French, Justice Robert --- "The role of the Court in competition law" (FCA) [2005] FedJSchol 4

WORKSHOP ON COMPETITION LAW
FOR JUDGES AND LAWYERS IN PAPUA NEW GUINEA

THE ROLE OF THE COURT IN COMPETITION LAW

Justice RS French
Federal Court of Australia
26 February 2005

Introduction
It is a privilege and a pleasure to have the opportunity of addressing the members of the Papua New Guinea judiciary and legal profession about the role of the courts in exercising the important and novel jurisdiction conferred upon them by the Independent Consumer and Competition Commission Act 2002 (PNG) (ICCC Act). My observations are necessarily drawn from Australian experience and jurisprudence. The courts of Papua New Guinea will develop their own jurisprudence and practices relevant to local conditions.

For our courts the introduction of the Trade Practices Act 1974 (Cth) was the beginning of a long learning curve. We are still on it. I hope that the observations that follow may be of some assistance to you.

In this paper I will discuss the kind of decision-making that competition law requires of courts. I will also discuss the central concepts of competition, market power and market definition, as well as construction of the important words ‘likely’ and ‘substantial’ that repeatedly appear in the Act. There follow brief discussions of issues connected with the reception of economic and survey evidence and the management of competition law cases and of penalty and the relevance of in-house corporate compliance programs.

The Decision Making Functions of Courts
The traditional function of the courts in making their decisions can be described in terms of syllogistic logic. The relevant rule of law to be applied is the major premise. There are facts to be found which are the minor premise. The law is applied to the facts and a conclusion follows which is expressed by way of a declaration or an order giving effect to rights or liabilities determined by the court. This model is quite adequate to describe the decision-making process in cases concerning factual questions and the application of laws which are expressed in words bearing their ordinary English meaning and clear factual content. Much of the bread and butter work of courts in the common law world is carried out according to that model. We all know however, that that model is an oversimplification and that there are cases in which the functions conferred upon the court are not described in terms of simply finding the law and finding the facts and applying the law to the facts to get the answer.

Economic laws of which the ICCC Act is an example, embody evaluative concepts with normative dimensions. They require more for their interpretation and application than the mere discovery of pre-existing meaning. Indeed, their application in particular cases almost approaches a legislative function. They require characterisation of facts under some generic designation informed by a values-based judgment. A familiar concept from the common law is the concept of ‘reasonableness’. It reflects what the late Professor Julius Stone called a ‘legal standard’ which he distinguished from a ‘legal rule’:

‘When courts are required to apply such standards as fairness, reasonableness and non-arbitrariness, conscionableness, clean hands, just cause or excuse, sufficient cause, due care, adequacy or hardship, then judgment cannot turn on logical formulation and deduction but must include a decision as to what justice requires in the context of the instant case. This is recognised, indeed as to many equitable standards, and also as to such notorious common law standards as “reasonableness”. They are predicated on fact-value complexes not on mere facts.’[1]

A paradigm case of such judgment may be found in the provisions of the Constitution of Papua New Guinea and in particular s 39(2) which confers on the Supreme Court and the National Court the function of determining whether the laws of Papua New Guinea are ‘reasonably justifiable in a society having a proper regard for the rights and dignity of mankind ...’.

Professor Stone, who was writing on this topic generally in 1968, also gave examples arising out of competition law in the United States. These were the rule of reason in US anti-trust law and the words ‘detriment of the public’ and ‘advantageous to the Commonwealth’ which appeared in the first Australian federal competition law – Australian Industries Preservation Act 1906. (Cth) In classifying the form and origins of what he called ‘judicial law making in relation to statutes’, Stone took as one of his categories the situation:

‘... where for some reason the legislator has (in effect) consciously delegated norm-creation to the judiciary, whether because flexibility of administration is required as in the Sherman anti-trust law, or because conflicting views and interests within the legislature prevent agreement on anything but vague expression.’[2]

In the competition law of Papua New Guinea, like that of Australia, there are to be found rules of a general kind which require the courts applying them to make evaluative judgments in particular cases. The language of the ICCC Act uses economic ideas, some of which are expressed in terms of metaphor. The idea of the ‘market’ is a leading example. In the context of declaration of provisions dealing with the regulation of public utilities ‘market’ is defined as:

‘... a market in the whole or any part of Papua New Guinea for goods or services as well as other goods or services that, as a matter of fact and commercial common sense, are substitutable for them, including imports.’[3]

It is similarly defined in the context of anti-competitive conduct under Pt VI[4] save for the important limitation that the markets to which that Part applies are markets in ‘the whole of Papua New Guinea’. On the face of it this definition appears to exclude regional markets within Papua New Guinea from the application of Pt VI. The ICCC Act’s interpretation of ‘market’ defines it by reference to its maximum geographical dimension and the range of the goods and services to which it applies. Its core meaning and applications are left undefined and require consideration of economic literature and competition case law. Other key economic concepts reflected in the language of the ICCC Act are ‘competition’[5], ‘substantial lessening of competition’[6], ‘substantial degree of power in the market’ and ‘take advantage of ...’[7].

In the merger control provisions, s 69, there is a list of economic terms and metaphors to which a court must have regard in determining whether the acquisition of a business would have the effect of substantially lessening competition in a market. These terms include ‘barriers to entry to the market’, ‘the dynamic characteristics of the market, including growth innovation and product differentiation’, ‘the nature and extent of vertical integration in the market’. Each of these metaphors has to be considered in the anti-trust economist’s metaphorical workplace which is the market. Some of them pile metaphor upon metaphor. The role of the court in applying these provisions involves hearing evidence, determining primary facts which may not always be in dispute and then characterising those facts in terms of the economic concepts which the ICCC Act requires to be applied. That process of characterisation is normative because it must have regard to the statutory purpose which includes the maintenance of workable or effective competition – see s 5 defining the objectives of the Commission by reference to the promotion of competition and s 45(1) defining competition under Pt VI by reference to workable or effective competition.

