Trade Practices Commission v Nicholas Enterprises [1978] FCA 51; (1978) 40 FLR 74 (21 December 1978)

FEDERAL COURT OF AUSTRALIA

TRADE PRACTICES COMMISSION v. NICHOLAS ENTERPRISES [1978] FCA 51; (1978) 40 FLR 74
Trade Practices - Evidence - Statutes - Practice

COURT

FEDERAL COURT OF AUSTRALIA
GENERAL DIVISION
Fisher J.(1)

CATCHWORDS

Trade Practices - Alleged arrangement or understanding breaching Act - Submission of no case to answer - Whether defendant must elect as to calling evidence - Circumstantial evidence - Whether evidence warrants inference of facts in issue - Authority to bind company - Whether evidence of being director and secretary of company sufficient to show authority to bind company - Trade Practices Act 1974 (Cth.), ss. 45(2), 77, 80(1)(f), (j), 84(2), 155.

Evidence - Submission of no case to answer - Whether defendant must elect as to calling evidence.

Evidence - Circumstantial - Submission of no case to answer - Whether evidence warrants inference of facts in issue - Whether evidence of being director and secretary of company sufficient to show authority to bind company.

Statutes - Interpretation - "Conduct" - Meaning of - Trade Practices Act 1974 (Cth.), s. 80(1).

Practice - Procedure - No case to answer - Submission of - Whether defendant must elect as to calling evidence - Discretion of court. On 22nd November, 1977, persons associated with the defendants other than the defendant Saturno Holdings Pty. Ltd. (Saturno) lunched together. All the defendants were hotel proprietors. A few days later, but prior to 5th December, 1977, a director of one of the defendant companies lunched with a director of Saturno. On 5th December, 1977, hotels conducted by the defendants reduced the allowance on each purchase by the public from them of twelve bottles of beer from three to two bottles of beer and this reduction appeared to have continued until about March 1978. The Trade Practices Commission brought an action in the Federal Court of Australia against the defendants alleging that the defendants made an arrangement or entered into an understanding that the allowance on each dozen bottles would be reduced from three bottles to two and/or that they gave effect to such an arrangement or understanding in breach of s. 45(2) of the Trade Practices Act 1974 (Cth.). Some of the evidence against the defendants other than Rex Freehold Pty. Ltd. (the Rex) and Morphett Arms Hotel Pty. Ltd. (the Morphett Arms) consisted, in the court's view, of objective facts which allowed the inference that the defendants arrived at an understanding and put it into effect and also the essential elements thereof as pleaded. The evidence against the Rex and the Morphett Arms was that a Mr. Palmer, a director and secretary of each of these companies, was present at that lunch, that Mr. Palmer when introducing himself to a Mr. R. claimed to be the licensee of the Morphett Arms and that Mr. Palmer expressly invited Mr. R.'s company to participate in the above-mentioned reduction of the allowance. At the close of the plaintiff's case the defendants submitted that there was no case to answer and the question arose whether the court should put the defendants to their election as to calling of evidence before hearing their submissions.

Held: (1) The court should exercise its discretion by not putting the defendants to their election as to calling of evidence.

Copper Industries Pty. Ltd. (in Liquidation) v. Hill (1975), 12 SASR 292, applied.

(2) The submission of no case to answer should be upheld in case of the defendant Rex and rejected in case of the other defendants because: (a) Where circumstantial evidence is under consideration, the court must inquire whether the proponent's evidence warrants an inference of the facts in issue, or whether it merely leads to conjecture concerning them in order to decide whether the plaintiff established a prima facie case. Wilson v. Buttery, (1926) SASR 150; R.v. Smith [1865] EngR 44; (1865), Le. & Ca. 607; 169 ER 1533, referred to. Bridges v. Directors of the North London Railway Co. (1874), LR 7 HL 213, applied. (b) As to the evidence against the defendants other than the Rex and the Morphett Arms a reasonable tribunal properly instructed might convict on it. (c) Evidence that a person was a director and secretary of a company does not of itself amount to prima facie proof that that person had authority to bind the company or that he necessarily always represents it. Harris v. Macquarie Distributors Pty. Ltd., (1967) VR 257, followed. (d) The "conduct" referred to in ss. 80(1)(f) and (j) and 84(2) of the Trade Practices Act 1974 includes the conduct of inviting other persons to join in an arrangement or understanding. (e) An assertion by a director or secretary of a company which expressly points to his involvement with that company's activities carries with it the implication that the conduct is conduct on behalf of the company. (f) On the evidence any conclusion as to the involvement of the defendant Rex would be conjectural.

