business 1S a natural extension of the airline business, it provides a service 1n many respects ancilliary to the airline business. Over recent years, there has been a rapid development in the fly-drive holiday package under which the airline markets a holiday tour during part of which the holidaymaker has the use of a rental car. Special provision is made for the businessman who uses an airline to take him from his hometown and who requires the use of a rental car while at his port of destination. Being the first major car rental operator in Australia, Avis naturally received favoured treatment from the two major airlines namely TAA and Ansett Airlines, the latter being a division of Ansett Operations, In the past each of TAA and Ansett Airlines had agreements with Avis under which Avis was to receive preferred treatment over other car rental operators. These agreements have ceased but Avis still receives preferred treatment particularly with respect to the fly-drive holiday packages. Recently each of TAA and Ansett Airlines have provided a facility, for u fee, to each of Avis, Kay-Hertz and Budget whereby at the time of booking an airline ticket, the customer 1s able to make a booking with any one of those three operators, for a rental car through the computer service provided by the airline. In other cases officers of the airline when so requested by the airline customer and normally at no charge, arrange for a car rental booking with other car rental

operators at the port of destination of the customer.

There is one fact of vital importance to this case which, although already mentioned, has not yet been explained, namely an

authority conferred upon Avis pursuant to the Alrports (Business

Concessions) Act 1959, which authority 1S hereinafter called "the

airport franchise", Under that Act an airport is defined to mean in substance an airport conducted by the Commonwealth. Section 7 of

that Act makes it an offence for a person within an airport to -

"(a) sell, for delivery within the airport, or supply, any goods or services;

except 1n accordance with an authority granted pursuant to s.8 of that Act. Certain exemptions to the general prohibition, not relevant for present purposes, are set out in sub-section (3). Pursuant to s.6 of that Act, the Minister, on behalf of the Commonwealth, 1S empowered to grant leases or licences in respect of land within an airport on such terms and conditions as the Minister thinks fit and pursuant to s,8, the Minister, on behalf of the Commonwealth, 18 empowered to grant an authority to do any act or thing referred to in s.7(1) of that Act and the authority may be uncluded in or granted in relation to a lease or licence and shall be granted for such period, on such terms and conditions and for

In 1959 Avis was granted an authority under the Airports (Business Concessions) Act 1959 to conduct a car rental business

for three years at Sydney and Melbourne airports. In 1961, following the calling of tenders, new authorities each for a period of three years were granted to each of Avis and Kay to conduct car rental businesses at the major city and country airports and authorities were granted to a number of local operators to conduct car rental businesses at specified airports namely Adelaide, Hobart, Perth, Surfers Paradise and Coolangatta, Under the authority granted to it, Kay conducted its business at six only of the 31 airports to which its authority referred, In 1964, the Minister decided to grant exclusive authorities and, following the calling of tenders, Avis was granted an exclusive authority for three years at the major city and country airports. This authority was extended until the end of June 1969.

In 1969, the Minister called for tenders for an exclusive authority

at all airports within the meaning of the Airports (Business

Concessions) Act 1959. The authority was to be for a period of ten

years commencing lst July 1969 and Avis, being the successful tenderer, was granted the exclusive authority until 30th June 1979. It 18 this authority which 1s referred to as the airport franchise. The effect of the airport franchise 1s to grant to Avis a monopoly of the car rental business at Commonwealth airports.

The airport franchise confers obligations on Avis. It has to pay an annual fee ranging from just over $10,000 for the year ending 30th June 1970 to an amount just under $27,000 for the year ending 30th June 1979. In addition, 1t has to pay an annual commission

calculated on the mileage charges and to charges payable on cars hired

at certain named alrports. It has to maintain a desk and staff at airports and not do anything to divert, or which is likely to divert from one airline operator to another, traffic in the carriage ot persons or goods by air. It 1s not, without the prior approval in writing of the Director General of Civil Aviation, now Transport,

to charge or permit to be charged, rates for rental in excess of those set out in the tender documents or a specified letter. Many other obligations are imposed on Avis by the airport franchise. It is necessary to refer only to the power of the Commonwealth to determine the airport franchise 1f Avis omits to observe or perform any of the terms and conditions on which the authority is granted, or if there is any change in the substantial ownership or effective control of Avis. It was because of this last mentioned matter that Avis and Ansett Operations were concerned to ensure that the Minister for Transport would not determine the airport franchise by reason of the change in ownership or control of Avis resulting from the acquisition by Ansett Operations of all the shares in the capital

The existence of the airport franchise, in theory, grants to Avis a monopoly of the car rental business at Commonwealth al1rports. A number of consequences follow, The name of Avis, both by the use of advertisements and the presence of the Avis desks at airports, 15s prominently and regularly placed before all airline travellers. All the national operators in the car rental market advertise extensively on radio, television and in the press but Avis has a monopoly of advertisements at the airports controlled by the Commonwealth. In addition, each of TAA and Ansett Airlines make in-flight announcements to the effect that if any passenger desires to rent an Avis car at the airport of destination, then a booking can be made from the aircraft. The limitation of this offer to Avis cars results from the impracticability of making similar offers for other car rental operators when they are not necessarily at the alrports. A major complaint by other car rental operators was the extent of the advertising within airports of the name of Avis and the resulting

Despite the airport franchise, other car rental operators, including both national operators and local operators, obtain business at Commonwealth airports. Mr. Robert Ansett estimated that the

percentage of business conducted by Budget at airports varied from

State to State but, on an Australia-wide basis, appears to be of the order of 28%. Despite complaints by Avis, the Commonwealth apparently has taken no effective action to enforce the provisions of s.7 of the Airports (Business Concessions) Act 1959.