The economic ideas which are embodied in the ICCC Act cannot be rendered into legal concepts of precise expression. As was said in the Second Reading Speech to the Trade Practices Act:

‘The present Bill recognises the futility of such drafting. Many matters have, of course, had to be stated in detail. But other provisions, particularly those describing the prohibited restrictive trade practices have been drafted along general lines using, wherever possible, well understood expression. I am confident this will be more satisfactory. The courts will be afforded an opportunity to apply the law in a realistic manner in the exercise of their traditional judicial role.’[8]

As one of Australia’s leading economists, Professor Maureen Brunt, said in 1975:

‘We begin with a statute; it is to be interpreted and enforced by courts of law; necessarily we are in the hands of lawyers.’[9]

The Nature of the Act
The purposes of the ICCC Act are reflected in the primary objectives of the Commission which are set out in s 5(1):

‘(a) to enhance the welfare of the people of Papua New Guinea through the promotion of competition, fair trading and the protection of consumers’ interests; and
(b) to promote economic efficiency in industry structure, investment and conduct; and
(c) to protect the long term interests of the people of Papua New Guinea with regard to the price, quality and reliability of significant goods and services.’

More specific ‘facilitating objectives’ are set out in s 5(2):

‘(a) to promote and protect the bona fide interests of consumers with regard to the price, quality and reliability of goods and services;
(b) to ensure that users and consumers (including low-income or vulnerable consumers) benefit from competition and efficiency;
(c) to facilitate effective competition and promote competitive market conduct;
(d) to prevent the misuse of market power;
(e) to promote and encourage the efficient operation of industries and efficient investment in industries;
(f) to ensure that regulatory decision making has regard to any applicable health, safety, environmental and social legislation;
(g) to promote and encourage fair trading practices and a fair market.’

The promotion of competition is not set up under the ICCC Act as an end in itself. It is a means to enhance the welfare of the people of Papua New Guinea. This is not some idle exercise in parsing. It throws up a tension that arises in all competition law both in the hearing of individual cases and in consideration of legislative change. That tension lies between the objective of enhancing community welfare and the collateral damage that competition necessarily inflicts upon weaker actors in the market. That damage may be a byproduct of workable and effective competition. It may also have political significance and lead to pressures for ‘reform’.

The necessity to recognise and accept the indifference of the competition process to the interests of particular competitors was discussed by the High Court of Australia in Queensland Wire Industries Pty Ltd v The Broken Hill Proprietary Co Ltd [10]. The case concerned allegations that BHP had taken advantage of its market power by refusing to supply an essential raw material to one of its competitors in the manufacture of star pickets for rural fencing. The provision of the Trade Practices Act in question was s 46, dealing with taking advantage of market power. It is the equivalent of s 58 of the ICCC Act. In holding BHP had contravened the section, the Court rejected an argument that it was necessary to show some hostile intent on the part of BHP. That argument had its roots in traditional concepts of liability for intentional torts. Their Honours said:

‘But the object of s 46 is to protect the interests of consumers, the operation of the section being predicated on the assumption that competition is a means to that end. Competition by its very nature is deliberate and ruthless. Competitors jockey for sales, the more effective competitors injuring the less effective by taking sales away. Competitors almost always try to “injure” each other in this way. This competition has never been a tort and these injuries are the inevitable consequent of the competition s 46 is designed to foster. In fact, the purpose provisions in s 46(1) are cast in such a way as to prohibit conduct designed to threaten that competition....’[11]

The point was also made in the recent judgment of the High Court in Boral Besser Masonry Ltd v Australian Competition and Consumer Commission [12] where Gleeson CJ and Callinan J said:

‘The purpose of the Act is to promote competition, not to protect the private interests of particular persons or corporations. Competition damages competitors. If the damage is sufficiently serious, competition may eliminate a competitor.’ [13]

The point is perhaps made most starkly in a decision of the United States Court of Appeals, Seventh Circuit, quoted by McHugh J in Boral :

‘Competition is a ruthless process. A firm that reduces cost and expands sales injures rivals – sometimes fatally. The firm that slashes costs the most captures the greatest sales and inflicts the greatest injury. The deeper the injury to rivals, the greater the potential benefit. These injuries to rivals are byproducts of vigorous competition, and the antitrust laws are not balms for rivals’ wounds. The antitrust laws are for the benefit of competition not competitors.’ [14]

The Trade Practices Act has only had a clear statutory statement of its overall objectives included in the Act since 1995. That objective, which is redolent of the objective of s 5 of the ICCC Act is stated thus:

‘The object of the Act is to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection.’

Notwithstanding the late introduction of this specific statement of purpose, the Trade Practices Act as originally conceived, like the ICCC Act, could be justified by reference to a single overall consumer welfare purpose. Since its enactment in Australia however, there have been ongoing pressures to broaden or diversify that general objective in favour of the protection of particular classes of competitor and, in particular, small business. A major parliamentary committee which reported in 1977 on the operation of the Trade Practices Act focussed upon ‘major business conduct issues arising out of commercial dealings between firms’. While the committee acknowledged that it was not appropriate to use the competition provisions of the Act to protect small business, its report emphasised the need to introduce provisions which would have that effect. Indeed, it said at [4.62] of its report:

‘The Committee does not consider it acceptable to use small businesses as cannon fodder in the market place – providing rounds of competition to the major retailers before being eliminated to make way for new victims.’

This, from some points of view, might be seen as a kind of philosophical throwback to much earlier and less favourable attitudes to the competitive process. These were well illustrated by the observation of the High Court of Australia in the 1912 Coal Vend case:

‘... cut throat competition is not now regarded by a large proportion of mankind as necessarily beneficial to the public.’[15]

The broadening scope and diversity of competition law in Australia reflects the tension between protection of the competitive process in the interests of the wider community and the welfare of individual competitors. For courts and their judges it is important not to allow that tension to generate conceptual confusion in making judgments about whether competition provisions of the Act have been contravened. This is particularly so in the area of taking advantage of market power. The fact that a large competitor may engage in conduct which could be regarded as a species of commercial bullying does not answer the question whether it has taken advantage of a substantial degree of power in the market for one of the proscribed anti-competitive purposes referred to in s 58(2) of the ICCC Act.

If the evolution of the ICCC Act in Papua New Guinea reflects at all the evolution of the Trade Practices Act in Australia, then legislative change itself may bring in provisions which are at odds with the promotion of competition. This may be under the rubric of fair trading or the prevention of unconscionable conduct or the like. The courts of course have to deal with and apply the terms of the statute as enacted by the Parliament from time to time. If the legislation comes to reflect conflicting objectives that is not a matter that can be cured by the courts. It is important, however, to ensure that judicial decision-making does not of itself give rise to such conceptual confusion.