HEARING

Adelaide, 1978, September 12-15; October 23-27; December 7-8, 21.
21:12:1978
ACTION.

In this action the Trade Practices Commission sued eight hotel proprietors alleging that the defendants made an arrangement or entered into an understanding in breach of s. 45(2)(a)(ii) of the Trade Practices Act 1974 or alternatively that contrary to s. 45(2) (b)(ii) of that Act they gave effect to such an arrangement or understanding. The decision reported below deals solely with the submission by the defendants that there is no case to answer.

A.N. Russell, for the plaintiff.

H.C. Williams Q.C. and C. Eaton, for the first defendant.

H. Lambert, for the second defendant.

J. Mansfield, for the third and fourth defendants.

E.F. Johnston Q.C. and I. Edgley, for the fourth to eighth defendants.
Cur. adv. vult.

Solicitors for the plaintiff: Alan R. Neaves (Commonwealth Crown Solicitor).

Solicitors for the first defendant: Griffin, Hume & Co.

Solicitors for the second defendant: Lambert & Solomon.

Solicitors for the third and fourth defendants: Lee, Wilson & Mansfield.

Solicitors for the fourth to eighth defendants: Povey, Waterhouse &

Basheer.

E. F. FROHLICH

DECISION

December 21.

FISHER J. delivered the following reasons.
This is an action brought by the Trade Practices Commission against the

defendants who are hotel proprietors seeking recovery under s. 77 of the Trade Practices Act 1974 ("the Act") of pecuniary penalties for alleged contravention by the defendants of s. 45 of the Act. The essence of the plaintiff's allegation is that the defendants contrary to s. 45(2)(a)(ii) made an arrangement or entered into an understanding that the allowance on each purchase by the public from them of twelve bottles of beer would be reduced from three to two bottles of beer, i.e., instead of receiving fifteen bottles to the dozen purchasers would receive only fourteen. In the alternative it is alleged that contrary to s. 45 (2)(b)(ii) they gave effect to such an arrangement or understanding on 5th December, 1977. This arrangement or understanding is alleged to have been entered into or arrived at by the defendants (other than the defendant Saturno Holdings Pty. Ltd.) ("Saturno") on 22nd November, 1977, and by the defendants Nicholas Enterprises Pty. Ltd. ("Nicholas") and Saturno on or about 1st December, 1977. (at p76)

2. There is no dispute on the following facts (which for reasons mentioned later I state as briefly and in as general terms as possible) namely that persons who happen to be associated in one way or another with the defendants other than the defendant Saturno lunched together as guests of Cooper & Sons Ltd., on 22nd November, 1977. At some date prior to 5th December, 1977, a person who was a director of Nicholas together with two other persons who were present at the Cooper's lunch, lunched with a director of Saturno. On 5th December, 1977, hotels conducted by the defendants in company with a number of other hotels reduced the allowance from three bottles to two bottles, which reduction as far as the defendants are concerned appears to have continued in force until about the month of March 1978. I admitted into evidence replies by the defendants and their directors or other officers to notices given under s. 155 of the Act as evidence only against the particular defendant. This evidence referred inter alia to happenings at each of the lunches. (at p76)

3. In presenting the case for the plaintiff Commission its counsel called a number of witnesses and tendered many exhibits. At the close of the plaintiff's case counsel for each of the defendants submitted that there was no case to answer. Such submission was on the basis that in point of law the evidence produced did not substantiate the causes of action raised by the pleadings, i.e. a prima facie case had not been made out. The question at once arose whether I should before hearing the submissions put the defendants to their election. Counsel for the plaintiff accepted that this being a matter of practice I was entitled to have regard to the practice in South Australia, and of the Supreme Court of South Australia in particular. He did not dispute the propriety of the course adopted by Walters J. in Copper Industries Pty. Ltd. (in Liquidation) v. Hill (1975) 12 SASR 292 but contended that I should in the exercise of my discretion put the defendants to their election. After hearing arguments from all counsel, I exercised my discretion and did not require them to elect. It thus remains open to those defendants who wish, to call evidence. (at p77)