The existence of the airport franchise helps to explain the preferred position of Avis qua each of TAA and Ansett Airlines. It is important to the airlines that the car component of any fly- drive package should be reliable and that if anything untoward happens then the car rental operator 1S 1n a position to help resolve the resulting problems. Avis 1S in that position since it has a desk, staff and cars at all Commonwealth airports, Except in Tasmania, which 1S 1n a special position and which will be discussed later, and except for one example in Western Australia, in all holiday fly- drive packages organised by each of TAA and Ansett Airlines, Avis 18 engaged as the car rental operator to provide the car component of the

The effect of the existence of the airport franchise is 1llustrated by the fact that in the 12 months ending 30th November 1977, over 65% of the car rental contracts written by Avis were written at alrports. The reservations for those contracts were made mainly by telephone or by calling at Avis depots other than at airports but, nevertheless, almost 14% of contracts were written at airports on a walk-up basis without prior reservation and some 4%

as a result of the in-flight announcements by the airlines.

The airport franchise expires at the end of June 1979. What is likely to happen then is considered later in these reasons for judgment, At the present time, all witnesses who were engayed in the car rental business and who gave evidence on this aspect of the case expressed views that the existence of the a1rport franchise was of vital importance and placed Avis in a preferred position to other car rental operators. After hearing and seeing Mr. Robert Ansett in the witness box, I formed the opinion that his undoubted encouragement to the Commission to commence and prosecute these proceedings was malnly directed to an attempt to prevent an exclusive airport authority being granted to a Single car rental operator from and after the end of June 1979,

It 1s difficult to estimate the market share of differing operators in the car rental market in Australia. A comparison of gross revenue from car rentals does not give a fair picture and, in any event, there 1s no sufficient evidence on which to base such an estimate. The rate of return per car (utilisation) may be a basis for determining market share. Most operators set targets for the utilisation of cars, but these targets are not always achieved. In addition, by reason of policy decisions, discounts may be given which tends to make market shares based on utilisation of cars, undesirable. Finally, the absence of evidence given by Kay-Hertz management makes -

it unsatisfactory to determine market share on this basis.

On the evidence, the only basis on which an estimate of market share may be made is that of fleet numbers. The fleet numbers of operators vary from time to time and most operators attempt to keep their fleet numbers confidential and the absence of evidence on behalf of Kay-Hertz leaves an important gap in the evidence on fleet numbers. A number of witnesses gave their estimates of the market shares of various car rental operators and the estimates varied widely. Each witness who gave an estimate tended to inflate the market share of the business with which he was associated. The market share from State to State varies also. On the evidence, I find that the market shares on an Australia-wide basis are as follows, but 1t must be remembered that these are approximations only

Avis 43% - 46% Kay~-Hertz 17% Budget 16% Letz 53% Thrifty 1% Others 18% - 15%

Mr. Robert Ansett estimated the market share for Budget to be greater than 168%,

The estimates of market shares tend to suggest that Avis may be in a position to dominate the car rental market in Australia,

particularly when considered in the light of the preferred position

Avis enjoys as a result of the airport franchise. } »/35.4.

On the evidence, I find that there exists strong and effective competition in the car rental market in Australia. Budget is planning to increase substantially its share in the market over the next few years. In all Seriousness, Mr. Robert Ansett claims that Budget will be number one in 1981. If the exclusive airport franchise 1s not continued after June 1979 and if Budget 1s able to conduct part of its business at airports, Mr. Ansett believes that Budget will be able to increase 1ts market share dramatically. On the evidence, I find that on a revenue basis, Budget 1S expanding

its business at a percentage rate greater than that of Avis.

The major area of competition relates to the rental rates charged, the rate structure and range of services provided. 'he normal type of rate is based on a daily charge plus a charge for distance travelled. There are many variations to this basic scheme uncluding one where a dally charge, without a distance travelled charge, 1s offered, This particular variation 1s directed primarily to the businessman arriving on a business trip at an airport other than at his home town, Because of variations in the rates and of variations in the rate structures and because of the discounts given by the operators in the market, it is extremely difficult to compare the rates charged by one operator with those charged by another on an overall cost for service basis. It is suffic1rent to say that generally, Avis rates are the highest in the market followed by Kay-Hertz, Budget and then the other operators, This 1s not necessarily so since at one Stage Kay-Hertz in fact charged higher rates than Avis and, apparently, did not suffer a reduction in its market share as a result.