Competition and Market Power
A primary mechanism deployed by the ICCC Act to enhance the welfare of the people of Papua New Guinea is the promotion of ‘competition’. The secondary or facilitating objectives include ‘effective competition’. The principal provisions of the ICCC Act relating to promoting and maintaining competitive market conduct are those in Pt VI. For the purposes of that Part ‘competition’ means ‘workable or effective competition including competition from imports or substitutes’.[16]

Part VI prohibits making or giving effect to contracts, arrangements or understandings and covenants which have the purpose or are likely to have the effect of substantially lessening competition in a market.[17] The making of or giving effect to a contract, arrangement, understanding or covenant containing an exclusionary provision is prohibited unless ‘it is proved that the provision does not have the purpose or does not have or is not likely to have the effect of substantially lessening competition in a market’.[18] Contracts, arrangements, understandings or covenants containing price fixing provisions are deemed to have the purpose or have or be likely to have the effect of substantially lessening competition in a market for the purposes of s 50.[19] Price fixing is therefore sometimes referred to as a per se offence.

The concept of competition is also embedded in the prohibition against taking advantage of market power.[20] That prohibition does not depend upon establishing a substantially lessening of competition. However one of the criteria for its application is that the alleged contravenor has ‘a substantial degree of power in a market’. One of the prohibited uses of such power is to prevent or deter a person from engaging in competitive conduct in that or any other market.

In relation to the control of anti-competitive mergers or acquisitions, the ICCC Act invokes apprehended substantial lessening of competition as the condition upon which a proposed acquisition will be prohibited. A person shall not acquire assets of a business or shares if the acquisition would have or be likely to have the effect of substantially lessening competition in a market.[21]

As appears from these provisions many of the cases involving alleged contraventions of Pt VI of the ICCC Act will require the courts to determine whether the conduct in question had the purpose or effect or likely effect of substantially lessening competition in a market. In the case of a proposed acquisition the question will be whether the proposed acquisition would have or would be likely to have that effect. This means that the court will be involved in fact finding about the effect of actual or projected conduct on workable or effective competition in a market. This requires some consideration of the idea of ‘competition’.

The ICCC Act is not concerned with the promotion or maintenance of perfect competition. That is a kind of nirvana state which exists nowhere in the real world. An authoritative definition of ‘perfect competition’ appears in Areeda Kaplow, Anti-Trust Analysis[22] (at [106]):

‘Perfect competition defined A market economy will be perfectly competitive if the following conditions hold:

(1) Sellers and buyers are so numerous that no one’s actions can have a perceptible impact on the market price, and there is no collusion among buyers or sellers.
(2) Consumers register their subjective preferences among various goods and services through market transactions at fully known market prices.
(3) All relevant prices are known to each producer, who also knows of all input combinations technically capable of producing any specific combination of outputs and who makes input-output decisions solely to maximize profits.
(4) Every producer has equal access to all input markets and there are no artificial barriers to the production of any product.’

The authors go on to observe that in equilibrium the allocation of inputs and the production and distribution of outputs in a perfectly competitive economy will be efficient in the very specific sense that no rearrangement of inputs, outputs, and distribution is possible that would make someone better off without making someone else worse off. Well-being is measured in terms of consumers’ preferences. The efficiency so described is called Pareto efficiency.

Even though the Australian Trade Practices Act does not define the term ‘competition’ nor use the qualifiers ‘workable’ or ‘effective’ there is no doubt that that is the kind of competition with which it is concerned. The Australian cases are therefore of assistance in developing an understanding of the idea in the ICCC Act. In Re Queensland Co-operative Milling Association; Re Defiance Holdings Ltd [23] (QCMA), the Australian Trade Practices Tribunal (now the Australian Competition Tribunal) adopted the definition used in the 1955 Report of the United States Attorney General’s National Committee to Study the Anti -trust Laws:

‘The basic characteristic of effective competition in the economic sense is that no one seller, and no group of sellers, acting in concert, has the power to choose its level of profits by giving less and charging more. Where there is workable competition, rival sellers, whether existing competitors or new potential entrants into the field, would keep this power in check, offering or threatening to offer effective inducements.’[24]

The same report also said:

‘In an effectively competitive market the individual seller cannot control his rivals’ offerings, and those offerings set narrow limits on his discretion as to price and production. He must, in the light of his own costs, adjust his offerings to a market scale or prices for offerings of different quality of attractiveness ... It is necessary that rivals be free in fact to compete by lower prices and better service or products and selling activities ... and that no seller should have power to limit the freedom of his rivals.’ [25]

Competition is manifested in the most obvious way through price competition. As is apparent from the second passage quoted from the US Attorney-General’s National Committee, that is not the only form of competitive conduct. As the Tribunal said in QCMA:

‘In our view effective competition requires both that prices should be flexible, reflecting the forces of demand and supply and that there should be independent rivalry in all dimensions of the price-product-service packages offered to consumers and customers.

Competition is a process rather than a situation. Nevertheless, whether firms compete is very much a matter of the structure of the markets in which they operate.’[26]

So competition may occur in relation to quality of goods or services, innovative technology in substitutable products, reliability in terms of delivery of goods or services and the scope and reliability of warranties and other associated benefits. Non-price inducements which are a feature of modern commerce include rewards point schemes which most major credit card providers offer and frequent flyer schemes offered by airlines.

In a competitive market there are constraints upon each of the firms which sells goods or services in that market and which require such firms to engage in rivalrous behaviour. An important constraint is the number of other actors in the market place offering alternative consumer choices. Another constraint arises out of the range of alternative goods and services from which consumers may chose. This is reflected in s 45(1) of the ICCC Act where competition is defined to mean ‘workable’ or ‘effective’ competition including competition from imports and substitutes. A further constraint arises where there is a possibility that potential competitors may enter the market where prices are too high or quality and other associated benefits are too low and offer the same or substitutable goods or services at a better price or with more attractive attributes:

‘Competition in a market is not assessed by a snapshot view of participant behaviour at a particular time. The theatre of competition is a theatre of real actors and shadow actors. The shadows are cast by the potential for new entry. The competitive process is informed by the rivalry of the participants and the potential rivalry of potential participants. Competition so understood is conceptually distinct from the idea of market and the elements of market structure which may constrain or facilitate it.’ [27]

The obverse of competition is undue market power. As the Tribunal said in QCMA:

‘... the antithesis of competition is undue market power, in the sense of the power to raise prices and exclude entry. That power may or may not be exercised. Rather, where there is significant market power the firm ... is sufficiently free from market pressure to “administer” its own product and selling volume at its own discretion.’ [28]

