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Federal Court of Australia |
COURT
IN THE FEDERAL COURT OF AUSTRALIACATCHWORDS
Trade Practices - section 50 trade practices act - market definition - whether Northern Queensland a discrete geographical market for fat cattle - whether feedlot cattle in same product market as fat cattle - effect of trade across a suggested market boundary - role of price elasticity - opinions of experts and market participants - need to define the market in the context of assessing market dominance for the purposes of s.50 Trade Practices ActPowers of Court - Consideration of ss.81(1) and 81(1C) Trade Practices Act - whether an order of divestiture under s.81(1) may be conditional upon a failure to sell certain assets - how the discretion may be exercised - whether an asset outside geographic market may be included in conditional order - whether assets not involved in acquisition may be included in conditional order.6
Trade Practices Act 1974 - s.50, s.81
Outboard Marine Australia Pty Ltd v. Hecar Investments No. 6 Pty Ltd (1982) 44 ALR 667
Queensland Wire Industries Pty Ltd v. Broken Hill Co Ltd and Anor (1987) 78 ALR 407
Queensland Wire Industries Pty Ltd v. Broken Hill Co Ltd and Anor unreported, (High Court of Australia, 8 February 1989)
Re Queensland Co-operative Milling Association Ltd; Re Defiance Holdings (1976) 25 FLR 169
United States v. United Shoe Machinery Corp, 110 F.Supp 295 (1953)
Brown Shoe Co v. United States, 370 US 294 (1962)
Trade Practices Commission v. Ansett Transport Industries (Operations) Pty Ltd and Ors [1978] FCA 21; (1978) 32 FLR 305
Melville v. Mutual Life and Citizens Assurance Co Ltd [1980] FCA 114; (1980) 31 ALR 649
U.S. v. Philadelphia National Bank, [1963] USSC 166; 374 US 321 (1963)
Montfort of Colorado Inc v. Cargill Inc, [1985] USCA10 96; 761 F.2d 570 (1985)
HEARING
SYDNEY Counsel for the appellant: Mr G. Davies Q.C. and
Mr A.R. Emmett Q.C.
with Mr R. WrightSolicitors for the appellant: Blake Dawson Waldron
Counsel for the respondent: Mr C.A. Sweeney Q.C. with
Mr J.S. Hilton and
Miss M.C. WalkerSolicitor for the respondent: Australian Government
Solicitor
ORDER
The appeal be dismissed.Amendment of the notice of cross-appeal to add ground 3 be allowed.
The cross-appeal be allowed to the extent of varying the orders made by the trial judge by excluding Order 3(b) therefrom but otherwise be dismissed.
The appellant pay the respondent's costs of the appeal.
The cross-respondent pay one-half of the cross-appellant's costs of the cross-appeal.
These orders not be drawn up and entered for 14 days from this date.Note: Settlement and entry of orders is dealt with
in Order 36 of the Federal Court Rules.6
DECISION
This is an appeal and a cross-appeal from orders made by a single judge of this Court on an application by the respondent, the Trade Practices Commission ("the Commission"), for relief with respect to an alleged infringement by the appellant, Australia Meat Holdings Pty Limited ("AMH"), of s.50 of the Trade Practices Act 1974 (Cth).2. AMH was incorporated in 1986. It had four equal shareholders, each of which was itself involved in the slaughter of cattle for the export trade. The four shareholders joined together to consolidate their interests in this trade. After formation, AMH became the owner of several abattoirs, including abattoirs in Northern Queensland, which witnesses recognized as that part of Queensland which lies north of a line drawn along shire boundaries approximately westerly from the coast just north of Mackay to the Northern Territory border. AMH acquired abattoirs at Cairns and Mareeba just to the west of Cairns. It closed down the Mareeba operation though it retained the facility. It acquired a large abattoir at Townsville and one at Cape River, just to the west of Townsville on the Mount Isa Road. It also acquired an abattoir at Mt Isa which it also shut down though it retained the facility.
3. In Northern Queensland, there were also two small independent abattoirs at Innisfail and Townsville, which need not concern us. There was a medium sized abattoir at Townsville owned by Tancred (NQ) Pty Limited, which the trial judge considered to be friendly to AMH as one of the Tancred family was a director of AMH. There was a large abattoir in Townsville operated by the Vestey group. Although the throughput of the Vestey abattoir was considerable, the trial judge considered it to be a price follower rather than a price maker and friendly to AMH.
4. On the coast at Bowen and Mackay, to the south of Townsville, there were abattoirs owned by Thomas Borthwick & Sons (Australia) Ltd ("Borthwick"). The Mackay abattoir was a modern, efficient abattoir. This was, of course, just to the south of Northern Queensland, as defined above and, in fact, drew its meat almost wholly from the area to the south. The Bowen abattoir drew its meat from Northern Queensland and was an aggressive price competitor. In the view of witnesses at the trial, the Bowen abattoir in Borthwick's hands provided price competition which ensured a fair deal for cattle producers throughout Northern Queensland.
5. AMH also owned and operated a large abattoir at Rockhampton, the next city to the south of Mackay but was there subject to competition from other abattoirs.
6. On or about 26 January 1988, AMH acquired the whole of the issued capital in Borthwick and thus became the effective controller of the abattoirs at Bowen and Mackay.
7. Section 50 of the Act provides, inter alia:-
"50.(1) A corporation shall not acquire, directly8. Section 81 reads, inter alia:-
or indirectly, any shares in the capital, or any assets,
of a body corporate if--
(a) as a result of the acquisition, the
corporation would be, or be likely to be, in a
position to dominate a market for goods or
services; or
(b) in a case where the corporation is in a
position to dominate a market for goods or
services--
(i) the body corporate or another body
corporate that is related to that body
corporate is, or is likely to be, a
competitor of the corporation or of a
body corporate that is related to the
corporation; and
(ii) the acquisition would, or would be likely
to, substantially strengthen the power of
the corporation to dominate that market.
(1A) ...
(2) If--
(a) a body corporate that is related to, or
associated, with a corporation is, or two or
more bodies corporate each of which is related
to or associated with the one corporation
together are, in a position to dominate a
market for goods or services; or
(b) a corporation, and a body corporate that is,
or two or more bodies corporate each of which
is, related to or associated with that
corporation, together are in a position to
dominate a market for goods or services,
the corporation shall be deemed for the purposes of
this section to be in a position to dominate that
market.
(2A) ...
(2B) ...
(2C) ...
(3) In this section--
(a) a reference to a market for goods or services
shall be construed as a reference to a
substantial market for goods or services in
Australia in a State or Territory; and
(b) a reference to dominating a market for goods
or services shall be construed as a reference
to dominating such a market either as a
supplier or as an acquirer of goods or
services in that market.
(4) ...
(5) ..."
"81(1) The Court may, on the application of the9. The trial judge concluded that there was a market for fat cattle in Northern Queensland. He found that, prior to the acquisition of Borthwick, AMH had not been in a position to dominate the market because of the competition from Borthwick's abattoir at Bowen, but that the acquisition of Borthwick placed AMH in a position of dominance in the Northern Queensland market. His Honour also found that AMH's acquisition of control of the Mackay abattoir assisted it to dominate the Northern Queensland market.
Minister, the Commission or any other person, if it
finds, or has in another proceeding instituted
under this Part found, that a person has
contravened section 50, by order, give directions
for the purpose of securing the disposal by the
person of all or any of the shares or assets
acquired in contravention of that section.
(1A) Where -
(a) the Court finds, in a proceeding instituted
under this Part, that a person (in this
sub-section referred to as the 'acquirer') has
acquired shares in the capital, or any assets,
of a body corporate in contravention of
section 50;
(b) the Court finds, whether in that proceeding or
any other proceeding instituted under this
Part, that the person (in this section
referred to as the 'vendor') from whom the
acquirer acquired those shares or those
assets, as the case may be, was involved in
the contravention; and
(c) at the time when the finding referred to in
paragraph (b) is made, any of those shares or
those assets, as the case may be, are vested
in the acquirer or, if the acquirer is a body
corporate, in any body corporate that is
related to the acquirer,
the Court may, on the application of the Minister
or the Commission, declare that the acquisition, in
so far as it relates to the shares or assets
referred to in paragraph (c), is void as from the
day on which it took place and, where the Court
makes such a declaration -
(d) the shares or the assets to which the
declaration relates shall be deemed not to
have been disposed of by the vendor; and
(e) the vendor shall refund to the acquirer any
amount paid to the vendor in respect of the
acquisition of the shares or assets to which
the declaration relates.
...
(1C) Where an application is made to the Court for
an order under sub-section (1) or a declaration
under sub-section (1A), the Court may, instead of
making an order under sub-section (1) for the
purpose of securing the disposal by a person of
shares or assets or an order under sub-section (1A)
that the acquisition by a person of shares or
assets is void, accept, upon such conditions (if
any) as the Court thinks fit, an undertaking by the
person to dispose of other shares or assets owned
by the person."
10. His Honour made the following orders, inter alia:-
"2. Under Section 81(1) of the Trade Practices Act11. For the appellant, the principal issues argued in the appeal were, first, that Northern Queensland was not a separate market and, secondly, that any conditional order made or any undertaking required by his Honour ought to have been restricted to the abattoir at Bowen, or possibly Bowen and one or more of the other abattoirs in Northern Queensland, and that no order ought to have been made or undertaking required in respect of the abattoir at Mackay.
1974, the First Respondent use its best
endeavours to dispose of all the issued shares
in Thomas Borthwick & Sons (Australasia)
Limited to a suitable purchaser within the
period of two months (or such further period
as the Court or a Judge may allow) from the
Operative Date AND THE COURT DIRECTS THAT in
the event that the said shares are not
disposed of within that period, the matter be
re-listed for the giving of further directions
under Section 81(1) of the Trade Practices Act
1974 as to the disposal of such shares.
3. If the Court is satisfied that, on or prior to
the Operative Date, the First Respondent:
(a) has procured the disposal by Thomas
Borthwick & Sons (Australasia) Limited of
the two abattoirs owned by that company
and situate respectively at Bowen and at
Mackay to one or more suitable
purchasers; or
(b) (i) has procured the disposal by Thomas
Borthwick & Sons (Australasia)
Limited of the abattoir owned by
that company and situate at Bowen to
a suitable purchaser; and
(ii) has itself disposed of the abattoirs
owned by the First Respondent and
situate respectively at Mareeba, Mt.
Isa, Cape River and Cairns to one or
more suitable purchasers, being
persons such that the Trade
Practices Commission or the Court is
satisfied that, during the
foreseeable future, not less than
three out of the said four abattoirs
will be operated for the slaughter
of cattle during normal working
hours during the normal killing
season in each year,
Order 2 shall be discharged.
4. In the interpretation of the orders set out in
paragraphs 2 and 3 hereof:
(a) a reference to a disposal of a particular
abattoir means the transfer of the title
to the lands upon which that abattoir
(whether operational or not) is situated,
any necessary consents to such transfer
having first been obtained, together with
all the buildings, plant and equipment
now situated on those lands as well as
all existing licences necessary to
operate the abattoir, but excluding any
business names, trade marks, registered
designs, logos or other product
identification signs owned, used or
applied by the person disposing of such
abattoir in connection with that abattoir
or the product thereof;
(b) the term 'suitable purchaser' means a
person:
(i) other than Tancred Brothers Pty
Limited, Elders IXL Limited, Metro
Meat Limited or SCI Meat & Paper Pty
Limited, or a corporation related to
any of those companies within the
meaning of s.7(5) of the Companies
(New South Wales) Code, or any
person associated with any of those
companies within the meaning of
s.9(1) of the Code, at the date of
the contract for sale of the
abattoir in question; and
(ii) who, in the opinion of the Trade
Practices Commission or of the
Court, is likely, after acquisition
of the relevant abattoir or
abattoirs to provide effective
competition to the First Respondent
in connection with the acquisition
of fat cattle in that part of
Queensland lying north of the city
of Mackay;
(c) the term 'Operative Date' shall mean 19
November, 1988 or such later date as the
Court or a Judge may allow."