Since 1974, economic conditions within Australia have caused great difficulties in the car rental market. Rising costs and, until recently, a decline in airline passengers, slowed develop- ment of the market. The evidence disclosed that Avis has been concerned to determine rates so as to remain profitable but, at the same time, has had to concern itself with rates charged by its competitors, including the local operators. The management reports Prepared for the monthly meetings of the directors of Avis are a useful source of evidence to support these findings. The profit objective sought by Avis in fact has not been achieved. During the period 1974 to the end of 1975, Avis encountered long delays and discouragement in its attempts to obtain approval under the terms

of the airport franchise to increase its charges. The approval when

given, was done so reluctantly, and it appears that the claims made by Avis were of a lower order than otherwise would have been made because of the attitude of the Minister. In an attempt to overcome the delay and to help meet its rising costs, Avis, at one stage, determined to introduce a new and higher rate for contracts written at depots other than airports. The difficulties of administering different sets of rates made this course impractical and, after a short time, 1t had to be abandoned. It was during and since these years that there was constant movement in the rates and the rate structures of Avis, Kay-Hertz and Budget. It 1s not necessary to give a detailed analysis of these movements, it 1s sufficient to say that they illustrate the existence of keen and effective competition between Avis and 1ts two major competitors. Not only were the rates changing, but the type of contracts and the basis on which rates were being charged, were being varied. New types of contracts were being offered and followed by the other two major operators. Avis was not always the leader with respect to these changes.

Since the beginning of the year 1976, increased charges sought by Avis have been approved speedily by the Department of Transport, but nevertheless the power to disapprove exists and the evidence shows that this power can be, and in fact has been, exercised. One of the concerns of the Minister in considering approval has been the rates charged by the mayor competitors of Avis. The existence of this power, relating as it does to such a large proportion of the business of Avis, and the impracticality of haviny separate rates for contracts written at airports and those written elsewhere, inhibits the power of Avis to determine 1ts own rates.

In addition, the presence of competitors of Avis and the rates charged by those competitors inhibits Avis in the determination of its own

These findings tend to suggest that Avis 1s not 1na

position to dominate the car rental market in Australia.

There are no special features that make 1t difficult for a person to enter the car rental market in Australia. There is no obstacle to entry arising from the need to obtain licences or other permits from any Governmental regulating body as a prerequisite to the commencement of carrying on business, but the existence of the

alrport franchise does create difficulties to competitors of Avis

seeking alrport custom, The major capital investment required is

the provision of the motor cars themselves, but the necessity to

have capital is lessened by the availability of the leasing agreements. Ancilliary services must be provided such as workshop facilities and staff to maintain the cars and to service them. A small operator

may not be able to obtain the volume discounts that are available

to the larger operators. If an operator seeks to extend business towards becoming a national operator, further factors become relevant. Greater costs are encountered in the need to provide a number of depots and the costs of advertising become greater. Differing views were expressed concerning the merit of expanding a business by franchise agreements or by company owned depots, but it is feasible for a business to be expanded by means of franchise agreements.

Letz, Thrifty and to some extent Budget make use of franchise agreements, This lessens the capital burden and permits, in many cases, economies of scale to be achieved for the benefit of both franchisor and franchisee, The availability of leasing agreements

may be made easier and credit facilities may be extended. In addition, the benefit of a well known name can work to the advantage of both

The relative ease of entry is shown by the history of the car rental market in AuStralia, Part of this history has been referred to earlier. Many local operators commenced their car rental business as an ancilliary to an existing business. For success, management skills are essential and a knowledge of the car rental market 1n Australia is of great assistance. It was suggested that the slow development by Hertz in Australia was due to a lack of local knowledge of the market in Australia while the difficulties faced by Kay over a period of some two years may be explained by a lack of knowledge of the car rental market in Australia by a company which had then acquired Kay. More recently, however, Kay-Hertz, under new management, has overcome its earlier problems and, at present, appears to be extending its share of the market. It 1s interesting to note that the managing directors of each of Budget and Kay-Hertz formerly had direct relationship with Avis and received much of their knowledge of the car rental market in Australia while so related to Avis.

One operator, Bowden Ford City Pty. Ltd., attempted to

extend its business to enable 1t to operate as a national operator.

'The attempt was badly timed coinciding as it did with the economic difficulties experienced in the years 1974 and 1975. In addition, a poor choice of local management added to the difficulties while legal problems associated with the use of the name chosen for the business accentuated those problems. Bowden Ford retired from the attempt and is now a local operator although having some airport

Letz 1s a further example. Some years ago it experienced diffaculties in developing as a national operator, due in part to the . personnel appointed to local management. As a result of changes made, those difficulties have been overcome and Letz is expanding its share of the market and today is considered by many to be a national operator. Likewise, Thrifty is moving to become a national operator. It 1s using a method by which the manager in each capital city has a personal interest in the financial success of the company. lLetz and Thrifty are each making use of franchise agreements in extending their businesses. At the present time, Thrifty is considered by some to be

The existing operators are competing between themselves. If the service provided by any one operator deteriorates, other operators will gain custom therefrom, If the rates charged by any one operator become too great, that operator will lose custom to other operators. The possibility of new entrants to the market is always there. The possibility of a local operator extending its business so as to become a national operator 1s very real. The market is expanding and the existing operators are fully aware of their competitors and potential competitors. All these factors tend to suggest that Avis is not in a position to dominate the car rental