In Queensland Wire market power was described by Mason CJ and Wilson J as the ability of a firm to increase prices above supply cost without rivals taking away customers in due time.[29] Dawson J in the same case said the term was ‘ordinarily to be taken to be a reference to the power to raise prices in a sustainable way’ allowing that it had aspects ‘other than influence upon the market price’.[30] The majority of the Court in Melway Publishing Pty Ltd v Robert Hicks Pty Ltd [31] referred to the notion of market power as the capacity to act unconstrained by the conduct of competitors. This definition appears in s 46(3) of the Trade Practices Act. It is not reflected in the equivalent provision of the ICCC Act which is s 58 but is still relevant to assessment of market power in that Act. It is important to note, as the High Court did in Boral that market power is not only defined by reference to the ability of a firm to raise prices above supply costs. As Gleeson CJ and Callinan J observed:

‘Pricing may not be the only aspect of market behaviour that manifests power. Other aspects may be the capacity to withhold supply, or to decide the terms and conditions, apart from price, upon which supply will take place. But pricing is ordinarily regarded as the critical test; ...’ [32]

Their Honours drew a distinction between financial strength and market power accepting that if a firm has market power its financial resources might be part of the explanation for that power. To be able financially to survive a price war is not market power if when the price war is over the market is still competitive:

‘Power in a supplier ordinarily means the ability to put prices up, not down. But if a market is not competitive, and a firm puts prices down, seeking to eliminate a potential rival, in the expectation that it will thereafter be in a position to raise prices without competitive constraint, its ability to act in that manner may reflect the existence of market power.’ [33]

Although the nature and definition of markets for the purposes of the ICCC Act will be discussed below, it is helpful at this point to refer to aspects of market structure which are relevant to the degree of competition in a market and/or the degree of market power held by particular actors. Relevant elements of market structure identified by the Tribunal in the QCMA case are:

1. The number and size distribution of independent sellers, especially the degree of market concentration.
2. The height of barriers to entry, ie, the ease with which new firms may enter and secure a viable market.
3. The extent to which the products of the industry are characterised by extreme product differentiation and sales promotion.
4. The character of ‘vertical relationships’ with customers and the suppliers and the extent of vertical integration; and
5. The nature or any formal, stable and fundamental arrangements between firms which restrict their ability to function as independent entities.[34]
   

Section 69 of the ICCC Act prohibits acquisitions which would have or would be likely to have the effect of substantially lessening competition in a market. Subsection 69(5) sets out a number of matters, including some of those mentioned in QCMA, which are required to be taken into account in determining whether a proposed acquisition would have or be likely to have that effect. They are directly relevant generally to the question of market power post-acquisition. They are:

(a) the actual and potential level of import competition in the market;
(b) the nature and effect of barriers to entry to the market;
(c) the number of buyers and sellers in the market;
(d) the degree of countervailing power in the market;

(e) the likelihood that the acquisition would result in the acquirer being able to significantly and sustainably increase prices and profit margins;

(f) the extent to which substitutes are available, or are likely to become available, in the market;

(g) the dynamic characteristics of the market, including growth, innovation and product differentiation;

(h) the likelihood that the acquisition would result in the removal from the market of a sustainable, vigorous and effective competitor;

(i) the nature and extent of vertical integration in the market.

These factors are not imported out of s 69 into other provisions of Pt VI which depend upon a demonstration that there is or is likely to be a substantially lessening of competition. They are nevertheless generally relevant. They are reflected in s 50(3) of the Trade Practices Act which is the equivalent of s 69.

The idea of market power is directly related to that of competition. Undue market power enjoyed by one actor implies an absence of workable competition. The concept of market power therefore has an important part to play in those provisions of the Act which concern conduct which has the purpose, effect or likely effect, of substantially lessening competition. The words ‘market power’ appear expressly in s 58 which prohibits a person with a substantial degree of power in the market from taking advantage of that power for any of the prohibited purposes in that section. In a case alleging contravention of that section, the assessment required is similar to that required in a case involving alleged contravention of s 46 of the Trade Practices Act:

‘... as s 46 is framed and has been interpreted in this court, what is required first is an assessment of whether the firm in question possessed a substantial degree of market power ... and, if so, then asking whether the firm has taken advantage of the power for a proscribed purpose and in that way abused the power.’ [35]

The Boral case which was a recent and important decision of the High Court in relation to the existence and abuse of substantial market power concerned a price war in the Victorian market for concrete masonry products. Between April 1994 and October 1996 Boral engaged in a price war. It cut its prices in the expectation that some of its competitors would leave the market. The ACCC sought a declaration that it had contravened s 46 of the Act by reducing the prices at which it offered to supply and supplied concrete masonry products in Melbourne to levels at or below its cost of manufacturing and supplying those products. The ACCC said that this conduct amounted to using its power in the Melbourne market for the supply of concrete masonry products for the substantial purpose of eliminating or damaging C & M Brick (Bendigo) Pty Ltd and to prevent the entry of C & M and others into the Melbourne market.

In allowing an appeal against the Full Court of the Federal Court which had held that Boral had engaged in conduct contravening s 46, the High Court essentially rejected the finding of the Full Court that Boral had market power. It was emphasised that the ability to cut prices is not market power:

‘The power lies in the ability to target an outsider without fear of competitive reprisals from an established firm, and to raise prices again later.’ [36]

At trial, Heerey J who was upheld ultimately by the High Court, had approached the question whether Boral had a substantial degree of power in the market for concrete masonry products by examining its actual conduct case by case over the whole of the relevant period and beyond in relation to each of the major contracts on which it had bid. This examination was carried out in light of evidence that those major contracts represented the business to which it attached most importance and on the basis that what went on in relation to those contracts was the best evidence of the state of the market and the best indication of the extent of Boral’s power. Gleeson CJ and Callinan J described that ‘as the correct approach’. Heerey J had found that the conclusion that Boral had a substantial degree of power in the market would be inconsistent with the detailed evidence as to exactly how it and other suppliers and their customers behave.

Gleeson CJ and Callinan J said (at [142]):

‘The evidence of the conduct of suppliers and customers showed that the market for [concrete masonry products] was intensely competitive. This was due partly to the existence of a wider market; ... It was also partly due to the related matter of the aggressive behaviour of those on the demand side of the [concrete masonry products]market. [Boral’s] market share was the same at the end of the period of the pricing behaviour complained of as it was at the beginning. Two firms left the market over the period; a successful new firm entered the market. [Boral] contemplated leaving the market itself; but decided to stay in and compete aggressively....’