4. The crux of the submissions of the defendants was that the plaintiff had not by its evidence established the existence of the relevant arrangement or understanding. It was conceded that the evidence would of necessity be circumstantial, but it was contended that there were no objective facts proven from which it was open to me to draw the inference that the defendants had arrived at such an understanding. In addition counsel for the defendants Rex Freehold Pty. Ltd. (the "Rex") and Morphett Arms Hotel Pty. Ltd. (the "Morphett Arms") put at the forefront of his arguments a submission that assuming the existence of an arrangement or understanding there was no evidence which established either as a matter of inference or otherwise that his clients or either of them were parties to any arrangement or understanding with the other defendants. (at p77)

5. These are civil proceedings for a recovery of a pecuniary penalty, but on this aspect at least of the matter this hybrid nature is of little significance. Be the proceedings civil or criminal in nature, the requirement is that the plaintiff establish a prima facie case by production of more than a mere scintilla of evidence: Wilson v. Buttery per Napier J. (as he then was) (1926) SASR 150, at p 154 approving Blackburn J. in R. v. Smith [1865] EngR 44; (1865) Le & Ca 607; 169 ER 1533 . The author of the Australian edition of Cross on Evidence, at p. 76, adopts as the appropriate test that propounded by Brett J. in Bridges v. Directors of the North London Railway Co. (1874) LR 7 HL 213 namely "are there facts in evidence which, if unanswered, would justify men of ordinary reason and fairness in affirming the question which the plaintiff is bound to maintain?" (1874) LR 7 HL, at p 233 . The author appropriately finds it necessary to qualify this test if circumstancial evidence is under consideration, as is the case here. "In that case" he says "little more can be done than to inquire whether the proponent's evidence warrants an inference of the facts in issue, or whether it merely leads to conjecture concerning them." This qualified approach was not really in dispute before me, rather the opposing contentions centred on whether or not there were objective facts from which the relevant inference could be drawn. (at p77)

6. I will deal in the first instance with the evidence as it now stands against the defendants other than the defendants Rex and Morphett Arms. In the circumstance that I overrule their submission that there is no case for them to answer, I do so on the basis that in my opinion there is evidence to support a prima facie case. I find that there are objective facts from which it is possible to draw the inference that they arrived at the understanding and put it into effect and the essential elements thereof as pleaded. I am aware that whether or not these defendants call evidence it will still be necessary for me to reconsider the evidence. At the stage I will have to determine whether the plaintiff has discharged its onus on all essential elements to the requisite degree, namely on the balance of probabilities. Therefore it seems desirable that I refrain from canvassing the evidence further than necessary at this stage. It is sufficient for me to say that in my opinion a prima facie case has been made out, in that there are in my view objective facts from which it is possible to infer the existence of the alleged arrangement or understanding. In other words a reasonable tribunal properly instructed might convict on the evidence. (at p78)

7. As to the defendants the Rex and the Morphett Arms threshold matters fall for consideration at the outset. The linchpin as far as these parties are concerned is evidence of the involvement of Mr. Palmer. There is no doubt that he was present at the lunch and subsequently thereto had discussions with third parties on the topic of reduction of the allowance on sale of beer. The only direct evidence of the possible involvement of these two defendants is that they reduced their allowance on 5th December, 1977, simultaneously with a number of hotels including those operated by the remaining defendants. By way of contrast with at least some of the latter defendants, they did not advertise their intention so to do. Accepting without for one moment deciding that an arrangement or understanding could be inferred as having been reached at the lunch the question arises whether from the presence of Mr. Palmer at the lunch it could further be inferred that the Rex and the Morphett Arms or either of them was a party to the understanding. It seems to me an essential element in the plaintiff's case that at this stage there be some evidence that Mr. Palmer was present at the lunch representing or on behalf of these defendants. There must be, in the words of Brett J. "facts in evidence which, if unanswered, would justify men of ordinary reason and fairness in affirming" (1874) LR 7 HL, at p 233 that these defendants were by the presence of Mr. Palmer themselves present at the lunch. Taking the argument a stage further, but for the presence of s. 84(2) of the Act it would also be necessary for there to be facts in evidence from which it could be inferred that Mr. Palmer had authority to commit the defendants to the understanding. (at p78)