No suggestion was made that there was any substantial

difference in the standard of rental cars provided by the various

car rental operators. Of course the rates charged varied with the type of car supplied. There is little differentiation as far as the class of cars themselves are concerned, although some operators offer a wider choice in the type of cars available for rental. Differentiation in service provided does exist. Avis claims that its facilities are such that it can provide a car rental service through-

out Australia, that 1ts presence at Commonwealth airports provides a service which cannot be matched by the other operators, its 24 hour service and its delivery service all illustrate the provision of a service of a higher standard than that provided by its competitors. Some of its competitors provide services of a similar kind, even to the provision of cars at Commonwealth airports, Avis justifies its higher rates on the ground of the service it provides, yet nevertheless it is conscious of the lower rates charged by other operators and ensures that the gap between the two does not become too great.

Many potential customers do not desire all the services provided by Avis, they prefer the cheaper rates offered by other operators. Nevertheless the national operators all tend to provide services Similar to Avis. As a result, sales promotion forms a large part

of the cost structure of the national operators and advertising costs are high. The local operators tend to use a different type

of sales promotion which is directed mainly to guests at hotels and motels and to a more limited group of customers. The national operators, and some of the larger local operators, employ representatives to visit travel agents, businesses and government institutions seeking custom and frequently offer discounts for bulk custom. Extensive advertising by means of radio, television and press 1S undertaken. The cost of advertising as between the different national operators of itself may not be of much assistance in determining dominance but what 1S important 1s that the advertising tends to stress not only the rates charged by the advertiser but often by reference to the rates charged by competitors and also the better services provided by the advertiser, At Commonwealth airports, Avis, by reason of its presence, has a distinct advantage over its competitors from an advertising aspect. I find there 1s substitutability between the services provided by Avis and the services provided by the other operators in the car rental market

in Australia, Thais finding suggests that Avis is not in a position to dominate the car rental market in Australia,

It 1s true that Avis 1s by far the largest operator in the car rental market in Australia, in each State in Australia and zn each capital city in Australia, It 1s true that on crude figures, . it makes a larger profit than the other national operators in the car rental market in Australia. It 1s difficult to draw comparisons

between the return on investment achieved by Avis and those

competitors for whom financial figures were given in evidence. -/40..-

'It 1s true also that in many respects Avis is a leader in the car

rental market in Australia but, insofar as rates and rate structures are concerned, other national operators at times lead Avis. Having regard to the four specific matters referred to above, I find that

Avis does not dominate the car rental market in Australia. Sucha finding 1S supported by a consideration of all the evidence and the impressions gained from hearing and seeing the witnesses. Within the car rental market in Australia, there 1s keen and effective competition. It cannot be said that Avis dominates that market in the sense of having a commanding influence on that market. I find further that Avis is

not in a position to dominate the car rental market in Australia.

Enhancement of power to dominate following acquisition

It now becomes necessary to consider the secondary case put by the Commission. This depends upon additional factors being provided by Ansett Operations and by which the position of Avis is enhanced to such an extent that Ansett Operations will be ina position to dominate the car rental market in Australia. In referring to Ansett Operations, I apply the provisions of s.50(2) of the Act and the phrase Ansett Operations 1s used to include all the related bodies corporate within the Ansett group of companies when the context so permits. The issue 1S whether, as a result of the acquisition of all the shares in the capital of Avis, Ansett Operations would be or would be likely to be in a position to dominate the car rental market in Australia. For this aspect of the case, the alternative words "would be in a position to dominate" the market are not of such importance. JI have held that Avis is not in a position to dominate the market, and it follows that the mere acquisition of all the shares in the capital of Avis by Ansett Operations does not of itself place Ansett Operations in a position to dominate the market. For present purposes, the crucial words are "would be likely to be". This expression connotes a consideration of what is likely to happen in the future. There must be some limitation on the extent to which the future may be considered. The likely effects to be considered must be limited to the reasonable future. In many cases there may be difficulties 1n determining what 1s the reasonable future but, in the present case, this question 1s simplified. The airport franchise held by Avis expires at the end of June 1979. In considering whether Ansett Operations would be likely to be in a position to dominate the market, 1t 1S necessary to consider the likely effects

up to and following the expiration of the airport franchise.