12. Counsel for the respondent contended in answer that there was a Northern Queensland market, that the abattoir at Mackay was included in the orders made as it assisted AMH to dominate the Northern Queensland market and was, indeed, "the jewel in the crown". Counsel contended that his Honour was in error in including feed lot cattle in the Northern Queensland market for fat cattle and that the exclusion of these cattle would reinforce the existence of a Northern Queensland market and AMH's domination thereof. Counsel contended that, as a matter of law, his Honour had no power to make the conditional orders that he did and that, as a matter of discretion, he should not have made such conditional orders or should have restricted the conditional orders to the abattoirs at Bowen and Mackay. He submitted that the trial judge ought not to have made a conditional order dealing with the abattoirs at Mareeba, Mt Isa, Cape River and Cairns for the Commission had had no opportunity to deal with the effect of such an order. Counsel sought leave to amend the notice of appeal to encompass some of these points.
13. On the appeal, Mr G. Davies Q.C. and Mr A.R. Emmett Q.C., with them Mr R.
Wright of counsel, appeared for the appellant. Mr
C.A. Sweeney Q.C., with him
Mr J.S. Hilton and Miss M.C. Walker of counsel, appeared for the respondent.
Market
14. His Honour made a careful and detailed analysis of the product market, of the geographic market, of vendors' attitudes, of purchasers' conduct, of the extent of price correlation and of the potential for substitution. It is unnecessary for the purposes of this appeal to consider all these matters in detail.
15. Whatever the basis therefor - trade, social, political or otherwise - there was frequent reference in the evidence to three separate regions of Queensland: the northern, central and southern regions. The northern region was defined as I have already mentioned.
16. His Honour concluded that all but 18.7% of the northern turnoff of fat cattle was slaughtered in Northern Queensland. If one were to exclude feed lot cattle from these figures, the fat cattle going south would be reduced to 12%, or less. As some of the cattle sent south went to AMH, when it lacked killing capacity in Northern Queensland and some went south to specialised purchasers, such as Morex which concentrated on bulls and lean meat, the general trade with abattoirs south of Northern Queensland was quite small.
17. The trade in the northern region was substantial. In 1987, the total turnoff of northern fat cattle (including feed lot cattle), was 516,295, of which 419,780 were slaughtered in abattoirs situated in Northern Queensland. His Honour found that "except under extraordinary conditions, producers sell locally: in the paddock, at a local sales yard or to the local abattoir." His Honour used the term "local" to encompass the distances of Northern Queensland, sometimes many hundreds of kilometers. His Honour said, "As Mr Whan agreed in cross-examination, producers in the north 'appear not to want to send their cattle away.'" His Honour found that even in the case of northern cattle slaughtered in the southern or central regions, the contract of sale of the cattle was made in the northern region. His Honour found that "these cattle are not sent out of the northern region for sale elsewhere." His Honour found that there was broad correlation between the price of fat cattle in Queensland and the export price of beef and that, broadly speaking, cattle prices throughout Queensland moved in the same direction though cattle prices "tend to be lower in Northern Queensland than in the south.", no doubt reflecting differences in cattle condition and transport costs. His Honour found that, notwithstanding some differences in prices and a capacity in southern abattoirs to take a greater number of cattle, "producers would not be willing to accept the risks and costs of the journey south" and "it seems that AMH is no more keen to take on the costs, risks and problems of long-range transportation than are the producers." His Honour concluded "I think that the movement figures, and distance barriers, are such that the northern region of Queensland must be regarded as constituting a separate fat cattle market." His Honour accepted the view of Mr Griffith who was Chief Executive Officer of the Australian Agricultural Company, Queensland's largest cattle producer, that "'there is (sic) at least two markets. There is a northern market and probably a central-south market combined. I believe that the northern market is a distinct one'".
18. In the appeal, Mr Davies argued at first for a Queensland market but there is little to support that contention save that Brisbane appears to be the port of export in Queensland for frozen meat. The Court was not referred to any evidence showing that the Queensland boundary was significant in the meat trade. Mr Davies then put his case on the footing, which had at all times underlined his argument, that there was no separate market in Northern Queensland but a continuing interacting trade down the east coast of Australia. There is much to be said for Mr Davies' point of view. It is hard to conceive of effective competition between the abattoir at Cairns and the abattoir at Bowen. They are far apart. There would seem to be more potential for competition between Bowen, Mackay and Townsville than between Bowen and Cairns.
19. Nevertheless, there was evidentiary support for drawing a line at the southern boundary of Northern Queensland& 'defined, as I have mentioned, along shire boundaries running west from a point just north of Mackay and for the conclusion that there was a market for fat cattle in Northern Queensland in the sense that fat cattle were bought and sold in north Queensland, principally at the properties on which they were produced or in sale yards nearby. And it is not disputed in this appeal that, after the acquisition of Borthwick, AMH was in the position to dominate that activity of buying and selling in Northern Queensland.
20. The case put on behalf of the Trade Practices Commission was that, after the acquisition of Borthwick, AMH was able to dominate the trade in fat cattle throughout the whole of Northern Queensland because abattoirs from southern areas were not substitutes. The case was put that the lack of substitutability arose from transport costs, the loss in condition of fat cattle during transport, the bruising that occurred to fat cattle during transport, the producers' aim to fatten their cattle to prime condition and to have them slaughtered as quickly as possible thereafter and finally the producers' loyalty to local abattoirs.
21. Thus, the case pleaded and particularised by the Trade Practices Commission and accepted by the trial judge was that AMH was able by its acquisition to dominate sales of fat cattle in Northern Queensland and that the opportunity for substitution was minimal.
22. The concept of competition in a "market" was discussed by Bowen C.J. and
Fisher J. in Outboard Marine Australia Pty Ltd v. Hecar
Investments No 6 Pty
Ltd (1982) 44 ALR 667 where their Honours said at p 669-70:-
"More assistance can be gleaned from the decision of23. More recently, in Queensland Wire Industries Pty Ltd v. Broken Hill Co Ltd and Another (1987) 78 ALR 407, Bowen C.J., Morling and Gummow JJ. emphasised the flexibility of the concept "market" and said, at p 415:-
the Trade Practices Tribunal, with Woodward J
presiding, in Re Queensland Co-operative Milling
Association Ltd; Re Defiance Holdings Ltd (1976) 8
ALR 481. There an economic concept of competition
was adopted. Five elements of market structure
were noted by the Tribunal as being relevant to the
determination of the state of competition in a
market. Of those, the most important factor was
said to be the height of barriers to entry, that
is, the ease with which new firms might enter and
secure a viable market. The Tribunal's decision
has been approved by the Federal Court in Trade
Practices Commission v Ansett Transport Industries
(Operations) Pty Ltd (1978) 20 ALR 31 and Adamson v
West Perth Football Club Incorporated [1979] FCA 81; (1980) 27 ALR
475. Smithers J recently considered this question
and concluded that 'competition in a market' could
be expressed as 'the sum of activity engaged in by
persons in promoting the sale to potential buyers
of the goods with which that market is concerned':
Dandy Power Equipment Pty Ltd and Dandy Power Pty
Ltd v Mercury Marine Pty Ltd [1982] FCA 178; (1982) 44 ALR 173.
It would seem that 'competition' for the purposes
of s 47(10) must be read as referring to a process
or state of affairs in the market. In considering
the state of competition a detailed evaluation of
the market structure seems to be required. In the
Dandy case Smithers J regarded as necessary an
assessment of the nature and extent of the market,
the probable nature and extent of competition which
would exist therein but for the conduct in
question, the operation of the market and the
extent of the contemplated lessening."
"In our view, in defining the market or marketsOn appeal, (unreported, delivered 8 February 1989) Mason C.J. and Wilson J. said:-
involved in a particular dispute, one should begin
with the problem at hand and ask what
identification of market best assists in analysing
the processes of competition, or lack of
competition, with which the case is concerned (cf
Norman and Williams, 'The Analysis of Market and
Competition Under the Trade Practices Act: Towards
the Resolution of Some Hitherto Unresolved Issues'
(1983) 11 Australian Business Law Review 396 at
400)."
"In identifying the relevant market, it must beAs their Honours pointed out, it is necessary for the purposes of provisions such as ss.46 and 50 to define a market; but this task is to be undertaken in the context of s.50 in determining whether a particular corporation has increased its dominance in that market.
borne in mind that the object is to discover the
degree of the defendant's market power. Defining
the market and evaluating the degree of power in
that market are part of the same process, and it is
for the sake of simplicity of analysis that the two
are separated."
24. The determination of market requires one to look at the pattern and
structure of trading, to the competition, to the possibility
of substitution,
to barriers to entry and like matters. As the Trade Practices Tribunal said
in Re Queensland Co-operative Milling
Association Ltd.; Re Defiance Holdings
Ltd (1976) 25 FLR 169 at p 189:-
"... whether firms compete is very much a matter ofIn United States v. United Shoe Machinery Corp., 110 F Supp 295 at p 303 (1953) (affd 347 US 521)Judge Wyzanski said:
the structure of the markets in which they
operate."
"... the problem of defining a market turns on25. The market must be a substantial one. See s.50(3). The market must be ascertained by reference both to product and to geographical area. See Brown Shoe Co. v. United States, 370 US 294 at p 324 (1962). Of the latter, Von Kalinososki states in Antitrust Laws and Trade Regulation Vol 3, p 18-96:
discovering patterns of trade which are followed in
practice."
"Any geographic market, however, must be one thatThe industry may recognise or perceive an area to be a separate geographic market. See United States v. Phillipsburg National Bank & Trust Co., 399 US 35O at p 362-4 (1970).
both corresponds to the commercial realities of the
industry and represents an economically significant
trade area. Because a geographic market
determination looks to actual trade patterns, it is
not required that geographical boundaries be drawn
with exactitude; some amount of 'fuzziness' is
inevitable."
26. These principles were understood and applied by the trial judge in his very careful judgment. It is true that an appellate court may draw its own inference from the primary facts found by a trial judge. See Warren v. Coombes [1979] HCA 9; (1979) 142 CLR 531. But the court must be loth to do so when much depends upon credibility and persuasiveness of the witnesses. The evidence before the trial judge was given over a month. There are 23 volumes of appeal books. On the appeal, the Court was taken to snatches of the evidence only. The Court must be careful not to draw inferences from evidence which is disputed by other evidence and which forms only part of the material before the Court.
27. One issue that was litigated before his Honour was whether a line could be drawn at the southern boundary of what was described by the witnesses as Northern Queensland and whether there was such a lack of trading from the area north of that line with the area south of that line that the area north of the line could be looked upon as a market for fat cattle separate from the area to the south. His Honour's finding on that issue, that the line could and should be drawn, ought not, in my opinion, be disturbed.
28. Mr Davies submitted that the statistics which showed that only a small proportion of fat cattle produced in Northern Queensland went to abattoirs to the south were not important. He submitted that the question was whether, if there were a sufficient, sustained price differential, there could be substitution of southern abattoirs for those in Northern Queensland. On this issue, however, I prefer the submission put by Mr Sweeney that the question is not whether there was a market such that the arrogant use of monopolistic power could not destroy it but whether there was a market of sufficient substance to be dominated. To put the matter another way, the Act does not require the total or unrestricted domination of a market, but simply domination of a market.