8. The proven facts as far as Mr. Palmer's relationship with the defendants are as follows: He is in respect of each company a director and the secretary. In neither instance does he appear to hold, in any event directly, a substantial shareholding and in one company he is not a member. Neither of the companies has a manager, and there was no evidence that Mr. Palmer played any part in the conduct of the business of either company. Nor is there evidence that he held any management or executive position (other than secretary) in either company. It would seem therefore that his position as director and secretary was not such as to amount to prima facie proof that Mr. Palmer had authority to bind the company: Harris v. Macquarie Distributors Pty. Ltd. per Adam J. (1967) VR 257, at p 261 . However I would mention at this stage that for the reasons below mentioned, the question of Mr. Palmer's implied authority is in my view not ultimately the crucial question (except on consideration of alleged admissions) because of the presence in the legislation of s. 84(2). The question is whether there is evidence that Mr. Palmer was present "on behalf" of the two companies or either of them, in his capacity as director or in the course of his employment as secretary. It seems to me that some evidence is particularly necessary in this matter, in that there is evidence that Mr. Palmer had interests of one kind or another in other hotels. As I see it, it could equally be, in the absence of some evidence whether by way of admission by the companies or otherwise, that Mr. Palmer was present in his own right or on behalf of some one or more of his other hotel interests. (at p79)

9. There is evidence as to the involvement of Mr. Palmer in other hotels, some if not all of which hotels were at the time selling beer at the lower allowance of two bottles. It is a fair inference that such hotels would have an interest in seeing their competitors reduce the amount of the allowance. The evidence of this involvement is given by Mr. Cooper, Mr. Richards, Mr. Ritchie and Mr. Woods, and there is no point in referring to it in detail. (at p79)

10. As I have said, it is in my opinion necessary in the circumstances of this matter that there be some evidence from which the inference can be drawn that Mr. Palmer was present at the lunch on behalf of the two defendants Rex and Morphett Arms. To establish this is an essential element in the plaintiff's case. In my opinion to prove that he is the holder of the two offices of director and secretary does not go beyond a mere scintilla of evidence in support of proof that by his presence these two defendants were present. A fortiori in circumstances where there is evidence to the effect that he has interests of some kind in other hotels. (at p79)

11. But it remains to be considered whether statements made by Mr. Palmer in interviews with Mr. Richards and Mr. Ritchie or the conduct of Mr. Palmer in seeking out these interviews provides additional evidence assisting the drawing of an inference as to involvement of the two defendants Rex and Morphett Arms. It could well be that here there is evidence which corroborates the scintilla provided by Mr. Palmer's presence at the lunch and the reduction of discount on 5th December, 1977. I refer for example to the evidence of his statements to Mr. Richards when he indicated that the trend was to go to fourteen to the dozen and that he was tied up with a few hotels, including the Morphett Arms and that the industry should go back to fourteen. Implicit in this at least was an invitation to Mr. Richards to join and go back to fourteen. (at p80)

12. As to the conversation with Mr. Ritchie, Mr. Palmer is alleged to have introduced himself as the operator or licensee of the Morphett Arms Hotel and to have said that a number of hotels had reached an agreement about changing the then fifteen to the dozen discount on beer to a rate of fourteen to the dozen, which was to be effective on 5th December, 1977, and he expressly invited Mr. Ritchie's company to participate. (at p80)

13. It seems to me that this evidence, if admissible against the two defendants or either of them, is an additional objective fact from which it would prima facie be possible, if it is added to the previous objective facts, to draw the inference that the defendants Rex and Morphett Arms had arrived at the alleged understanding or had given effect to it. (at p80)

14. The question is as to what use can be made of this evidence, as to what is the nature of the evidence and against which, if either, of the defendants Rex and Morphett Arms it can be used. Because of my desire not to canvass the evidence in detail and reach concluded views thereon, as the case is to go on, and particularly as I feel I must overrule the submission of no case presented on behalf of Morphett Arms I have referred only generally to the evidence of the conversations. (at p80)