Each witness who gave evidence on this aspect of the Matter expressed the opinion that it was unlikely that after 30th June 1979 any authority granted under the Airports (Business Concessions) Act 1959 would be exclusive to one car rental operator throughout Australia so as to give that operator a monopoly of the car rental business at Commonwealth airports. The policy of competition evidenced by Part IV of the Trade Practices Act 1974

supports the opinion expressed by the witnesses. Accordingly, I find that after 30th June 1979, it is likely that the Minister for Transport will grant airport authorities to at least two and possibly more car rental operators to enable them to conduct their businesses at Commonwealth airports. Even on the assumption, which may not be fulfilled, that Avis will be one of the car rental operators which obtains an authority, nevertheless 1t will lose the benefit of having the sole right to advertise car rentals at airports and will no longer officially have the sole presence at airports. It will lose its preferred position qua TAA and Ansett Airlines and will no longer

be the only car rental business name mentioned during in-flight announcements. The likely consequence of the loss of the existing airport franchise on Avis is illustrated clearly by the evidence of Mr. Cooper, the executive general manager and a director of Ansett Industries. During the negotiations between Avis and Ansett Industries for the acquisition of the shares in the capital of Avis, Ansett Industries prepared estimates of future revenue to be obtained by Avis. The figures projected an increase in both actual and real revenue until the end of June 1979 and thereafter a substantial drop in revenue. The projected drop in revenue was based on the fact of

an anticipated reduction in business resulting from the expiration

of the exclusive airport franchise. Accordingly, I find that after 30th June 1979, the market share of the car rental market in Australia now held by Avis is likely to be reduced substantially and that its potential power to dominate the car rental market in Australia

Despite this likely reduction in market share, the Commission argued that as a result of the acquisition of the shares in the capital of Avis, Ansett Operations would be or would be likely to be in a position to dominate the market. The substance of the case put was that Avis had become part of the Ansett Industries

structure and that this constituted a new corporate relationship by which the economic strength of Ansett Industries could be employed

'to enhance the position of Avis and thus Ansett Operations would be or would be likely to be in a position to dominate the car rental market in Australia. In developing the argument, Mr. Searby did not suggest that any different market in Australia should be identified although it 1s true that in some respects it may be said that the airline business and car rental business may participate in a market namely the transport or travel market in Australia or the holiday market in Australia. It is not necessary to develop this matter

Ansett Industries, 1n essence, 1s a holding company and carries on 1ts business activities through a number of subsidiary companies, The main operating company 1s Ansett Operations which carries on its business through a number of divisions. One of the divisions is Ansett Airlines of Australia and it is this division which operates Ansett Airlines. I list some of the other divisions within Ansett Operations namely, Ansett Airlines of New South Wales, MacRobertson=-Miller Airline Services, Ansett Airlines of South Australia, Ansett Freight Express, Ansett Wridgways, Ansett Pioneer, Ansett Hotels, and Ansiar. In addition to the divisions, I list two of the other related companies namely, Austarama Television Pty. Ltd. (Channel 0 Melbourne) and Universal Telecasters Qld. Ltd. (Channel 0 Brisbane). In addition, Ansett Industries has a substantial interest by way of share capital in a number of associated companies. I list two of those companies namely, Diners Club Ltd. and Associated Securities Ltd. Under the agreement with Avis, all the shares in the capital of Avis are to be acquired by Ansett Operations and thus Avis will form part of the Ansett group of companies being a subsidiary to Ansett Operations and related to Ansett Industries.

The business activities of Ansett Industries are extensive and include many aspects of the transport, travel and holiday industries. They include the carriage of passengers and freight by air and road, furniture removals and storage, hotels, television and manufacturing and trading. Each division and each company has 1ts own management and management structure and has its own separate accounts which are designed to show clearly the financial position of each separate division and company. Each division and each company 1s treated as a separate entity preparing its own budget,

making its own projections for development and being responsible for

its own financial strength and profitability. The executive general -/43...

Managers of Ansett Transport maintain a general oversight of these activities and are available to assist a division or company by the giving of advice and help if necessary.

As part of the general policy of Ansett Industries, each operating company within the group and each division is expected to, and does, seek the best commercial deal available, When, for example, one division or company supplies goods or services to another division or company within the group, except for a small number of instances, the normal commercial rates are charged to the purchasing division or company. A division or company within the group seeking goods or services 1s not required to seek them from another division or company in the group but enters into the best commercial deal available irrespective of who the supplier is. An illustration of that 1s that Ansett Airlines, 1n marketing a package deal involving a bus tour component and a hotel component, 1S not required to seek those services from the relevant divisions of Ansett Operations. This policy 1s applied in practice. During the year 1977, even though there was capacity within the Ansett Pioneer division to provide all the services, almost twice as many of the package tours marketed by Ansett Airlines in Queensland involved engaging bus operators 1n competition with Ansett Pioneer. The same 1s true in relation to the hotel components. Ansett Operations, through its airlines division, provides an hotel reservation service for airline

By far the major activity of Ansett Industries in terms of revenue received is that of the airlines. For the year 1976-1977, 65.3% of the total revenue of Ansett Industries was received from the airlines. Ansett Airlines 1s by far the major airline operated by Ansett Industries. No separate accounts were kept of group costs, but 1t is estimated that some 66.4% of the expenditure incurred by Ansett Industries was attributable to 1ts airlines. Some 55% of the total gross assets employed by Ansett Industries are employed by the airlines. The airline passenger revenue in Australia 1s estimated to be of the order of $450,000,000 annually and this revenue 1s divided almost equally between TAA and Ansett Airlines. It follows that every one per cent of the market for airline passengers represents revenue of ' $4,500,000. Every effort by the two major airlines is directed to

this one per cent of passengers and anything that Ansett Operations

might do which has the effect of diverting airline passengers to its

• 44 - competitor would have a disastrous effect on the revenue received by Ansett Operations. By a comparison of the crude figures based on revenue and profits, Avis 1s very small when compared with Ansett Industries, even though Avis is financially strong and is conducting