29. Mr Davies submitted that because, if the price differential were
sufficient, producers in Northern Queensland would send their
fat cattle
south, there was not a Northern Queensland separate market. He submitted that
there was no economic barrier to substitution,
for either fat cattle or frozen
meat had to be transported south. Mr Davies relied upon the citation by
Northrop J. in Trade Practices
Commission v. Ansett Transport Industries
(Operations) Pty. Ltd and Others [1978] FCA 21; (1978) 32 FLR 305, at p 311, of the remarks
of Woodward J., Shipton and Brunt in Re Queensland Co-operative Milling
Association Limited, (1976) 25 FLR 169 at p 190, that:-
"So a market is the field of actual and potentialHowever, the Trade Practices Tribunal also said at p 190:-
transactions between buyers and sellers amongst
whom there can be strong substitution, at least in
the long run, if given a sufficient price
incentive." (the emphasis is mine)
"It is the possibilities of such substitution whichand:-
set the limits upon a firm's ability to 'give less
and charge more'. ... 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 is this: From which products and which
activities could we expect a relatively high demand
or supply response to price change, i.e. a
relatively high cross-elasticity of demand or
cross-elasticity of supply?"
"Whether such substitution is feasible or likely30. In making his finding of a Northern Queensland market, his Honour, in effect, adopted the view, which he cited, of Mr R.J. Schmidt, Managing Director of King Ranch Australia who said that, "It is my considered opinion that northern based producers including King Ranch are effectively constrained to selling to north based purchasers and that there is in effect a discrete livestock selling market there". In brief, the problems of transporting live cattle and of getting them to slaughter in prime condition were such as to rule out trade with the south as a generally feasible alternative. The evidence, such as that given by Mr Schmidt, negates Mr Davies' submission that the pattern of trade in Northern Queensland would be responsive to price change.
depends ultimately on customer attitudes,
technology, distance, and cost and price
incentives."
31. Mr Davies submitted that there was a general correlation between prices throughout Queensland and that this was an important indicator of a single market. He pointed to the evidence that producers, purchasers and auctioneers throughout Northern Queensland kept an eye on southern prices. However, his Honour considered the evidence and thought that it did not lead to the conclusion that there was not a Northern Queensland market. His Honour thought it understandable that prices were generally influenced by seasonal and international factors, such as the export price of meat. It is unnecessary for me to consider the many detailed matters of fact and judgment which Mr Davies challenges. In my opinion, no error has been shown.
32. The existence of a market, a concept of economics and commerce, ought not to be determined by reference to theoretical possibilities. There was trade taking place in Northern Queensland. A feature of that trade was that it was desirable to reduce so far as possible the distance between the production of fat cattle and the place of slaughter. The cost of transport was a factor. Another factor was the desirability of having fat cattle slaughtered whilst in prime condition. All such factors limited the practicability of competition from the south. Almost all the sales transactions took place in Northern Queensland on the cattle properties and at the sale yards in towns like Cloncurry. The general trade, omitting special and specialist sales, occurred between producers in Northern Queensland and abattoirs in Northern Queensland, save for a small proportion. In my opinion, his Honour's finding that there was a relevant market in Northern Queensland was well founded.
33. His Honour's findings with respect to geographic market took into account all relevant factors. In my opinion, no error in his Honour's reasons has been demonstrated and I would not draw any different conclusion.
34. Mr Davies did not challenge his Honour's finding that, after the
acquisition of Borthwick, AMH was in a position to dominate
the trade in north
Queensland in fat cattle.
Feed Lot Cattle
35. Mr Sweeney contended that his Honour was incorrect in including feed lot cattle in the market for fat cattle. His Honour had evidence before him that some purchasers, particularly some abattoirs from southern areas, purchased cattle which were not in prime condition with a view to placing the cattle in feed lots and fattening the cattle prior to slaughter. His Honour was in error in regarding the evidence as being that feed lot cattle were fattened for up to 90 days. The evidence rather was that 90 days, that is 3 months, was the average time taken for fattening. Mr Sweeney submitted that feed lot cattle were store cattle and that there had really been no issue about this matter at the hearing save that two witnesses, Mr L.J. Brown and Mr L.H.A. Loveday, gave evidence towards the end of the hearing and produced figures which included feed lot cattle amongst fat cattle sold at sales. As Mr Sweeney pointed out, that evidence had little weight for Mr Loveday conceded that it was common for store cattle to be sold at the end of fat cattle sales. There were other difficulties with the evidence which I need not discuss.
36. It seems to me that Mr Sweeney's submissions on this point are persuasive. The feed lot cattle were not fat cattle in prime condition suitable for slaughter. It was for this reason that one of the main factors which precluded the transport of fat cattle for long distances, that of deterioration, was not a factor which prevailed with respect to store or feed lot cattle. Feed lot cattle were not substitutable for or otherwise competitive with fat cattle for they had still to be fattened over a significant period and were not ready for slaughter. See the discussion of market and substitution by Mason C.J. and Wilson J. in Queensland Wire Industries Pty Ltd v. The Broken Hill Proprietary Company Limited & Anor.
37. This view does not, however, weaken his Honour's conclusion that there
was a market for fat cattle in Northern Queensland. Rather,
it reinforces
that conclusion.
The Powers of the Court
38. Mr Sweeney submitted that the trial judge did not have the power to make the conditional orders which he made. To consider this submission, it is necessary to consider the terms of ss.50 and 81, set out above.
39. Section 50(1) provides that a corporation shall not acquire, directly or indirectly, any shares in the capital, or any assets, of a body corporate if the acquisition would have the effect which the section proscribes. In this case, AMH acquired all the shares in Borthwick. Mr Sweeney and Mr Emmett both submitted that was all that AMH acquired, that it did not thereby indirectly acquire any assets which Borthwick owned. It should perhaps be noted at this stage that the abattoirs at Mackay and Bowen were not the only assets of Borthwick, which held assets elsewhere in Australia.
40. The Court was referred to the decision of Lockhart J. in Melville v.
Mutual Life and Citizens Assurance Co Ltd [1980] FCA 114; (1980) 31 ALR 649. In that case,
the respondent had acquired 1% of the issued capital of APA Holdings Limited
which itself held about 98.5% of the
issued shares of APA Life Assurance Ltd.
APA Life carried on a life insurance business. The Statutory Fund conducted by
Mutual Life
had been used to acquire the 1% of the issued capital of APA
Holdings. The question before Lockhart J. was whether the assets of
the
Statutory Fund had been "invested directly or indirectly in any share or
interest in any company or undertaking carrying on life
insurance business".
His Honour rejected that contention and said, inter alia, at p 655:-
"This submission fails. ... I cannot accept that41. The question is what is an acquisition direct or indirect. Lockhart J. referred to the situation where an acquisition is made by a nominee, agent or trustee, but the word "indirectly" may not inevitably be limited to a circumstance where the beneficial ownership of property resides in the acquiring corporation. Section 50 should be given a wide operation for it is intended to deal with cases of domination in the market place. The words "acquire, directly or indirectly" should be read as encompassing all forms of acquisition and may encompass the situation where assets are acquired in an indirect way, as through the interposition of a wholly owned subsidiary.
the word 'indirectly' where used in s 39(2) has the
meaning inherent in this contention. The phrase
'directly or indirectly' appears not infrequently
in legislation: see for example s 67 of the
Companies Act 1961 (NSW) in relation to financial
assistance. In the context of s 39(2) it refers
to, and is qualified by, the word 'invested' that
immediately precedes it and relates to the subject
matter of the investment. It is intended to bring
within the ambit of the prohibition investments,
not only by the company itself directly in shares
or interests in a company or undertaking carrying
on life insurance business, but investments made by
the company through the medium of a nominee, agent,
trustee or the like. In no sense could it be said
in the present case, and it was not contended, that
APA Holdings was a nominee, agent or trustee of or
for the respondent. There is nothing to suggest
that the respondent and APA Holdings were otherwise
than at arms length."
42. In the present case, however, the shares in Borthwick were acquired, not the assets of Borthwick. Even though the acquisition was motivated by AMH's desire to control the Bowen and Mackay abattoirs, the acquisition was an acquisition of shares, not assets, for shares not assets were purchased. The acquisition of the shares in Borthwick conferred control upon AMH, but Borthwick remained the owner of the abattoirs.
43. It follows that s.81(1) authorised the divestiture of the shares in
Borthwick, which were acquired in contravention of s.50.
Divestiture of Abattoirs
44. Mr Sweeney contended that only the shares could be the subject of an order made under s.80(1). He submitted that s.81(1C) was inserted in the Act for the very reason that the Court did not have power to make any order with respect to "other shares or assets" owned by the acquiring corporation.
45. I do not accept Mr Sweeney's general submission that the Court's powers under s.81 are limited to the precise orders specified in s.81(1) and to the acceptance of an undertaking as set out in s.81(1C). The making of conditional orders of the type made by the trial judge is common, particularly by courts having jurisdiction in equity. Provided the matter is within the ambit of the dispute before it and of its powers, the Federal Court may formulate an order in such manner as it sees fit. As to the effect of a conditional order, see Talbot v. Blindell and Others (1908) 2 KB 114, where an order had granted relief against the forfeiture of a lease upon the defendants' performing certain conditions. An application was made subsequently to require the defendants to perform those conditions. It was held that there was no power to compel enforcement of the conditions as would have been the case had undertakings been given. The conditions were valid but there was no direct power to order compliance with them.
46. In my opinion, what the trial judge did by way of ordering the divestiture of the shares, should AMH not have procured the disposition of the abattoirs at Mackay and Bowen or alternatively the abattoirs at Bowen, Mareeba, Mt Isa, Cape River and Cairns, was within the ambit of the Court's powers. The undertaking was not given for AMH wished to appeal against his Honour's view that the Bowen abattoir and the abattoirs at Mareeba, Mt Isa, Cape River and Cairns should be disposed of. His Honour agreed that a conditional order should be made. The only divestiture ordered was divestiture of the shares. That order was made on a conditional basis. It was up to AMH to choose whether or not to comply with the conditions. It was not ordered to do so. It was merely ordered to divest itself of the shares if it did not satisfy the conditions which His Honour stipulated for their retention.
47. I agree however, with Mr Sweeney's further submission that no order ought
to have been made dealing with the abattoirs at Mareeba,
Mt Isa, Cape River
and Cairns or requiring that "not less than three out of the said four
abattoirs will be operated for the slaughter
of cattle during normal working
hours during the normal killing season in each year." Mr Sweeney submitted
that this part of the
order was discussed only at a late stage of the trial
and that there had been no real investigation of its effect. Indeed, if there
was any evidence that it would be in the public interest to reopen the
abattoirs at Mareeba and Mt Isa or to keep not less than three
of the four
abattoirs at Mareeba, Mt Isa, Cape River and Cairns operating, the Court was
not referred to it in the appeal. What is
clear from the evidence to which the
Court was referred is that AMH was of the view that rationalisation was
desirable. This could
well be the case. Rationalisation of abattoirs might
benefit the cattle industry in Northern Queensland by improving export quality
and reliability and might do so without inhibiting competition. I do not say
it would. It is sufficient to make the point that
the Court's sole function
under ss.50 and 81 of the Act is to make orders dealing with the
anti-competitive effects of a particular
acquisition. It does not seem
appropriate to make orders encouraging the opening of abattoirs which were not
involved in the acquisition
and which had been shut down, certainly not when
the ramifications of such an order had not been fully examined.