15. In so far as it amounts to admissions purported to be made by Mr. Palmer on behalf of either or both of the companies, for the reasons above mentioned I do not see the admissions as binding on the two companies or either of them. In my view there is no evidence from which I can infer that Mr. Palmer, as director and secretary, has implied power to bind them. (at p80)

16. However, in my opinion the evidence goes beyond evidence of admissions, and is capable of being used as evidence of conduct by Mr. Palmer. It would be open for this evidence to be seen as evidence of Mr. Palmer engaging in the conduct of seeking out other hotels with a view to attempting to persuade them to join in an existing arrangement or understanding to reduce the discount. I appreciate that the evidence is to the effect that one interview was prior to 5th December, 1977, and one was subsequent thereto, but in respect of the latter interview there can in my opinion be no objection that the conduct of seeking it out was subsequent to that particular date. This is so, particularly as the evidence is not that the carrying into effect of the alleged understanding concluded on 5th December, 1977. (at p81)

17. The next question is whether there is evidence that this conduct was engaged in "on behalf of" either of the companies, for, if it were, s. 84(2) would appear to indicate that lack of express or implied authority of the director or secretary (in this instance) is nothing to the point. I additionally should point out that at this stage I certainly have formed no concluded view that his conduct could be seen as being in pursuance of the alleged common purpose. However it seems to me that the type of conduct referred to in s. 84(2) must at least include the conduct of inviting other persons to join in an arrangement or understanding. An invitation to join could well amount to evidence of conduct coming within the provisions at least of s. 80(f) and (j). Again I do not wish to express a view on this except so far as necessary. (at p81)

18. The important question is whether the conduct of seeking out the interview and extending the invitation to Mr. Ritchie and Mr. Richards was engaged in by Mr. Palmer on behalf of both or either of the companies. I have re-read the evidence and can not say that there is evidence that it was engaged in on behalf of the defendant Rex. In these circumstances in no way is the evidence of what occurred at or in relation to either of the interviews in my opinion evidence against the defendant Rex. (at p81)

19. As far as Morphett Arms is concerned it was more closely identified with each of the conversations and in each instance there is some evidence from which it could be inferred that it was on behalf of the Morphett Arms that the invitation was made. I appreciate Mr. Mansfield's point that statements made by Mr. Palmer as to his position are not evidence from which any necessary authority can be implied. But this is a different point, namely as to how it is to be established for the purpose of s. 84(2) that conduct is engaged in "on behalf of" a company. To my mind, in circumstances where authority is immaterial, because of the terms of s. 84(2) an assertion which expressly points to his involvement with company activities by a director or secretary carries with it the implication that the conduct, in this instance of inviting participation, is conduct on behalf of the company. It is in my view open on this evidence to conclude that these acts of Mr. Palmer were not independent acts undertaken on his own behalf, but were undertaken on behalf at least of the company owning the hotel expressly named. Again because s. 84(2) is a difficult section, has not been fully argued and as far as some defendants are concerned has not been argued at all, I desire to go no further than necessary. (at p81)

20. My conclusion is that as to the defendant Rex, the discussions by Mr. Palmer with Mr. Richards and Mr. Ritchie are not available as objective facts from which the relevant inference might be drawn. Any conclusion as to the involvement of Rex would be in the realm of conjecture. As to Morphett Arms there is prima facie evidence of conduct engaged in by Mr. Palmer on its behalf and thus of conduct on the part of Morphett Arms which is available as an additional objective fact. In my opinion the three proven objective facts as against Morphett Arms, namely the presence of its director and secretary at the lunch, Mr. Palmer's interviews with Mr. Ritchie and Mr. Richards and its reduction in the rate of allowance on 5th December, 1977, are, taken in combination, facts from which an inference might be drawn. I uphold the submission of no case to answer as propounded on behalf of the defendant Rex and I reject the submission on behalf of the defendant Morphett Arms. (at p82)

21. As far as the other defendants are concerned their submissions of no case to answer are also rejected. (at p82)

ORDER