I accept the evidence of Mr. Cooper, Mr. Pascoe and Mr. Reid that the provision of rental cars 1S considered as an extension of the airline business or 1s ancilliary to the airline business and constitutes a service that should be available to airline passengers, that Ansett Operations acquired Avis to ensure a continuation of that service, that some years ago, Ansett Operations had registered the name "Ansett Rent-a-Car" but had never carried on a car rental business, that Ansett Operations had acquired Avis because 1t was the largest, best known and most successful car rental business in Australia, that it had the benefit of the airport franchise, that it had experienced and expert management, that Mr. McIllree had died and there was a distinct possibility that his Trustees would be wanting to wind up his estate by selling the shares in the capital of Avis and therefore Ansett Operations had initiated discussions for the purchase of the shares in Avis, that Avis was a good investment financially, that the Avis business would be conducted as a separate entity and that they would not permit Avis to do anything which would alienate Ansett Airline customers, In addition, I find on the evidence that as a result of the acquisition, there will be no economies of scale available to assist Avis in the conduct of its business, It obtains its cars, petrol, tyres, batteries and other requirements at more economical rates than Ansett Operations and pays interest rates on monies borrowed at a rate lower than that paid by Ansett Operations. Further, it 1s unlikely that Avis will do anything that would entitle the Minister for Transport to terminate the alrport franchise before the end of June 1979, In particular, I refer to the clause of the airport franchise which entitles the Minister to terminate the authority 1f Avis does anything to divert or which is likely to divert traffic in the carriage of persons from one airline

In the light of these findings, I turn to the evidence and submissions relied upon by the Commission. The evidence consisted of

statements by some of the witnesses who managed car rental businesses

but who had no experience of managing an airline business, of methods by which they thought Ansett Operations would assist Avis and "push" Avis at the expense and to the detriment of other car rental operators. Professor Hogan instanced possibilities by which he thought Ansett Operations would assist Avis, Examples of past conduct were given whereby Ansett Operations had assisted Avis by disclosing information to 1t and a recent incident in Tasmania was referred to which, it was said, illustrated how Ansett Operations could cause detriment to other car rental operators to the benefit of Avis. Finally, submissions were made by way of illustration of methods by which Ansett Operations could give assistance to Avis,

It was argued that as a result of the new corporate relationship

and the extent of corporate integration, Ansett Operations would

be or would be likely to be in a position to dominate the market.

Before expanding on these matters, 1t 1S necessary to make it clear that even if the Commission established that it is likely that Avis would receive assistance from Ansett Operations, it still has to establish that the assistance so received would lead to the result that Ansett Operations would be likely to be in a position to dominate the car rental market in Australia. The principles to be applied in deciding whether a corporation dominates a market have been stated and the method of applying those principles illustrated. The mere existence of an economically strong company in a corporate relationship with an operator in a particular market in Australia does not lead by itself to the conclusion, on the balance of probabilities, that the economically strong company would be or be likely to be in a position to dominate that particular Market. The Bank of New South Wales, through the Australian Guarantee Corporation Ltd., 1s in a corporate relationship with Budget, but it would be difficult to draw the conclusion that as a result of that relationship, the Bank of New South Wales would be or would be likely to be in a position to dominate the car rental market in Australia.

The effect of the evidence in support of the submission made on behalf of the Commission can be summarised. It was suggested that Ansett Operations would be in a position to encourage Ansett Airlines passengers to rent an Avis car instead of a car from another car rental operator, This could be done when reservations were made

for Ansett Airlines flights, by the offering of special car rental

discounts or the use of larger cars at lower rates or other /46

specified methods including the giving of priority to airline passengers who rented an Avis car. It was said that benefits paid

to Ansett Airlines' staff who entice airline passengers to rent an Avis car could be a means to encourage the "pushing" of Avis. It

was suggested that Ansett Operations would make available to Avis lists of names of airline customers who regularly rented cars from car rental operators other than Avis so as to enable Avis to seek custom from them. It was suggested that Ansett Airlines' representatives as part of their sales program, would promote Avis. It was said that there could be joint advertising thereby achieving more effective coverage at less cost. This might apply particularly to the television channels within the Ansett group of companies. It was suggested that Avis would be stronger financially by having the active backing of the Ansett Operations and that there could be savings to Avis by the use of common facilities at the smaller airports and the use of the one group of staff. It was claimed that Avis would be able to dispose of its surplus cars more effectively through the two country outlets operated by companies within the Ansett group and that there could be savings to Avis by bulk purchases through Ansett Operations. It is also said that each company within the Ansett group could assist the others by a series of contra arrangements whereby services could be provided without a direct charge being made for them. Finally, 1t was said that by offering discount rates to employees of Avis, Ansett Airlines would be able to reduce the expenditure of Avis in re-positioning drivers employed to

In support of these suggestions, the Commission referred to an instance where officers employed by Ansett Operations disclosed to Avis car rental rates offered to Ansett Airlines on a confidential basis by other car rental operators in Tasmania. Another instance was where MacRobertson-Miller Airlines apparently assisted Avis in obtaining business at an airport in North Western Australia at the expense of another car rental operator. This latter incident was at a time when that airline operator thought that Avis had the raght to airport business. The senior management of Ansett Operations did not know of the Tasmanian incident, disapproved of it, and I accept their

evidence that 1t was contrary to the policy of Ansett Operations.