The Mackay Abattoir
48. I now come to the Mackay abattoir, which, for all the huffing and puffing and the evidence called on both sides as to the existence or non-existence of a Northern Queensland market and as to AMH's dominance thereof, appears to be the abattoir in which both parties have greatest interest, though it is not situated in the Northern Queensland market.
49. The Mackay abattoir, which was apparently a modern and efficient abattoir, had in past years procured only a small part of its supplies from Northern Queensland. In part, this had resulted from geographical factors, for the principal roads into Mackay from the cattle producing areas come in from the south and southwest. In part, as the abattoir had been in common hands with the Bowen abattoir, there may well have been some product differentiation. The Mackay abattoir had developed a special trade with the Japanese market. It may be that both Borthwick and AMH diverted the cattle suited to the North American market to Bowen and the cattle suited to the Japanese market to Mackay. In any event, in 1987, Mackay took only 87O5 of its cattle from Northern Queensland.
50. In Trade Practices Commission v. Australia Meat Holdings Pty Ltd and Ors
(1988) 83 ALR 299 at pp 365-6, the trial judge dealt with the abattoir in this
way:-
"The Mackay abattoir does in fact draw cattle from51. As his Honour held, the acquisition by AMH of control of the Mackay abattoir assisted it to dominate the Northern Queensland market.
the northern region. Notwithstanding that such
cattle constitute only a small proportion of the
cattle slaughtered in Mackay, the consequence, say
counsel, is that control of the Mackay abattoir
gives to AMH some additional strength in the
northern market. Furthermore, say counsel, the
drawing power of the Mackay abattoir ought not to
be judged only by reference to the current
situation. Counsel suggest that, as Borthwick owns
the Bowen abattoir, about 160 km to the north, it
is reasonable to assume that the company has tended
to direct cattle which emanated from points north
of Mackay to Bowen; leaving to the Mackay abattoir
the maximum potential to take cattle from more
southerly areas. The suggestion is that, if AMH
retains control of Mackay, but is forced to divest
itself of Bowen, AMH may move aggressively into
areas north of Mackay in an attempt to increase
throughput at Mackay. Counsel suggest that,
whether or not such a result be intended, such
conduct is likely to put at risk the future of the
Bowen abattoir.
...
... The instant question must, I think, be
determined upon a more principled basis. I accept
that the location of a particular asset is not
decisive upon the question whether it ought to be
included in an undertaking to divest. The question
rather is whether the retention of that asset,
gained in contravention of s.50(1), will serve to
assist the contravening corporation to dominate the
relevant market. If there is no nexus between the
retention of the asset and domination, there is no
need to insist upon divestiture. If there is such
a nexus, of more than minimal proportions, the
Court should insist that the contravening
corporation divest itself of that asset. Only in
that way may the policy underlying s.50(1) be
vindicated.
Circumstances may exist in which the application of
that principle is inappropriate. However, I do not
think that the speculative matters referred to on
behalf of AMH constitute such circumstances. In my
view an appropriate undertaking in this case will
include an offer to dispose of the Mackay abattoir,
as well as that at Bowen."
52. AMH had Cairns in the north and Mareeba as a backstop to discourage the opening of any new abattoir in that area. The abattoirs between Cairns and Townsville were small and friendly to AMH's interests. With the elimination of Borthwick, which had provided effective price competition, AMH was able to dominate not only in the north but westwards from Townsville to Mt Isa. AMH had an abattoir at Townsville, the abattoir to the west at Cape River and, as a backup and discouragement of competition, it had the abattoir at Mt Isa. With the control of Bowen, AMH effectively dominated the area immediately to the south of Townsville.
53. Once the geographic area had been selected as the area of the market for the purposes of s.5O, the effect of the challenged acquisition must be determined by reference to it. The Mackay abattoir was not within Northern Queensland and its purchases of Northern Queensland cattle should be ignored. But that was not the only aspect of the acquisition to be considered.
54. Borthwick's ownership of the abattoirs at Mackay and Bowen, which could be supportive of each other, had enabled Borthwick to be a strong and effective presence in the meat industry in Queensland, including an effective competitive presence in Northern Queensland. On his Honour's findings, it was the strength and vigour of the competition rather than the quantity of cattle which was processed by the Bowen abattoir which made the difference between the position of dominance after the acquisition of Borthwick and the lack of dominance prior to that acquisition. I am not persuaded that a purchaser of the Bowen abattoir alone would have such strength and provide such competition. For this reason, I think there was no error in his Honour's view that the Mackay abattoir should be encompassed by the divestiture ordered.
55. As the sale of the Mackay and Bowen abattoirs to different purchasers,
which his Honour's orders permit, would not restore the
pre-acquisition
position, I can see reasons why AMH should not have been given an opportunity
to arrange the disposal of the abattoirs
but should have been ordered simply
to divest itself of the shares in Borthwick, thus maintaining the two
abattoirs in the same ownership.
However, I do not understand the
Commission's grounds of appeal or submissions to raise this point. Mr Sweeney
accepted the disposal
of the Mackay and Bowen abattoirs, even to different
purchasers, as an acceptable alternative to divestment of the shares, if there
be power in the Court to make such an order. Mr Sweeney expressly stated:-
"It matters not to us whether they sell theOther comments were made to the same effect.
shares in Thomas Borthwick or whether they
sell ... the abattoirs."
56. For these reasons, I would not interfere with his Honour's orders, save that I would allow the cross-appeal by excluding Order 3(b).
57. A number of the matters that I have discussed were raised by the Commission in grounds not mentioned in the first amended notice of cross-appeal. Further leave to amend was sought. In my opinion, leave to amend to add the new ground 3 should be granted. The matters therein raise important matters of principle. The Court's powers under s.81 of the Act have not previously been the subject of detailed consideration. It is appropriate that the Commission should have the opportunity to argue them in this appeal. I would, however, refuse leave to amend to add the proposed grounds 2 and 4. As expressed, the grounds raise matters going to the conduct of the trial in relation to the offer or possible offer of undertakings by counsel for AMH. A case such as the present should be considered not on an interlocutory basis but in the light of what has occurred. It would not be appropriate to remit it for further consideration. Any matters of substance involved in those grounds can be considered under grounds 1 and 3.
58. I would therefore dismiss the appeal with costs. I would allow amendment of the notice of cross-appeal to add ground 3. I would allow the cross-appeal to the extent of varying the orders made by the trial judge by excluding Order 3(b) therefrom. I would order that the appellant pay one-half of the respondent's costs of the cross-appeal.
There were two principal areas of argument in this appeal, one related to the identification of the geographic market for fat cattle in Queensland and the other to the relief given the Trade Practices Commission.
2. In relation to market I agree with the reasons and conclusions of the other judges of the Court whose judgments I have had an opportunity of reading. The question is a question of fact and, to my mind, the evidence given by persons well experienced in the buying and selling of cattle in northern Queensland, although not conclusive, is highly relevant. Mr. R.T. Schmidt is the Managing Director of King Ranch Australia and has had 35 years experience in the cattle industry. He expressed the firm opinion that northern based producers were constrained to sell to northern based purchasers and that there was in effect a discrete livestock, selling market there. Likewise Mr. Barrett, who has been in the industry since 1956, said that, from his experience and knowledge of the local industry, very few cattle were ever sent by local producers to saleyards or meat works in southern Queensland. He said that the only time he would consider selling cattle in southern Queensland would be in times of severe drought. Mr. Power, a producer near Cloncurry, said, "I am a firm believer that to go past the first set of weighing scales is only foolhardiness as cattle lose weight, bruising increases and returns diminish."
3. Obviously the drawing of any line to define the geographic market is an
arbitrary exercise which will never be completely correct.
There will always
be a certain fuzziness about it. This matter was alluded to by Deane J. in
his judgment in Queensland Wire Industries
Pty. Limited v. The Broken Hill
Proprietary Company Limited (High Court of Australia, 8 February 1989,
unreported) when he said (p
18):-
"The identification of relevant markets and4. Furthermore, there may be a market in a given area notwithstanding that there will be cases where producers or sellers in the defined area will, contrary to the expectations of some in the market, sell to purchasers outside the area even where the commodity, as is the case here, is not unlikely to deteriorate if it is dispatched over long distances.
the definition of market structures and
boundaries for the purposes of determining
whether B.H.P.'s refusal to supply Y-bar to
Q.W.I. contravened s. 46(1) involves value
judgments about which there is some room for
legitimate differences of opinion. The
economy is not divided into an identifiable
number of discrete markets into one or other
of which all trading activities can be neatly
fitted. One overall market may overlap other
markets and contain more narrowly defined
markets which may, in their turn, overlap,
the one with one or more others. The outer
limits (including geographic confines) of a
particular market are likely to be blurred:
their definition will commonly involve
assessment of the relative weight to be given
to competing considerations in relation to
questions such as the extent of product
substitutability and the significance of
competition between traders at different
stages of distribution."
5. I would not wish to add to what my brothers have said about the significance for the market of feedlot cattle. I agree with what they have said about that matter.
6. I turn to the question of relief which I have found a difficult one. The relevant sections of the Trade Practices Act 1974, ss. 50 and 81, are sufficiently set out in the judgment to be delivered by Davies J. and I do not repeat them. Davies J. has also set out the terms of the order which the learned primary Judge made. As the order itself indicates, it was made pursuant to subsec. 81(1). No order could be made pursuant to subsec. 81(1A) because it was impractical for the Court to declare the acquisition void. The effect of such a declaration would have been that the shares to which the declaration related would be deemed not to have been disposed of by the vendor; see para. (1A)(d).
7. The reason why the making of a declaration would have been impractical is that the vendors were able to secure from the Secretary of State in the United Kingdom an order pursuant to subsec. (4) of s. 5 of the Protection of Trade Interests Act 1980 (U.K.). Subsection 5(1) of that Act provides that a judgment to which the section applies shall not be registered under the relevant parts of the Administration of Justice Act 1920 (U.K.) or the Foreign Judgments (Reciprocal Enforcement) Act 1933 (U.K.) and no court in the United Kingdom shall entertain proceedings at common law for the recovery of any sum payable under such a judgment. Subsection (4) of s. 5 of the Protection of Trade Interests Act empowers the Secretary of State to make an order in respect of any provision or rule of law which appears to him to be concerned with the prohibition or regulation of agreements, arrangements or practices designed to restrain, distort or restrict competition in the carrying on of business of any description. On 23 March 1988, on the application of the vendors, the United Kingdom Minister for Trade specified, for the purposes of s. 5, subsec. 81(1A) of the Australian Trade Practices Act. As the primary Judge remarked, that order removed any doubt as to the unenforceability in the United Kingdom of any order which this Court might make under subsec. 81(1A), the vendors being outside the jurisdiction.
8. The fact that relief could not be given under subsec. 81(1A) has made the task of coming to a conclusion about what relief is appropriate a complex one. The complexity of the problem is readily discernible from a reading of the orders under appeal. It is necessary to analyze those orders.