Their Honours went on to say that if, after one or two firms leave a market in the course of a price war, the remaining firms are in strong competition then their departure does not achieve or evidence market power. Boral had demonstrated that it had the financial strength to stay in the market but had not demonstrated or achieved a substantial degree of power in the market.[37]

The other joint judgment in Boral was that of Gaudron, Gummow and Hayne JJ. They agreed with the reasons of Gleeson CJ and Callinan J which led to the conclusion that the trial judge’s findings about the absence of substantial market power were well-founded. Their Honours referred to the critical scrutiny that had been given to Boral’s intimate and confidential documents in the course of the litigation. They said of the outcome of that scrutiny:

‘Yet nowhere is there any suggestion, hope or expectation of [Boral] being able to recover its losses by supra-competitive prices. Certainly [Boral] hoped one day to return to profitable operations; there would be no point in it staying in business if that were not so. Yet all it hoped for, or could hope for, was profit in a competitive market. The ever present threat of Pioneer, and the low barriers to new entrants, would prevent anything more. [Boral] did not take into account recovering past losses, still less recovery by charging monopoly prices.’ [38]

Of course it was an aspect of the reasoning in the High Court that financial strength which enabled Boral to weather the price war was not of itself to be equated to market power although it might be indicative of, or supportive of, market power.

Structural aspects of the market which are important to the existence of competition and conversely market power include barriers to entry and concentration of market share. ‘Barriers to entry’ metaphorically describes the economic and other impediments to new entrants seeking to participate in a market. The more difficult it is for new competitors to enter the market the more entrenched the position of existing firms.

Heydon lists five barriers to entry.[39]

1. Blocked access: control of the supply of essential raw materials by established firms, distribution channels or other elements in the market, making new entry either impossible or too costly.
2. Capital requirements for a new market entrant. That is not to say that all costs of entry represent a barrier. Critical factors are the extent of the predicted costs and the likely return.
3. Economies of scale: the scale of activities of existing market participants may be such as to lower the unit costs to a point where a newcomer could not compete, except at a loss.
4. Product differentiation: a long established firm may have the benefit of accumulated goodwill which a new entrant can only counteract by bearing higher promotional costs or suffering lower selling prices than the existing firms.
5. Legal restrictions: eg a statutory monopoly on the activity itself such as a broadcasting licence or restrictions deriving from the existence of intellectual property rights.
   

Arnotts Ltd v Trade Practices Commission [40] involved consideration of the retail biscuit market. Barriers to entry discussed in that case included the existing market share of the dominant firm, the capital cost of establishing a new business in the market, the material advantage derived from economies of scale enjoyed by the dominant firm and the difficulty of access to distribution channels represented by space on supermarket shelves.

An important aspect of barriers to entry is the extent to which a new entrant may face ‘sunk costs’, ie capital costs which cannot subsequently be recovered. Sunk costs were considered in Stirling Harbour Services Pty Ltd v Bunbury Port Authority.[41] That case concerned the conduct of a port authority in calling for tenders for the grant of an exclusive licence to provide tugboat services at the port for a fixed term. The principal question, raised in proceedings brought by the incumbent non-exclusive licensee was whether the proposed exclusive licence would be an agreement which would have or be likely to have the effect of substantially lessening competition in the relevant market. That market was the provision of tugboat services for the Port of Bunbury. The market was said to be a natural monopoly in the sense that it would only support one operator. The critical question was whether the market, would be any less contestable under an exclusive licence arrangement than it would be absent such an exclusive licence. The answer depended in part on barriers to entry and in particular on whether an entrant to the market who acquired tugs for the purpose of providing services there could readily exist the market by disposing of them as second-hand tugs. It was held in that case that sunk costs were a substantial consideration against new entrants into the field. That contributed to the finding that the market would be no more contestable without an exclusive licence than it would be with an exclusive licence.

Other barriers to entry in Stirling Harbour Services were:

1. the ability of the incumbent licensee to protect its position by its established connection with shipping operators particularly through volume rebate agreements;
2. the costs of fighting an entry battle with a determined incumbent, where the incumbent could charge prices at a level calculated to deter entry but nevertheless higher than might be charged in a fully competitive market;
3. losses associated with the cost of competition against a determined incumbent defending interests which transcended its immediate interests in the Port of Bunbury and included strategic concerns relating to its position throughout Australia and perhaps even globally.
   

In that case, as typically occurs in competition litigation, there was evidence both from industry operators and from economists.

It is important in determining the existence and prospective future of competition in a market and the existence of market power not to be distracted by transient or short run effects. This, as will be seen, is also important to the definition of markets.

In a case arising under s 50 of the Trade Practices Act concerning acquisition by an electricity retailer of an interest in a base load power generator, the ACCC argued that there would be a substantial lessening of competition in wholesale and retail electricity markets if the acquisition were permitted to proceed. One of the pieces of evidence relied upon to establish that the existing generator owners had a degree of market power in determining electricity prices in Victoria and New South Wales involved a complex bidding and rebidding process from which spot prices for electricity were fixed through a centralised agency set up for the purpose. The agency operated under bidding and rebidding rules. Following opportunistic pricing behaviour by the owner of the generators in the summer of 2000 and 2001 those rules were changed. The opportunistic behaviour took advantage of certain events which both increased demand and reduced supply from competitors. A very hot summer had increased demand. Power generation from some alternative sources was unavailable because of industrial action and bushfires. The fact that on occasions during this period the existing owners of the generator could spike their prices did not necessarily mean that they enjoyed undue market power which would, in effect, be transferred to the retailer post acquisition. The following observations were relevant to the determination that the price spiking phenomenon was short run:

1. The rules governing bidding for spot prices provided some opportunities for manipulation of the bidding process to affect those prices particularly in times of high demand.
2. The opportunities afforded to generators by the rules either conferred market power or enhanced existing market power for brief intervals when bidding strategies could affect spot prices and forward hedge contract prices.
3. A change to the bidding rules subsequently had reduced the opportunity for manipulative bidding and increased the risk of punitive responses against attempts to lodge bids other than in good faith or to rebid other than for legitimate reasons.
4. To the extent that the bidding regime did continue to promote price spiking and economic withholding of capacity at times of high demand it provided a mechanism for price signals upon which existing participants could act to enhance capacity or new participants could enter to relieve the demand/supply imbalance.
5. The market responded in a competitive way to the price increases of the summer of 2000/2001 by the announcement of new generator capacity.[42]
   