I have already said that, apart from one case 1n Western

Australia, TAA and Ansett Airlines, when marketing fly-drive holiday «-/47..:

• 47 - packages, each engaged Avis to provide the car rental component. Ansett Operations did not consider the possibility of seeking quotes from other car rental operators, an effect of the airport franchise. The Tasmanian Tourist Bureau markets fly-drive holiday packages in Tasmania under the name of "Tasbureau Fly-drive Holidays". In marketing these packages, the Bureau engaged either TAA or Ansett Airlines to provide the airline component and allocates the car rental component equally between a number of car rental operators including Avis, Kay-Hertz and a local operator, Auto Rent Pty. Ltd., which has a franchise from Budget to use the name and facilities of Budget. Recently three local operators amalgamated to form Auto Rent Pty. Ltd. and, prior to that amalgamation, each of those three operators participated in the Tasbureau fly-drive holidays. Towards the end of the year 1977, East West Airlines marketed a fly-drive holiday package in Tasmania which involved a direct flight from Sydney to Hobart. East West Airlines engaged Kay-Hertz to supply, on an exclusive basis, the car rental component of that holiday package. TAA and Ansett Airlines responded by each marketing a fly-drive holiday package involving a direct flight from Sydney to Launceston. "The package marketed by Ansett Airlines was to be over a period of four months only. TAA and Ansett Airlines each engaged Avis on an exclusive basis to provide the car rental component, Avis agreed to provide the cars at a special discount rate. The Bureau approached TAA and Ansett Airlines seeking approval to participate in the package. TAA refused but Ansett Airlines agreed. The Bureau then approached other car rental operators in Tasmania to see if they would provide the car rental component at the same discount rate as Avis. Ansett Airlines refused to accept this and informed the Bureau that Avis was to have the exclusive right to the car component for the holiday package and that if the Bureau wanted to participate in the package, it would have to accept Avis. As a result the Bureau had to choose whether 1t would continue to participate in the package even though this meant a departure from its general policy of sharing the car rental component among a number of car rental operators. The Commission argued that this illustrated a method by which Ansett Oper- ations could favour Avis to the disadvantage of other car rental operators. I do not accept that argument. With one minor exception, TAA and Ansett Airlines, when marketing holiday packages, each engage Avis exclusively to supply the car rental component. The incident

in Tasmania is an example of that practice. When the Bureau markets

a holiday package, it adopts a different policy but this does not -/48..

mean that 1t 1S 1n a position to enforce that policy on either TAA or Ansett Airlines. The incident illustrates no change in policy.

Although it 1s sufficient for the Commission to establish that Ansett Operations would be likely to be in a position to dominate the car rental market as a result of the acquisition of the shares in Avis, the issue of whether Ansett Operations 1s in that position must be judged in the light of commercial probabilities. Put another way, are the suggested forms of assistance sufficiently commercially advantageous to Ansett Operations to justify the assistance being

given? In my opinion the answer must be in the negative.

Ansett Airlines does give discounted rates to employees of the Ansett group of companies but the reservation 1s always subject to load. The effect of this is that 1f a plane has a capacity load, the employee cannot get a seat but must wait until a plane that otherwise would have empty seats is available. The cost of keeping an employee waiting during his hours of employment for such an eventuality 1S not a commercial reality. None of the other suggestions are commercially practical and I accept the evidence of the witnesses called by Mr. Gobbo when they said that this assistance would not be given in the way suggested. It 1S against the policy of Ansett

The overwhelming consideration however relates to the effect any such action, if undertaken, would have on potential customers of Ansett Airlines and on TAA. Apart from the existence of the airport franchise, there 1s no particular reason why TAA should continue to give preference to Avis. As it 1s, the acquisition of the shares in Avis by Ansett Operations may well provoke a reaction by TAA. There was a suggestion in the evidence that already this is evident in that TAA 1s negotiating arrangements with other car rental operators. Ansett Operations is not likely to do anything which is likely to precipitate or aggravate any such reaction. Likewise, Ansett Airlines, being the major operation within the Ansett group of companies, 1S not likely to permit any action which is likely to divert passengers from Ansett Airlines to TAA. Even on the assumption that Ansett Industries is likely to give the assistance suggested, I am not satisfied, on the balance of probabilities, that the assistance so given would result in

Ansett Operations being 1n a position or likely to be in a position to

dominate the car rental market in Australia. -/49...