9. The first is a declaration that the acquisition of the shares constituted a contravention of s. 50 of the Act. That gives rise to no problem, but without more, the declaration would be of little use to the Commission. The second order, which was made under subsec. 81(1) of the Act, requires Australian Meat Holdings Pty. Limited ("the company") to use its best endeavours to dispose of all the issued shares in the Borthwick Company to a suitable purchaser within the period there specified. In the event that the shares are not disposed of within that period, the matter is to be relisted for the giving of further directions under subsec. 81(1) of the Act as to the disposal of the shares. The expression, "suitable purchaser" is defined in sub-para. 4(b) of of the orders. In sub-para. 4(b)(i) the definition excludes certain companies and in sub-para. (ii) requires the purchaser to be a person who, in the opinion of the Commission or the Court, is likely "after acquisition of the relevant abattoir or abattoirs to provide effective competition to the first respondent (Australian Meat Holdings Pty. Ltd.) in connection with the acquisition of fat cattle in that part of Queensland lying north of the city of Mackay." It is difficult to see what relevance sub-para. (4)(b)(ii) of the orders could have otherwise than in relation to the sale of abattoirs provided for in para. 3 of the reasons to which I have yet to come. On the basis that that conclusion is correct, order 2 could be satisfied by sale of the shares to any person or to any company other than a company specified in sub-para. 4(b)(i). Whether this was the intention of the Court or the parties is a matter which I think is open to question, but no mention of the matter was made in the argument before us, probably for the reason that both parties contemplate a solution of the problem which will involve the sale of abattoirs rather than shares.
10. Paragraph 3 of the orders is not an order but the statement of conditions which, if fulfilled, will lead to the discharge of order 2. It should be understood that the conditions were specified not pursuant to subsec. 81(1C) but as a means adopted by the Court of giving directions pursuant to subsec. 81(1). I mention this because it seemed to me during the argument that there were at times underlying assumptions that in some way the Court had purported to act pursuant to subsec. 81(1C). That is not the case.
11. The conditions for which para. 3 of the orders provides are alternatively the disposal prior to the specified date of the two abattoirs at Bowen and Mackay "to one or more suitable purchasers" or the disposal of the abattoir at Bowen and the abattoirs situated at Mareeba, Mt. Isa, Cape River and Cairns again to one or more "suitable purchasers", with the added requirement that the purchasers be persons "such that the Trade Practices Commission or the Court is satisfied that, during the foreseeable future, not less than three out of the said four abattoirs will be operated for the slaughter of cattle during normal working hours during the normal killing season in each year."
12. I pause to make the point that, if these orders stand, it would seem not unlikely that the Court, in the event of a dispute, will be faced with a most difficult task in resolving questions concerning its satisfaction or not with the fulfilment of these various conditions. This is, so far as I am aware, the first case under the Act in which a problem of this kind has arisen so acutely. What the orders are designed to do is to recreate as closely as possible the market situation which existed before the acquisition of shares. The Court is not unlikely to be involved in a detailed supervisory role as has happened from time to time in the United States.
13. The United States position is referred to in Trade Practices and Consumer
Protection 3rd ed. (1983), Taperell, Vermeesch and
Harland; see pp 494-6. In
the course of their discussion, the authors refer to the El Paso divestiture
order which led to two Supreme
Court appeals; see United States v. El Paso
Natural Gas Co. [1964] USSC 72; 376 US 651 (1964), Cascade Natural Gas Corporation v. El Paso
386 US 129 (1967) and Utah Public Service Commission v. El Paso [1969] USSC 155; 395 US 464
(1969). I refer also to an article, "Aspects of the Trade Practices Bill
1973" by Ms. J.R. Levine, 47 ALJ 679, (1973) in which the author said (p
709):-
"Once a merger has been completed, it is very14. For the reasons given above, it was not possible to maintain or re-instate the situation which existed prior to the acquisition of the shares in this case.
difficult, costly, and time-consuming to
'undo' it.
During the course of litigation, the
acquiring firm may be in a position to strip
the acquired firm of key assets and
management, thus rendering divestiture of the
acquired firm as a viable entity highly
unlikely.
Even if divestiture is finally achieved, U.S.
experience demonstrates that it is unlikely
to prove a successful remedy. For one thing
divestiture or dissolution remedies provide
great opportunities for delaying tactics.
Enforcement officials, at least in the U.S.,
generally seek divestiture of specific
assets, or of lines of commerce, rather than
a 'going concern'. In this kind of partial
divestiture there is little likelihood of a
viable competitor arising from the ashes.
This has led a number of commentators to
conclude that 'comprehensive implementation
of meaningful structural reorganisation
seldom occurs'.
For these reasons, it appears vital to attack
questionable mergers before completion."
15. The company, upon the basis that it might fail on the question whether its acquisition of the shares gave it dominance in the market contrary to the provisions of s. 50 of the Act, sought to persuade the Court to act pursuant to subsec. 81(1C) of the Act. To this end counsel for the company proffered to the learned primary Judge three suggested undertakings to be given to the Court. They were proffered in the alternative. Each was numbered. The undertaking numbered (1) was the company's preferred position, that numbered (2) was its preferred position if undertaking (1) was not acceptable; and the undertaking numbered (3) its position of last resort assuming neither undertaking (1) nor undertaking (2) was acceptable. A reading of the undertakings discloses that the genesis of some of the expressions used in the primary Judge's conditions set out in para. 3 of the orders was the use of those expressions in these undertakings.
16. Undertaking (1) required the company, within the period of three months from the operative date, to use its best endeavours to cause the Borthwick Company to achieve "a suitable disposition" of the Bowen abattoir and to use its own best endeavours to achieve "a suitable disposition" of the abattoirs owned by it at Mareeba and Mt. Isa. Undertaking (2) involved the disposition of the abattoirs at Bowen, Mareeba, Mt. Isa and Cape River. Undertaking (3) involved the disposition of the abattoirs at Bowen, Mareeba, Mt. Isa and Cairns.
17. During the course of his argument upon the appeal, senior counsel for the
company proffered two further undertakings, not in
substitution for those
proffered to his Honour, but as undertakings, which, if accepted, the company
would prefer to give rather
than any of the undertakings proffered at first
instance. Again there was an order of priority. The first offered to dispose
only
of the abattoir at Bowen; the second offered to dispose of that abattoir
and the abattoir at Cape River. Thus, on appeal, the company
proffered
undertakings to dispose of a succession of abattoirs. In order of priority
these were:-
Undertaking 1: Bowen18. In the supplementary reasons for judgment which his Honour published on 12 August 1988, his Honour refused to accept any of the three undertakings then proffered to him. He did so in the context of his view that the abattoir at Mackay, although outside the market area, overshadowed the market area and had a potential for the slaughter of substantial numbers of cattle from it, particularly if Bowen were no longer operated by the Company, as each of the three proffered undertakings contemplated. But his Honour was prepared to accept an alternative situation in which the company, in addition to disposing of the abattoir at Bowen, disposed of abattoirs at Mareeba, Mt. Isa, Cape River and Cairns, provided at least one of the abattoirs at Mareeba and Mt. Isa, both of which are presently closed, was reopened and operated in competition with the company. In his Honour's view such a disposition would be likely to offset the acquisition by the company of the abattoir at Mackay as a result of the takeover of the Borthwick Company.
Undertaking 2: Bowen and Cape River
Undertaking 3(formerly undertaking 1): Bowen, Mareeba and
Mt. Isa
Undertaking 4(formerly undertaking 2): Bowen, Mareeba, Mt.
Isa and Cape River
Undertaking 5(formerly undertaking 3): Bowen, Mareeba, Mt.
Isa and Cairns
19. His Honour had some criticism of the then definition of "operative date"
to which it is unnecessary to refer. He then said that
it seemed to him that
consideration of the appropriate form of undertaking should start from the
position that, unless an appropriate
undertaking were offered and its terms
fulfilled, an order for divestiture of the shares ought to be made pursuant to
subsec. 81(1)
of the Act. His Honour continued:-
"Against that background, and only against20. His Honour went on to refer to the complications which the foreshadowed appeal by the company against his decision would bring and dealt with the necessity of making provision for them. It is unnecessary to refer to the detail of what he said in relation to that matter.
that background, AMH should be given the
opportunity to provide a solution to the
problem of market dominance which does not
involve divestiture of the shares in
Borthwick acquired by it in contravention of
s. 50 of the Trade Practices Act. If a
suitable undertaking can be framed regarding
the disposal of Bowen and Mackay, this might
be accepted. Alternatively, Mareeba, Mt.
Isa, Cape River and Cairns might be
subsituted for Mackay; providing that there
is certainty that at least three of those
four abattoirs will be operated by the
purchaser or purchasers during the
foreseeable future. I specify only three out
of the four abattoirs because, on past
experience, the combined throughput of any
three of these abattoirs would at least match
that at Mackay. But it would take three of
them to do so.
An acceptable undertaking would have to
provide for the screening of the proposed
purchaser or purchasers and for strict time
limits. It is highly desirable that any new
operators be in control in sufficient time to
organize a start up at the beginning of the
1989 killing season. In practice that means
an assumption of control by about the end of
this year."
21. His Honour concluded this part of his supplementary judgment by saying that it was not appropriate for him to insist upon any particular form of undertaking. Essentially that was a matter for the company. But, if the form of undertaking proffered by it was not satisfactory, he would need to dispose of the matter in a different way. In order to assist the company to decide what it should do, his Honour annexed to his reasons forms of undertakings which he would be prepared to accept. In short, these required the company to undertake to dispose of the abattoirs at Bowen and Mackay or the abattoirs at Bowen, Mareeba, Mt. Isa, Cape River and Cairns.
22. In the result these suggested undertakings were not acceptable to the company. It indicated its intention to appeal against his Honour's decision. It was then inappropriate for it to enter into any undertaking and the form of conditional order which his Honour devised in paras. 2 and 3 of his orders replaced the proposal that the matter be resolved by the giving of undertakings. The conditions which his Honour imposed are in accordance with his views as discussed in the suggested forms of undertakings appended to his supplementary reasons for judgment.
23. I have earlier said that there are to be found indications in the argument before his Honour and before us that his Honour was being asked to act pursuant to subsec. 81(1C) of the Act. In other words he was being asked to entertain a solution to the problem which would involve the company in an undertaking to dispose of assets, namely abattoirs, which were not acquired as a result of the acquisition of the shares, but which were already owned by the company at the time of the acquisition.
24. In my opinion, there is a question whether the matter fell within subsec. 81(1C) at all. One needs to read s. 81 in conjunction with s. 50. That section proscribes the acquisition by a corporation "directly or indirectly, of any shares in the capital, or any assets of a body corporate ...." Thus the section is concerned with the acquisition, whether the acquisition be direct or indirect, of shares or of assets. When one comes to subsec. 81(1C), the draftsman speaks of "the purpose of securing the disposal by a person of shares or assets", and empowers the Court to accept an undertaking by the person "to dispose of other shares or assets owned by the person." I do not think that the construction of the section is free from difficulty. It may be that if the acquisition which is proscribed is of shares, the Court's power under subsec. 81(1C) is to accept only an undertaking involving the person giving it in an obligation to dispose of shares other than those acquired pursuant to the proscribed transaction. Likewise, if the contravention of s. 50 occurs because of the acquisition of assets, subsec. 81(1C) empowers the Court only to accept an undertaking obliging the person involved in the contravention to dispose of assets not acquired as a result of the impugned transaction. I think there is a question whether one should give to the word "indirectly" a meaning which will widen the ambit of the section sufficiently to empower the Court to accept an undertaking to dispose of assets in a case where the infringement of s. 50 has occurred because of the acquisition of shares.