Market Definition
Part VI of the ICCC Act prohibits various kinds of conduct which have the purpose or have or are likely to have the effect of substantially lessening competition in the market. The term ‘market’ refers to ‘a market in the whole of Papua New Guinea for goods or services as well as other goods or services that, as a matter of a fact and commercial common sense, are substitutable for them, including imports’. [43]

In the seminal decision of QCMA the Trade Practices Tribunal defined ‘market’ as the area of close competition between firms and observed that competition occurs within a market between one product and another and between one source of supply and another in response to changing prices:

‘So a market is the field of actual and potential transactions between buyers and sellers amongst whom their can be strong substitution, at least in the long run, if given a sufficient price incentive.’[44]

The task of market analysis was defined by the Tribunal in Re Tooth Co Ltd and Tooheys Ltd [45] as involving the following steps:

1. Identification of the relevant area or areas of close competition.

2. Application of the principle that competition may proceed through substitution of supply source as well as product.
3. Delineation of a market which comprehends the maximum range of business activities and the widest geographic area within which, if given a sufficient economic incentive, buyers can switch to a substantial extent from one source of supply to another and sellers can switch to a substantial extent from one production plan to another.
4. Consideration of long-run substitution possibilities rather than short-run and transitory situations recognising that market is the field of actual or potential rivalry between firms.
5. Selection of market boundaries as a matter of degree by identification of such a break in substitution possibilities that firms within the boundary would collectively possess substantial market power so that if operating as a cartel they could raise prices or offer lesser terms without being substantially undermined by the incursions of rivals.
6. Acceptance of the proposition that the field of substitution is not necessarily homogeneous but may contain sub-markets in which competition is especially close or especially immediate. This is subject to the qualification that competitive relationships in key sub-markets may have a wide effect upon the functioning of the market as a whole.
7. Identification of the market as multi-dimensional involving product, functional level, space and time.
   

The identification of market has been described as a focussing process. It requires the court to select what emerges from the evidence as the clearest picture of the relevant competitive process in the light of commercial reality and the purposes of the law. There is a feed back between any proposed market and the structure and power distribution which it throws up.[46] The relationship between market definition and market power is clear. As Mason CJ and Wilson J observed in Queensland Wire Industries:

‘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.’ [47]

The concept of market describes metaphorically an area or space of economic activity whose dimensions are function, product and geography. So a market may be defined functionally by reference to wholesale or retail activities or a combination of both. The idea of product encompasses goods and services and includes the range of goods or services which are substitutable for or competitive with each other.

Market definition will depend upon industry and economic evidence. The industry evidence will normally be the surest guide as to what actually happens in the market in terms of areas of geographical competition and product substitution. However in assessing such evidence it is necessary to bear in mind that the concept of market applied by industry participants may not be the same as the economic concept to be applied under the ICCC Act. Sometimes industry witnesses referring to a ‘market’ for a particular product are in truth describing a sub-market by reference to a limited view of the range of products and the geographical spread which is commercial relevant to them. In this context the economic witness can assist the court in the application of proper principles to the determination of the geographical and product boundaries of the market and the appropriate functional level or levels by which it should be defined. As can be seen the question of market definition requires the kind of purposive judicial evaluative judgments referred to at the beginning of this paper. As Wilcox J said in Trade Practices Commission v Australia Meat Holdings Pty Ltd [48](at 336):

‘[q]uestions of degree are involved which, in the end, require an exercise of judgment.’

There is often a significant amount of evidence at trial devoted to the issue of market definition where that is in dispute. The reason for that is obvious enough. The larger the product and geographical range of the market, the more difficult it is to establish that particular conduct would substantially lessen competition in that market. The narrower the market definition, the greater the arguable impact of alleged anti-competitive conduct. Debates about market definition have generated concerns about the amount of evidence devoted to that issue and in particular the role of economic evidence in relation to market definition.

Perhaps the most important proposition to take from this discussion of ‘market definition’ is that while it is a matter of evaluation it is essential that it be rooted in commercial reality rather than theoretical possibilities.[49]

‘Likely’ and ‘Substantial’
Two important words in the ICCC Act which also require evaluative judgment by the courts are the words ‘likely’ and ‘substantial’. There are a number of provisions in the ICCC Act as there are in the Australian Trade Practices Act where ‘likely’ is used in relation to the effects of conduct upon competition.

The combination of words ‘likely to have the effect’ can bear two meanings. One meaning is that the conduct would ‘more probably than not’ have the effect of substantially lessening competition. The other meaning is that there is a sufficiently high finite probability that the conduct will have that effect. The second meaning is sometimes expressed by saying that there is a ‘real chance’ of a substantial lessening of competition.

The preferred view in Australia is that ‘likely’ refers to a significant finite probability or ‘a real chance’ rather than ‘more probably than not’. Although there has been some divergence in its construction in various provisions of the Act, the weight of authority supports the wider view.[50] The meaning of ‘likely’ as a ‘real chance or possibility’ is not satisfied by showing a mere possibility of a lessening of competition. The word offers no quantitative guidance but requires a qualitative judgment about the effects of the conduct in question.

In the context of proposed acquisitions the judgment is purposive. It must not set the bar so high as effectively to expose acquiring firms to a finding of contravention simply on the basis of possibilities. On the other hand it must not set the bar so low as effectively to allow all acquisitions to proceed save those with the most obvious direct and dramatic effects upon competition.[51]

The word ‘substantial’ in ‘substantial lessening of competition’ also requires qualitative judgment. The use of analogues such as ‘large’ or ‘weighty’ would misdirect. It applies to ‘lessening’ which encompasses hindering or preventing competition. A description of the kind of judgment required by the word ‘substantially’ which was recently approved in the High Court is that the effect of the conduct be ‘meaningful or relevant to the competitive process’.[52] In determining whether conduct is likely to have the effect of a substantial lessening of competition the court will give little if any weight to short term effects which are readily corrected by market processes.[53]

In deciding whether there is likely to be a substantial lessening of competition it is generally necessary to consider the future state of the relevant market with and without the asserted conduct.[54]

Economic Evidence in Competition Law Cases
The Full Court of the Federal Court in Arnotts Ltd v Trade Practices Commission [55] considered the kinds of economic evidence that could be heard in relation to market definition and other economic issues. Following a discussion of principles applicable to the admissibility of expert evidence generally, the Court said:

‘Applying those principles to a case such as the present, it seems to us that an expert economist may legitimately give an opinion, for example, as to the proper method of defining a market. The economist may go further rendering that opinion more apposite to the case by proffering a definition relevant to the particular case... It does not matter whether... the issue is one upon which the Court has to reach a finding. What does matter ... is that the assumptions upon which the opinion is based are identified and articulated.’[56]

The Court regarded it as illegitimate to use expert witnesses ‘to filter the facts’ where the witnesses were asked to hear or read all the evidence and then to express factual conclusions. Counsel’s submission that the Court should permit admission of expert economic evidence without requiring disclosure of the assumptions upon which it was based was rejected as ‘mischievous’. The Court held that if an economist were to be permitted to express opinions on the effect of evidence given without identifying the facts assumed for the purpose of those opinions it would be impossible for the Court to know how to apply that evidence.