The corporate integration illustrated in the United Brands Co. case, supra, by which that undertaking was directly involved in the process of growing, distributing and marketing bananas, 1s markedly different from the corporate integration resulting from the acquisition by Ansett Operations of all the shares in the capital of Avis. Asa result of that acquisition, it 1s not likely that the market share of the car rental market in Australia, presently held by Avis, will increase, particularly following the expiration of the airport franchise, and consequently it 1s not likely that the market share held by Ansett Operations would be greater than that presently held by Avis. It is not likely that keen and effective competition between car rental operators will cease following the acquisition of the Avis shares by Ansett Operations, It 1s not likely that car rental charges will cease to be competitive and it 1s not likely that Ansett Operations will be able to determine its charges without being inhibited by the charges made by other car rental operators. It 1s not likely that the height of barriers to entry by new car rental operators will be increased. It is likely that Ansett Operations will direct its car rental operators to the whole of the car rental market in Australia and will not limit its activities to actual or potential customers of Ansett Airlines. It is likely, therefore, that the existing similarities and differentiations in the services provided by car rental operators in Australia will continue. There is nothing resulting from the acquisition and the resulting new corporate integration and relationship which 1s likely to result in Ansett Operations being in a stronger position to dominate the car rental market in Australia than the position currently held by Avis. In my opinion, as a result of the acquisition of all the shares in the capital of Avis, Ansett Operations would not be likely to be ina position to dominate the car rental market in Australia.

Earlier, in these reasons for judgment, when considering the proper construction of s.50 of the Act, I proceeded on an assumption that Avis was in a position to control or dominate the car rental market in Australia and that "as a resuit of the acgu_sition of the shares in the capital of Avis by Ansett Operations, that power to control or dominate would not cease", The qualification there stated is of importance. On the facts of the present case, and in particular the existence of the airport franchise and its expiry

at the end of June 1979, the close relationship between airline

businesses and car rental businesses, the existence of two major

a@ilrline businesses in Australia and the volume of car rental business that an airline generates, it may be likely that, as a result of the acquisition by one of the two major airlines of a car rental operator which dominated the car rental market, that power to dominate would cease. However, on the findings I have made, it is not necessary for me to express any final opinion on this matter.

In the result, the Commission has not made out its case that the acquisition by Ansett Transport Industries (Operations) Pty. Ltd. of all the issued shares in the capital of Avis Rent-a-Car System Pty. Ltd. contravenes s.50 of the Trade Practices Act 1974. Accordingly, the order nisi granted herein on 13th January 1978 will be discharged.

ROBERT GRAHAM ANSETT Managing Director of Budget Rent- A-Car System Pty. Limited

BERNARD JOHN BRUNING Director of Thrift Rent-A-Car Proprietary Limited

EDWARD MONTGOMERY BROOKER Deputy Director of Tasmanian Department of Tourism

WILLIAM DOMINIC NOLAN Manager of Hobart Office of Tasmanian Government Tourist Bureau - a branch office of the Tasmanian Department of Tourism

NOEL JDFFREY EDWARDS Managing Director of AutoRent Pty. Ltd. (also operates Alpha Car Rentals)

ANTHONY CHARLES BUSHBY Managing Director of Inca Invest-

ments Pty. Ltd. (carries on business as Economy Car Rentals)

GRANT WILLIAM DOWSETT Manager of Scotty Rent-A-Car (owned by Security Associates Pty. Ltd.)

DONALD KEVIN BOWDEN Chairman of Directors of Bowden

COLIN JOHN THORNILEY Director-in-Charge Letz Rent-A-Car System Pty. Ltd.

RONALD GEORGE LIDDLE Chairman of Directors of A.S.P. Pty. Ltd. (carries on business under the name Avaca Hire Cars)

ROBERT MENZIES ALEXANDER Principal Legal Officer in Commonwealth Crown Solicitor's Trade Practices Sub-Office

PROFESSOR WARREN PAT HOGAN Professor of Economics at the University of Sydney

Name Position JOHN FRANCIS DONGES Partner in Peat, Marwick Mitchell

& Co., Chartered Accountants {Auditors of Kay Rent-A-Car Pty. Ltd.)

ADRIAN PETER McGEE Partner in Touche Ross & Co. Chartered Accountants (Auditors of Kay Motor Maintenance Pty. Ltd.)

MAX DOERNER Senior Project Officer in the Mergers Division of the Trade Practices Commission

ARNOLD STAFFORD COOK Co-owner (as partner with his wife) of Manx Rent-A-Car

FRANK PASCOE Executive General Manager of Ansett Transport Industries Ltd. and a

RALPH LEYTON COOPER Executive General Manager and Director of Ansett Transport Industries Ltd.

JAMES McALLISTER Traffic and Services Manager Ansett Airlines of Australia

FRANK CHRISTOPHER BONES General Manager of Ansett Hotels an operating division of Ansett

DR. NEVILLE ROBERT NORMAN Senior Lecturer in Economics University of Melbourne

WITNESSES CALLED BY THIRD, FOURTH & FIFTH RESPONDENTS

General Manager - Administration of Avis Rent-A-Car System Pty. Limited

Trustee of a settlement trust for the McIllree family Director of Avis Rent-A-Car System Pty. Ltd.

preceding pages are & true copy of the Reasons for Judgment herein of his Honour