25. In the events that have happened, of course, his Honour did not accept undertakings. He made a conditional order. His orders required disposition of the shares unless the conditions provided for in para. 3 of his orders were fulfilled in which case the order requiring divestiture of the shares would be discharged. There was no dispute between the parties that his Honour had power to impose conditions of this kind. He could do so in exercise of the general powers he had under subsec. 81(1) and as a judge of this Court exercising jurisdiction in a matter in respect of which jurisdiction was conferred on it by Parliament. It is unnecessary to go into any detail but his Honour had the powers conferred by s. 23 of the Federal Court of Australia Act 1976 to make orders of such kinds as the Court thinks appropriate. Conditional orders of the kind his Honour made are not uncommon in courts of general jurisdiction and I see no difficulty whatever in his Honour taking the course that he did from the point of view of his jurisdiction and power to make the orders in question.
26. The next thing that needs to be noticed is that his Honour, in acting as he did, was exercising a discretion. He was faced with a difficult problem and he had a discretion to solve it in the way he thought would best accommodate the conflicting range of interests, some public and some private, which he had before him. To the extent that the appeal and cross-appeal in this matter challenge the form of his Honour's orders and the conditions which he imposed, the appeals are from the exercise of a discretion so that his Honour's decision ought not to be disturbed unless there is some manifest error of law or fact or substantial injustice arising as a result of what has been done. Another matter to be noticed is that it would have been open to his Honour, a breach of s. 50 of the Act having been found, to order unconditionally that the company dispose of the shares. His Honour was persuaded to contemplate the acceptance of undertakings and later the imposition of conditions as an indulgence to the company to enable it to retain part of the benefit of the acquisition of the shares so long as it disposed of sufficient of its assets, or those over which it had control, to remove its dominant position in the market.
27. In the course of the argument there were discussions concerning the speculative nature of his Honour's conclusions and the question whether there was sufficient evidence to warrant the view that the disposition of this abattoir or that would sufficiently remove the dominance which the company would otherwise have in the market. This may not be a case where onus of proof is of substantial importance, but to the extent that it is, it seems to me that the onus lies on the company to establish that its proposals will overcome the dominance it would otherwise have. It was not for the Commission to establish the extent of the dispositions which were necessary to remove that dominance. It follows, in my opinion, that it would be wrong to approach this case, particularly bearing in mind that we deal with it at the appellate level, by analyzing too critically the effect of what his Honour has done or overzealously looking for indications that his Honour has required the distribution of more abattoirs than necessary to remove the company's market dominance. The matter must be looked at practically and in the context of an appeal from the exercise of a discretion. Unless what his Honour has done is demonstrated to be excessive or, on the other hand, quite insufficient, we should not interfere.
28. I should make it clear that his Honour, in approaching the matter in the way that he did, was well entitled to require the disposition by the company of abattoirs which were already owned or controlled by it and not assets of the Borthwick Company. If it seemed to him that the best way of removing the dominance which the Company would otherwise have, was a requirement that the company dispose of one of its existing abattoirs, that was a course open to him. I stress that it was the company which was seeking an alternative which would avoid its being obliged to sell the shares. Unless what his Honour did had the effect of removing the dominance the acquisition gave the company, it would not be appropriate for him to take any course other than to order the sale of the shares.
29. I should say in passing that, in the course of the consideration I have given this matter since we reserved our decision, I have been troubled by the question whether it was appropriate for his Honour to have considered any order except one requiring sale of the shares. Whether one accepts undertakings or provides for conditions pursuant to which the problem may be overcome by the disposal of assets in the form of abattoirs, what I have earlier said demonstrates the complexities which lie ahead for the parties and the real danger that his Honour's desired objective of replacing the company with viable competitors in a number of the abattoirs may not be possible to achieve. However, the matter was conducted by both parties before his Honour and on appeal on the basis that a solution to the problem, which involved, as an alternative to the sale of the shares, the disposal of one or more abattoirs, was appropriate. The difference between them was in relation to which of the abattoirs the company should be required to dispose of rather than whether disposal of one or more abattoirs provided any satisfactory solution. Counsel for the Commission expressly stated during the course of the appeal that it mattered not to the Commission whether the problem was overcome by the disposition of shares or the disposition of assets, that is, abattoirs. One must go then to the matters raised by the appeal and cross-appeal concerning the form of the orders with it in mind that both parties embrace a resolution of the problem either by the sale of shares or by the sale of assets.
30. In determining whether there is to be found in his Honour's reasons
concerning the relief to be given any miscarriage of his
discretion, a first
question is whether there is there disclosed any error of principle. In the
context in which he decided the
matter I do not find any such error. In the
course of his reasons his Honour said that, if there were no nexus between the
retention
of an asset and dominance of the relevant market, there would be no
need to insist upon divestiture. He continued:-
"If there is such a nexus, of more than31. I agree that that statement of principle, if expressed in absolute terms, may cause a court dealing with a problem of this kind to fall into error because it would require divestiture of assets acquired by reason of the subject transaction to be disposed of even where the market dominance could be removed by a requirement that existing assets of the acquiring company be disposed of instead. But his Honour did not look at the matter in this way. The conditions which he imposed in para. 3 of his orders show quite clearly that he was alive to the fact that the dominance of the company could be overcome by an order which would require the disposition of abattoirs, some already held and some acquired as the consequence of the acquisition of the shares. What his Honour did was to make an assessment of the situation, as best he could, and work out a set of conditions which, in his view, would enable the company to retain the shares and yet overcome the dominant position that acquisition gave it in the market by requiring it to dispose of certain of the abattoirs.
minimal proportions, the Court should insist
that the contravening corporation divest
itself of that asset. Only in that way may
the policy underlying s. 50(1) be
vindicated."
32. In all these circumstances, my view at one stage was that this Court should not interfere with the orders which his Honour has made. But in his reasons for judgment Davies J. refers to the fact that, if the company were to avail itself of the second condition, namely disposal, not of the abattoirs at Bowen and Mackay, but disposal of the abattoirs at Bowen, Mareeba, Mt. Isa, Cape River and Cairns, the company would be obliged to secure a situation in which either the Mareeba or the Mt. Isa abattoir was reopened, they having been closed down by the company prior to the acquisition. It may be that it would be impractical for the company ever to be able to satisfy the Court that it had obtained a satisfactory purchaser or purchasers of these abattoirs or that Mt. Isa or Mareeba would be reopened. I think there is merit in the view that this would have been a matter upon which the Court, in the absence of satisfaction by the Commission, would have required to be clearly satisfied. On that basis the condition involving the disposal of the four abattoirs could perhaps stay. But bearing in mind the time factors that could be involved and the Court's reluctance to become overly concerned in the supervision of orders made by it which may require some ongoing recourse to the Court if matters do not go as expected, I think the better view is that the conclusion reached by Davies J. is the correct one. In other words, the alternative involving the disposal of Bowen, Mareeba, Mt. Isa, Cape River and Cairns should be removed so that the only condition should be one which enables the company to avoid selling the shares if it disposes of Bowen and Mackay.
33. As to whether disposal of Mackay was an appropriate requirement, I have nothing to add to the reasons of the learned primary Judge and Davies J. on this matter. In the approach which I have taken, the considerations which they mention are, I think, compelling and lead clearly to the conclusion that disposal of Mackay along with Bowen should be required.
34. Before concluding I should indicate my agreement with the other members of the Court that the addition of ground 3 of the notice of cross-appeal should be allowed but that the application to add grounds 2 and 4 should be refused.
35. In the result I would agree with the orders which are proposed by Davies J.
I have read the reasons of Davies J. and will not repeat his Honour's account of the principal facts of the case and the issues raised on appeal.
2. As to market definition, the main argument on behalf of the appellant was
that, while professing to apply a certain test as to
the scope of a market,
the trial judge failed to do so; the test which, according to the appellant,
was only ostensibly applied was
in its critical part as follows:
"... the field of actual and potential transactions3. Counsel for the appellant did not, in the end, adhere exactly to this argument, but qualified it by submitting that the price incentive mentioned in the test must be an "economically feasible" one. It was argued that the evidence showed the field of actual and potential transactions to be much wider than that part of Queensland which the judge held to constitute the geographic market. According to the appellant's argument, given a sufficient but "economically feasible" price incentive, North Queensland cattle producers would sell to South Queensland abattoirs; it was pointed out that, to some extent, they already do so. The appellant did not even concede that the geographic market is necessarily confined to Queensland and suggested that on the test the judge used it might extend to the whole of the eastern States.
between buyers and sellers amongst whom there can
be strong substitution, at least in the long run,
if given a sufficient price incentive" (Re
Queensland Co-operative Milling Association Ltd
(1976) 25 FLR 169 at 190).
4. The learned primary judge appeared to favour a less rigid formulation of the "price incentive" test, one which required consideration of "what would happen on the supply side in response to a change in the price offered by buyers".
5. The matter was argued in this Court before the High Court's decision in Queensland Wire Industries Pty Ltd v. The Broken Hill Proprietary Company Limited (unreported, 8 February 1989). Although the question of market definition was not of central importance there, some passages in the High Court's reasons show that the "price incentive" test has not the central importance which the appellant's argument here gave it.
6. In the reasons of Mason C.J. and Wilson J., it is pointed out that in
identifying the relevant market for the purposes of a claim
under s.46 of the
Act, the object of doing so must be borne in mind:
"Defining the market and evaluating the degree of7. In my opinion, the same must be true of market definition for the purpose of s.50, i.e. the process of identification of the relevant market must be carried out keeping in mind the object of doing so; in the instant case that is to determine whether the appellant was at the relevant time in a position to dominate the market, or was by the acquisition placed in such position.
power in that market are part of the same process
..." (p 8).
8. The linking together of the process of definition of the market and its object implies some flexibility in the former.
9. Deane J. said of the word "market" that it is -
"... not susceptible of precise comprehensive10. Dawson J., who agreed generally with the reasons of Deane J., said:
definition when used as an abstract noun in an
economic context. The most that can be said is
that 'market' should, in the context of the Act, be
understood in the sense of an area of potential
close competition in particular goods and/or
services and their substitutes ..." (p 18)
"A market is an area in which the exchange of goodsAfter discussing the notion of product substitution, his Honour added:
or services between buyer and seller is negotiated.
It is sometimes referred to as the sphere within
which price is determined ..." (p 22)
"Important as they are, elasticities and the notion11. In this particular case, it does not appear to me that the price incentive test provides much assistance in fixing the geographic boundary of the market. The appellant's argument suggests that one has to consider which buyers and sellers would be likely to operate in a particular area if the price went up or down enough. The simple answer is, of course, all buyers and sellers. If the price moves far enough, then obviously there will be new participants in a previously isolated market. Buyers and sellers placed outside any postulated boundary will always be interested in coming in if there is "sufficient price incentive".
of substitution provide no complete solution to the
definition of a market" (p 23).
12. The evidence discloses that the appellant and other cattle buyers do not, in general, find it worth their while to buy cattle in North Queensland for slaughter in the south; to the extent that the appellant does so, that is commonly due to the appellant's northern abattoirs being fully occupied at the time of purchase. But the appellant's argument emphasises that the price incentive test requires one to have regard not only to what happens, but to what could happen given sufficient incentive; it is of no great significance (on the appellant's argument) that people do not in fact commonly buy in the north to slaughter in the south or vice versa. To fix a boundary in accordance with the appellant's argument, one must consider whether certain transactions in which the actual participants in the market, such as the appellant, do not find it worth their while to engage are in some sense economically feasible. In doing so, one assumes that prices are offered which are different - how different is quite uncertain - from those which are in fact offered. It does not appear to me that this test could, at least by itself, have provided the correct solution to the problem of fixing the market boundary.