The approach taken by the Full Court in Arnotts generated debate and criticism as imposing an unnecessarily restrictive approach to the reception of economic evidence in anti-trust cases. It showed up something of a cultural divide and highlighted the difficulties which arise from some kinds of expert testimony and particularly that of economists. Such testimony may often present less as evidence than as argument. An example is ‘evidence’ about where the line should be drawn along the spectrum of possibly substitutable products for the purpose of defining a product market boundary. Once the facts about substitutability are in, through actual industry evidence, this is likely to be a question of argument and submission. So too are questions about whether competition is lessened and whether lessening is substantial and the extent of market power in a particular case.

In January 1994 the Court endeavoured to overcome the problem to some extent by a Rule of Court which provides that:

‘[I]n proceedings in which a party seeks to rely on the opinion of a person involving a subject in which the person has specialist qualifications, direct that all or part of such opinion be received by way of submission in such manner and form as the Court may think fit, whether or not the opinion would be admissible as evidence.’

This rule is expressed in general terms because the problem of argumentative evidence occurs not only with economists, but other kinds of expert witness, particularly in intellectual property litigation. Although some commentators saw this rule as a downgrading of economic testimony that was a misconceived reaction. Where argument from an economist can offer to the court models for the characterisation and evaluation of primary factual evidence that argument can play a very significant role in the outcome of litigation. A well constructed economic argument can be as beneficial to the court as a well constructed legal submission. If economists have an ability to put argument directly to the court as part of the trial process rather than filtering it second-hand through counsel, their role in the adjudication process is enhanced rather than downgraded. As Professor Brunt has observed of the rule:

‘It could also enable the economist-expert to assist the court in whatever capacity might prove useful to resolution of the issues. The rule would appear to give scope for a written submission at any stage in the proceedings, including the pre-trial stage and thus to widen the opportunity for economists to contribute to clarification of the issues and the assessment of the relevance of evidence.’[57]

Notwithstanding the flexibility offered by the rule it is of course important to maintain the distinction between argument and evidence. Where argument depends for its validity upon the finding of primary facts it will play no part in the course consideration if those primary facts cannot be found on the evidence.

Guidelines for expert witnesses in proceedings in the Federal Court have been the subject of a Practice Direction by the Chief Justice. These limit the extent to which experts may be seen as champions of one side or the other in a conflict. The Practice Direction sets out the general duties of experts to the Court. Expert witnesses have an overriding duty to assist the court on matters which are relevant to their area of expertise. As witnesses they are not advocates for any party and owe their paramount duty to the Court and not to the person retaining them. There is provision for directions to be made for experts retained by the parties to meet and to endeavour to reach agreement on matters of expert opinion.

The Court has borrowed from the Trade Practices Tribunal not only some of its economic vocabulary and methodology but also procedures used by the Tribunal where they can be accommodated within the judicial function. Such cross-fertilisation has occurred through the presence on the Tribunal of judges of the Federal Court who have worked with economists of high standing and reputation. The ‘hot tub’ method of taking economic testimony which was adopted by the Tribunal has been applied in the Federal Court. That involves the opposing economic witnesses giving their opening statements and cross questioning each other in the same session on areas of disagreement so reducing the length and scope of cross examination by counsel. This technique has been shown to reduce the level of adversarial engagement and to narrow issues in dispute. While it should be considered in any anti-trust case, it is not always appropriate. It was used by Heerey J in the Boral case at first instance.

It is important that economists giving evidence in competition law cases should be properly informed by those engaging them about the legal framework within which their evidence is being given and the issues which are to be addressed under the Act. On occasions economic evidence has been quite discursive and offering general theories of the economics and efficiencies of the relevant market without much regard to the issues which have to be decided by the Court.

Survey Evidence
In determining such questions as the range of substitutable products, the court may from time to time be offered survey evidence going to consumer perceptions and choices. This does raise questions of admissibility and the application of the hearsay rule. The Federal Court has adopted a fairly pragmatic approach which is not constrained by the technicalities of hearsay limitations. A Practice Note which was made on 8 April 1994 set out a procedure designed to minimise expensive and time consuming debate about methodology and survey questions. It requires pre-trial disclosure of the proposed form and methodology of an intended survey, its purpose, the issue to which it is directed, the questions to be asked and the instructions to be given to the interviewers. The emphasis in these cases is upon disclosure, transparency and a cooperative approach to endeavour to resolve disagreements about the survey before it is conducted. Such cooperation does not just happen. It requires the use of active case management by the Court and, in particular, the use of case management conferences which in the case of the Federal Court are provided for under O 10.

Case Management
The pre-trial management of competition law cases is often a matter of considerable significance in determining the time within which such cases can be brought on for hearing and the time taken at trial. In the Federal Court case management is generally undertaken by the trial judge.[58] In competition cases in particular there will be, apart from the usual issues of pleadings and pre-trial discovery and exchange of expert reports and compulsory conferences, issues particular to complex commercial litigation. One question which requires particular attention is the use of subpoenas to obtain evidence from third parties going to market conduct. This will often involve sensitive questions of commercial confidentiality affecting third parties in the market who are not parties to the proceedings. My own practice has been to require the parties seeking a subpoena raising such questions to apply for leave to issue it upon notice to its recipient. This means that at a case management conference which doubles as a directions hearing, the question of the scope of the subpoena and the terms and conditions of access to documents produced under it can be discussed and, in some cases, resolved by negotiation.

The use of the case management conference where counsel and the principals of their clients sit around a conference table presided over by the judge is important to ensuring a cooperative rather than adversarial approach. The use of a case management conference, in my opinion, changes the psychological landscape of pre-trial preparation and enables a more sensible approach than a formal directions hearing at which the parties are standing up and down in court and making formal submissions. The authority of the judge in controlling the conference is of great importance. Although it can be done by a court officer such as a registrar, there is no substitute where issues of complexity and commercial sensitivity are concerned for the authority which a judge can bring to bear.