13. Further, I agree with the respondent's contention that the judge did not
consider the price incentive test alone. His Honour
took into account a large
number of other considerations. The way in which he did so was the subject of
much criticism on the part
of the appellant. Not all of the submissions made
in this category require detailed consideration; those four which appear to me
to have most substance will now be dealt with.
1. Price Information. The evidence showed that North Queensland cattle
producers kept themselves informed about prices in other parts
of the State.
The appellant contended that their purpose in doing so must have been to
consider substitution if there was sufficient
price incentive.
14. No doubt vendors of products in one part of Australia commonly take an
interest in prices being obtained in another part of the
country. Traders on
the Australian stock exchanges take a keen interest in share price movements
in other countries, as the events
of October 1987 illustrated, but this is not
to say that there is but one world share market, nor that (for example) the
Australian
and United States exchanges are part of the one market. In the
sense in which the Trade Practices Act uses the expression "market", it must
commonly happen that price movements in a market are noticed in and affect
sentiment in other
separate markets. In my opinion, the evidence as to
northern producers being interested in prices obtained elsewhere was of little
assistance to the appellant.
2. Traditional Attachments. Consistently with its fundamental contention that
market boundaries must be fixed by reference to potential
as well as actual
transactions, the appellant contended that, insofar as the judge took into
account an "emotional or traditional
attachment to a local market", that was
not a relevant economic factor. Allied to that was the contention that mere
convenience,
not being productive of a greater return to the seller, should
have little weight.
15. If it is found that people in a particular area buy and sell within that area rather than outside it, their practice may be due to a number of causes. On the appellant's contention emphasising the importance of potential transactions, what people actually do is relevant only if it can be shown to be based on identifiable economic considerations. For example, if it were the case that some kind graziers were disinclined, other matters being equal, to subject their stock to unnecessarily long and arduous journeys to slaughter, that should, on the appellant's contention, be ignored in determining market boundaries.
16. Economics is a study of human behaviour and to determine the boundary of
a market, one has to consider what people do and what
they are likely to do in
the market - in fact and not merely in economic theory - although the
doctrines evolved by economists are
likely to be of assistance in analysing
behaviour in the marketplace. In Brown Shoe Co Inc v. U.S. (1962) 370 US 294,
the Supreme Court spoke of the taking of a "pragmatic, factual approach to the
definition of the relevant market and not a formal,
legalistic one" (336). In
the Court's view, the geographic market selected must "correspond to the
commercial realities" of the
industry (ibid.). In U.S. v. Philadelphia
National Bank [1963] USSC 166; (1963) 374 US 321 at 358, the same Court took into account the
"factor of inconvenience" as localising banking competition. Just as it is
likely to
be more convenient for a customer to deal with a local bank, as
opposed to chasing a better return by depositing in a more remote
bank, so one
would expect graziers to prefer to sell their cattle for delivery to a nearer
in preference to a more distant abattoir.
The learned primary judge was
right, in my opinion, in treating that preference, whatever the reason for it,
as relevant in itself
in delineating the geographic market.
3. Extra-Market Sales. The judge acted on the assumption that the existence
of some sales across the limits of postulated market
does not necessarily
negative the existence of a separate market. In criticising that view, the
appellant contended that such sales
"to a more than de minimis extent are
usually only consistent with the existence of a single market, in the absence
of some other
explanation of those sales, which indicate that there is not one
market".
17. In my opinion, the contention just quoted would deprive s.50 of much of the effect that Parliament must have intended it to have. However market boundaries are fixed in the eastern States, there are always likely to be transactions across them.
18. In this case the problem is not one of finding a test for markets of all kinds, but the narrower problem of defining the boundary of a market in which primary products are bought. Those who raise and sell fat cattle, like some other primary producers, carry on their businesses over many areas of the States. There are abattoirs in many places, each of which tends to process cattle from close rather than distant sources. For example, the abattoirs at Townsville process far more cattle from north than from central Queensland. But if one were to map the areas from which the various abattoirs take their cattle, there would be much overlapping.
19. One may choose to say that there is an irregular chain of abattoirs, mainly along and near the coast, each of which, at least in northern areas, draws cattle largely from its hinterland; but an abattoir at Townsville, for example, is likely to process some cattle from the same areas from which a Cairns abattoir takes cattle.
20. In Queensland Wire Industries (above), Deane J. (with whose reasons
Dawson J. generally agreed) remarked:
"The economy is not divided into an identifiable21. The same notion is referred to in U.S. v. Philadelphia National Bank (above), where the Supreme Court, in commenting on difficulties in a particular definition of market boundary, accepted that there was some artificiality in that definition, but said that "such fuzziness would seem inherent in any attempt to delineate the relevant geographical market" (p 360, footnote).
number of discrete markets into one or other of
which all trading activities can be neatly fitted.
One overall market may overlap other markets and
contain more narrowly defined markets which may, in
their turn, overlap, the one with one or more
others. The outer limits (including geogrpahic
confines) of a particular market are likely to be
blurred ..." (p 18).
22. Despite the overlapping, a point is reached at which it would be absurd
to locate two abattoirs in the same market. It is unlikely
that in any sense
contemplated by the Act a Victorian abattoir competes for fat cattle in the
same market as one in Cairns. Wherever
a line is drawn cutting the east
coast, significant transactions across the market boundary are likely to be
found in practice, or
able to be plausibly postulated. To take an example
having practical relevance here, if the Borthwick abattoirs at Bowen and
Mackay
were each controlled by separate and independent interests, more cattle
than had previously done so would perhaps be expected to
be taken from the
Bowen abattoirs present "catchment area" to the Mackay abattoir.
4. The 30% Test. The appellant contended, correctly in my view, that the
learned primary judge applied as part of his reasoning a
view that a movement
of more than 30% of cattle from the north to the south would be needed to link
the two divisions into one market.
That was derived from the evidence of an
expert witness, Mrs R.L. Smith, who added that only a 20% movement would be
necessary if
70 to 80% of the cattle in the south were of the same type as
those in the north.
23. It was argued for the appellant that the views just referred to were not justified by anything in the evidence or by any defensible principle.
24. In my respectful opinion, the criticism advanced on behalf of the
appellant is correct. One can see the advantage of using an
objective
percentage test (cf. Professor Walker in his article "Geographic Market
Definition in Competition Law" 13 Federal Law Review 299 at pp 316-320). But
there appears to be nothing in the evidence, other than the mere assertion to
which I have referred, to support
the view that there would be any particular
significance, so far as market definition is concerned, in attaining the 30%
movement
figure.
FEEDLOT CATTLE
25. According to the evidence, between 17.7% and 18.7% of the fat cattle and feedlot cattle sold in the North Queensland market as defined by the primary judge went south for slaughter. The appellant contended that such a substantial movement of cattle out of the defined geographic market was inconsistent with the existence of a boundary as fixed. One answer the respondent made was to attack the product definition of the market: it was contended for the respondent that the judge was wrong in lumping feedlot cattle in with fat cattle.
26. I note that Davies J. would uphold the respondent's contention in this regard; I agree. In addition to the reasons given by Davies J. for declining to accept the primary judge's view on this point, I would add that the primary judge appears to have been in error in thinking that the evidence was that feedlot cattle are kept for a period of up to 90 days; he described them as being cattle "very nearly ready for slaughter". The evidence did not support that. His Honour apparently obtained the figure of 90 days from a statement made by Mr Grahame Flynn that, when grain fed, feedlot cattle are fed for an average of 90 days, the range being from 40 days to 200 days. One could hardly describe cattle which are to be grain fed for six months as "very nearly ready for slaughter". Crop feeding, according to Mr Flynn's evidence, normally takes from 3 to 5 months. Further, it is, in my respectful opinion, correct that, as counsel for the respondent said, the primary judge was in error in suggesting that the idea that feedlot cattle constituted a separate market was raised only late in the hearing by counsel for the present respondent (then applicant). The position was rather the reverse: it seems to have been assumed until late in the hearing that cattle bought for feedlotting were to be assimilated to store cattle; the first evidence specifically designed to suggest that feedlot cattle should be equated, for market definition purposes, with fat cattle appears to have been that of Messrs L.J. Brown and L.H.A. Loveday, which, as counsel for the respondent submitted, turned out to be of little significance.
27. I have read the passages in the evidence on which the appellant relies to support his Honour's findings in this regard, and I must say that none of them seems to me adequate to do so.
28. The three categories - "fat" cattle, store cattle and feedlot cattle do not have precise limits, but the proper course appears to be to distinguish, for present purposes, between those cattle which are sold as ready for slaughter and those which are not so sold; the latter category are bought for further fattening, either on pasture or in a feedlot. The primary judge was influenced by the lack of evidence of separate feedlot sales, but as the respondent argued, that is explicable on the basis that cattle intended for feedlotting are ordinarily bought at store cattle sales.
29. The conclusion that cattle bought for immediate slaughter should, for
present purposes, be distinguished from those purchased
for further fattening
strengthens the primary judge's conclusion as to the boundary of the
geographic market. That is so because
it reduces the number of cattle moving
beyond the boundary considerably - to 12% or fewer.
MARKET - CONCLUSION
30. A number of other circumstances combine to support the reasonableness of the conclusion as to market boundary which the trial judge drew. Among these are that tropical breeds of cattle predominate in the north, as do cattle intended for export; that the boundary his Honour adopted is widely recognised in the cattle industry as having significance; that to send cattle to the south, particularly from the north-west, and particularly by rail, can be a very protracted process; that not infrequently the condition of northern cattle is simply too poor for it to be feasible to send them south, and that the major witness for the appellant, Professor Officer, had formerly expressed an opinion, which (at least as I read it) appears consistent with his Honour's opinion. But I do not attempt to recapitulate all the many and various considerations relied on below; one should be slow, on a point which is so much a matter of impression and degree, to differ from the trial judge's conclusion.
31. In Queensland Wire Industries, Deane J. remarked:
"The identification of relevant markets and theReference should also be made to the remarks in Montfort of Colorado Inc v. Cargill Inc [1985] USCA10 96; (1985) 761 F 2d 570 at 579. It should be noted that in that case, in dealing with a somewhat similar problem, the geographic market was defined as constituted by a limited region of the United States only, despite that nation's superior road transport facilities.
definition of market structures and boundaries for
the purposes of determining whether B.H.P.'s
refusal to supply Y-bar to Q.W.I. contravened
s.46(1) involves value judgments about which there
is some room for legitimate differences of
opinion." (p 18)
32. In the result then, I would not disagree with the primary judge as to the geographic boundary but would (disagreeing with the primary judge) exclude cattle purchased for fattening in a feedlot from the relevant market.
33. It should be added that the respondent contended that the primary judge
was in error in declining to hold that the appellant
was, before buying the
Borthwick shares, dominant in the northern market. There were some powerful
arguments in favour of holding
that it was so dominant but, in his
exceptionally comprehensive reasons, his Honour considered them all.
Although, as his Honour
himself apparently did, I incline to the view that his
refusal to find pre-acquisition dominance may have been rather cautious, it
is
in the end a matter of degree on which one could not hold that he was wrong.
POWER TO MAKE THIRD ORDER
34. In his reasons, Davies J. says that he would give leave to the respondent to cross-appeal so as to add grounds 1 and 3, in the proposed notice of cross-appeal handed to the Court on 9 November 1988. I agree with his Honour's view on that aspect of the matter. Ground 3 raises the question of the primary judge's power to make order 3, which is set out in the reasons of Davies J. I do not here repeat it, but merely summarise its general effect.
35. Order 2 required the appellant to use its best endeavours to sell the Borthwick shares and order 3 said, in effect, that if the appellant sold the Bowen and Mackay abattoirs, or else sold the Bowen, Mareeba, Mount Isa, Cape River and Cairns abattoirs, then "order 2 shall be discharged".
36. That is, order 2 required disposal of the assets bought in breach of s.50 and order 3 waived that requirement if certain other assets were sold. The effect was to give the appellant a choice whether to sell the shares or to sell the other assets.
37. Section 81 sets out in some detail the sorts of orders the Court may make and it is, at first sight, not easy to see why the Court should be taken to have power to make an order of a significantly different kind. Davies J. set out in his reasons part of s.81; I find it convenient, for the purpose of discussing this point, to summarise the section's effect.
38. Sub-s.(1) empowers the Court to give directions for the purpose of securing the disposal "of all or any of the shares or assets acquired in contravention" of s.50. Sub-s.(1A) allows the Court, in some circumstances, to declare void an acquisition in contravention of s.50; under sub-s.(1B), when such a declaration is made, the Court may require divestiture.
39. Under sub-s.(1C), instead of making an order under sub-s.(1) or sub-s.(1A), the Court "may accept, upon such conditions (if any) as the Court thinks fit, an undertaking by the person to dispose of other shares or assets owned by the person".
40. Applying this scheme to the present case, the Court had power under sub-s.(1) to require the disposal of the shares acquired in contravention of s.50 and it did so. It had power under sub-s.(1C) to accept an undertaking to dispose of other assets instead, but it did not do that. Although there was at one stage an intention to give an undertaking, none was, in the end, proffered to the primary judge. Instead, an order was made the effect of which was that if the appellant did not dispose of other assets (being one of the two groups of abattoirs mentioned in order 3), it would have to sell the shares bought in contravention of s.50.
41. The practical disadvantage of the working of sub-s.(1C), in a case of this sort, is its rigidity. At the date of hearing, it may be unknown whether it is practicable to sell other assets covered by an undertaking. No doubt for that reason, proposed undertakings mentioned to the primary judge and variants discussed before this Court referred to "using best endeavours" to sell; it is unclear whether such an undertaking falls within the language of sub-s.(1C), which on the face of it seems to contemplate an absolute undertaking. Another problem of construction of sub-s.(1C) is whether an undertaking mentioned in it may cover disposition of assets not directly owned by the person mentioned in it, but owned by a company of which that person is the owner; that is the situation with respect to the Bowen and Mackay abattoirs.
42. I have concluded, in the end, that the learned primary judge was right in thinking that he was entitled to make an order for disposition of the Borthwick shares subject to defeasance in the event of sale of other assets. It appears to me that such an order falls within the description "directions for the purpose of securing the disposal" within the meaning of sub-s.(1). That expression contemplates that the power vested in the Court may be exercised in more elaborate ways than baldly ordering sale; in my view, the legislature should be taken to have used it in recognition of the likelihood that circumstances might require an order for divestiture to be a document of some complexity, providing for alternatives, conditions and the like. On reflection, I have come to think that it is not straining the statutory language too far to read sub-s.(1) as empowering the Court to include within its order such a provision as the judge included: one relieving the offending party of its obligation under the order to divest itself of the shares bought in contravention of s.50 in the event of other action by that party, which the Court finds will counteract the illegal acquisition.
43. It should be added that the construction of sub-s.(1) which I favour is
aided by the consideration that the power in question
is given to this Court,
which (like other superior Courts) commonly attaches suspensive or resolutive
conditions to its orders, and
in particular to injunctions.
MACKAY
44. The above heading refers to the principal remaining issue, namely whether the primary judge was correct in his treatment of the Mackay abattoir. I describe it as the principal remaining issue because it seems to have been so treated by counsel for the respondent. It is by no means clear to me that the fate of the Mackay abattoir is of such pivotal significance in the defined market as some of the submissions suggested; it must be kept in mind that the Mackay abattoir purchased only 8,265 cattle in 1986 and only 8,705 cattle in 1987 from the northern region. In each of those years, well over 400,000 cattle were slaughtered by the northern abattoirs.
45. The argument, then, as to the essentiality of Mackay was based mainly on the suggestion that the picture must change drastically if the appellant keeps the Mackay abattoir but sells the Bowen abattoir. The contention, as I understood it, was that from buying only a tiny proportion of the fat cattle sold in the north, Mackay would soon come to be a purchaser of a significant number of them. While not denying that possibility, I am firmly of the view that the conclusion is conjectural and forms no sound basis for an exercise of discretion adverse to the appellant with respect to the Mackay abattoir. One can understand the appellant's desire to retain Mackay, in view of its established export trade and other advantages, but it by no means follows that this Court should infer that the appellant could use the Mackay abattoir to re-establish its dominance in the northern market.
46. Before the primary judge, counsel for the present respondent suggested
that -
"... if AMH retains control of Mackay, but is forced47. Similar contentions underlie the case put to us in support of the conclusion at which his Honour arrived. But it is important to notice that the primary judge declined to accept the submissions just quoted, describing them and others as "essentially speculative". So they are; as the primary judge said:
to divest itself of Bowen, AMH may move
aggressively into areas north of Mackay in an
attempt to increase throughput at Mackay ... There
is doubt whether an independent operator at Bowen
could sustain aggressive competition by AMH, from
Mackay in the south, Cape River to the west and
Townsville in the north."
"So much depends upon unknown factors: particularlyFor myself, I think this Court should be reluctant, on the basis of mere inferences from some parts of the mass of evidence, to accept the conclusions which the judge regarded as speculative. An example is evidence that a Mr Tancred, connected with the appellant, once suggested that on acquisition of Borthwicks one of either the Mackay or Bowen abattoirs might be sold; much was sought to be built on that.
the identity of the purchaser of Bowen."
48. The basis upon which his Honour determined that Mackay, or its
equivalent, must go was as follows:
"The question rather is whether the retention of49. In supplementary reasons, the learned primary judge considered various proposals, put up by the appellant, largely on the basis of the principle just quoted.
that asset, gained in contravention of s.50(1),
will serve to assist the contravening corporation
to dominate the relevant market. If there is no
nexus between the retention of the asset and
domination, there is no need to insist upon
divestiture. If there is such a nexus, of more
than minimal proportions, the Court should insist
that the contravening corporation divest itself of
that asset. Only in that way may the policy
underlying s.50(1) be vindicated."
50. It will be noted that the principle is applied only to retention of assets gained in contravention of the section; that distinction is, in my respectful opinion, difficult to justify. The effect of an acquisition in breach of s.50 may in some cases be counteracted well enough without selling any of the assets acquired - for example, by selling all the assets owned before the acquisition. Further, the judge's test would produce an odd result where a company which previously had no assets in the relevant market acquires a number of such assets, thereby attaining domination; each of the assets contributes to domination, but surely all need not necessarily be sold.
51. To put the point more generally, it is my view that if a party found to have breached s.50 has a number of assets contributing to its domination, it does not necessarily have to undertake to dispose of every asset so contributing.
52. Adoption of the principle just criticised led the learned primary judge to consider the various proposals subsequently advanced by comparing each with retention of Mackay. For example, in discussing a suggestion that certain abattoirs be disposed of, his Honour remarked that "this would be to disregard the profitability factors associated with Mackay". His Honour appeared to act on the view that, to be acceptable, any undertaking or condition of defeasance (a word I have adopted from conveyancing law) must be just as disadvantageous to the appellant as the disposition of Mackay.
53. Senior counsel for the appellant contended in effect that the essential point, in considering acceptability of an undertaking under s.81(1C), or a condition of defeasance attached to an order under s.81(1), must ordinarily be whether the proposed disposition would clearly eliminate the unlawful dominance. I agree with that general contention, but would add that many other factors may, in particular cases, require to be considered in determining acceptability of an undertaking. One example is the degree of confidence able to be entertained with respect to the effect of the proposed disposition. That may be quite uncertain, and the Court may be unwilling to accept a substantial risk that a suggested disposition would turn out to be ineffective in counteracting the illegality.
54. Before the Court, much was said by counsel for the respondent on the potential impact of the Mackay abattoir, which, although outside the market, would hang like a shadow over it. That description may prove to be just, but in my view attention must primarily be paid to the facts proved rather than to attempts to predict future changes in buying patterns. Mackay got nearly all its cattle, in 1986 and 1987, from areas south of the defined market boundary. According to one set of figures before the Court, its throughput in each of 1986 and 1987 was about 118,000 head - only 6,000 short of capacity. One can see that there might be a tendency for the appellant, if left with Mackay, to increase its capacity to compete more effectively with the Bowen abattoir. But cattle coming in, for example, along the Flinders Highway, would have to be driven past the Townville area with its three abattoirs (including the appellant's), past the Bowen abattoir and some 200 kms further on, to reach Mackay. As the primary judge held, producers tend not to favour transporting their cattle past points at which they can be weighed and sold. Why the Mackay abattoir should be thought likely to bring about a sharp change in the northern producers' habit of selling their cattle locally (which was the foundation of the primary judge's view as to market definition), I do not understand. His Honour said of the many cattle vendors called before him that they were "generally most unwilling to effect a sale at a location further from their own property than is absolutely necessary".
55. I can readily accept the contention that disposition of the Bowen abattoir only would not be enough; one important reason for this conclusion is that the new owner of that abattoir would be at a disadvantage in competing with the appellant, which would have much greater abattoir capacity within the market area. But why should not a disposition of the Bowen abattoir, and one other substantial operating northern abattoir, suffice?
56. Included in the appellant's proposals, both here and below, was disposition of the Cape River abattoir. It has the largest capacity of the appellant's five northern abattoirs, and has about a quarter of the appellant's northern capacity. Its throughput is not, however, in proportion; in the 1987 year, only about 19% of the cattle the appellant slaughtered in the north were dealt with at Cape River. In considering the merit of this proposal, it must also be kept in mind, against the appellant, that two or perhaps three of the northern purchasers were not, on the findings, true and independent competitors of the appellant in the purchase of cattle; the total throughput of those three in the 1987 year was about 12% of the whole. Nevertheless, disposition of the Cape River abattoir would appear to me, both as to capacity and throughput, to involve a significant weakening of the appellant's position in the northern market. It would still be strong in that market - by far the strongest participant - but I cannot see how it can rationally be denied that without Cape River and Bowen it would probably be a no more powerful competitor in the northern market than it was before the Borthwick share purchase.
57. Counsel for the respondent complained that matters of the sort just
discussed should not have been dealt with by the primary
judge because there
was inadequate material before him to enable him to determine the likely
effects of particular dispositions.
Although there is something in that
contention, I do not see how effect can be given to it, for the respondent did
not, as it might
have done, insist on calling further evidence on the topic.
The learned primary judge had to do the best he could on the material
available and so, in my opinion, must this Court.
CONCLUSION AS TO MACKAY 1. In my respectful opinion, the principle upon which
the learned primary judge decided that the Mackay abattoir
or its equivalent
must be sold, to avoid the necessity of sale of the Borthwick shares, was
erroneous and that question requires
reconsideration.
2. I would vary his Honour's orders so that order 3 would refer to the
disposal of the appellant's abattoir at Cape River as well
as the abattoir of
Thomas Borthwick & Sons (Australasia) Limited at Bowen, in lieu of the
abattoirs therein referred to; I would
otherwise dismiss the appeal and
cross-appeal. In view of the conclusions arrived at by the other members of
the Court, I will not
discuss in detail the precise form of the order I
favour.
58. I would make no order as to the costs of the appeal and cross-appeal.
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URL: http://www.austlii.edu.au/au/cases/cth/FCA/1989/43.html