Penalty and Disposition
The ICCC Act provides, under s 87, for the imposition of pecuniary penalties for contraventions or attempted contraventions of any of the provisions of ss 50 to 67 inclusive. It also provides for the imposition of penalties on accessories to contravening conduct under the various heads of accessorial liability set out in s 87(1)(c) to (f). In fixing an appropriate penalty under s 87 the court is required by s 87(2) to ‘... have regard to all relevant matters, including the nature and extent of any commercial gain arising from engaging in the conduct referred to in subs (1).’

There has been consideration under the Trade Practices Act in a number of cases of the factors relevant to the levels of pecuniary penalty for anti-competitive conduct. In Trade Practices Commission v CSR Ltd [59], CSR admitted in the Federal Court to having taken advantage of its market power in the market for the supply of ceiling materials in an anti-competitive way. This contravened s 46 of the Trade Practices Act as it then stood. The maximum penalty for a contravention was $250,000. There was evidence before the Court of a corporate compliance program involving the production of a Guide to the Trade Practices Act for internal use and the conduct of staff seminars. However at the time that penalty was assessed there was no evidence that the Guide (produced in 1980) had been updated and nothing to suggest that any educational program had been undertaken since 1985. The contravening conduct had occurred in 1987 and 1988. The penalty imposed in that case was $225,000 which, having regard to the available maximum of $250,000, was at the time the highest penalty imposed on a corporation.

In the CSR case a non-exhaustive list of factors, largely gleaned from earlier decisions, was set out as relevant to penalty. These were:

1. The nature and extent of the contravening conduct.
2. The amount of the loss or damage caused.
3. The circumstances in which the conduct took place.
4. The size of the contravening company.
5. The degree of power it has, as evidenced by its market share and ease of entry into the market.
6. The deliberateness of the contravention and the period over which it extended.
7. Whether the contravention arose out of the conduct of senior management or at a lower level.
8. Whether the company has a corporate culture conducive to compliance with the Act, as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention.
9. Whether the company has shown a disposition to co-operate with the authorities responsible for the enforcement of the Act in relation to the contravention. [60]
   

The judgment identified as the principal and probably the only object of the penalties imposed by s 76 of the Trade Practices Act, putting a price on contravention that is sufficiently high to deter repetition by the contravener or by others who might be tempted to contravene the Act. There has been debate in the case law about whether civil penalties under the Trade Practices Act might also have a punitive element.[61]

The question of compliance programs and the existence of a culture of compliance in contravening corporations or businesses has been established as a significant factor in setting the level of penalty. The importance of compliance programs in setting a penalty was adverted to in the joint judgment of Burchett and Kiefel JJ in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission:[62]

‘Particularly in the case of a proceeding under s 76, where the object is to secure compliance with the Act by deterring contravention, a corporation which gives a court reason to believe that this object has been achieved, so far as it is concerned, by its co-operation with the Commission and its entry into a compliance program the form of which has been agreed with the Commission, should be entitled to full credit, whether or not it receives incidental advantage from the amendment of its conduct.’

The factors set out in CSR have been referred to with approval on a number of occasions.[63] And although they were framed in the context of contraventions of Pt IV of the Act a number of them have wider application.

Each case turns on its own facts but it is useful to refer to some in which the effect of compliance programs was considered. In Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd[64] and Australian Competition and Consumer Commission v George Weston Foods Ltd [65], the two respondent companies admitted to contraventions of the Trade Practices Act, including price fixing and retail price maintenance. In the course of his reasons for decision in relation to penalty Goldberg J referred to the duties of the board of directors and senior executives:

‘It is very important in this area that responsibility be assumed and discharged by the board of directors and senior executives and management for compliance by the corporation with its obligations under the Act. It is the board of directors which supervises and ultimately controls the executive and operational aspects of a corporation’s commercial activities.’[66]

That observation was made by his Honour in rejecting an argument that the penalties should be assessed by treating the Victorian Division of the business as a separate entity.

In that case there was a company wide compliance program which included a compliance guide revised and adopted by the board in 1996 and which had been distributed to all employees. Moreover, seminars relating to compliance with the Act had been attended by over 800 employees since December 1995. The guide itself made clear that conduct of the kind which was in issue in the case was ‘strictly prohibited’.

His Honour posed two questions about the compliance program. The first was whether there was a substantial compliance program actually implemented by the company. The answer to that question was yes. The second was whether the implementation was successful. The answer to that question was no. The existence of the program and its implementation was a mitigating factor. But the failure of the program was not isolated. It occurred on different occasions with different officers. This was taken into account against the company in fixing penalty. His Honour said:

‘The contraventions were blatant, implicating the top Victorian management of the Tip Top bread division of GWF. True it is that a compliance program was in place but the program in the circumstances of the contravention under consideration was not effective. It was disregarded or ignored by the top Victorian management of the Tip Top division. If it is not effective with management at the level involved in these contraventions it must be brought home to GWF and its officers at every level that they must obey the law.’[67]

So it would seem that the compliance program in that case did not reflect a corporate culture of compliance and it did not win the assent of significant executives within the organisation even though supported by the board and senior management.

George Weston Foods fell again with conduct in contravention of the Trade Practices Act which occurred three days after the penalty decision was delivered in the Australian Safeway Stores case. This contravention involved an attempt to induce two competing retailers to give effect to a price fixing arrangement in respect of the sale of packaged biscuits in Southern Tasmania.

The facts were admitted. In imposing penalty, Goldberg J again referred to the company’s compliance program. Its failure in that case was not a factor in aggravation of penalty but rather neutralised the mitigating weight of the program. His Honour accepted that the company had taken ‘significant steps to review, revise and upgrade its trade practices compliance program’. It had engaged a very experienced trade practices practitioner for that purpose. This appointment was regarded as a significant step forward because of the level of seniority established for it. Changes made in the compliance program related to the training of staff, communications of the way in which trade practices issues might arise and how they should be resolved and the availability of expert advice for employees with trade practices issues. His Honour was satisfied that George Weston Foods was taking a ‘most serious approach to its trade practices compliance program’ and that there was ‘an appropriate culture of compliance at George Weston’. Returning to that theme his Honour said:

‘I am not prepared to find that there was no culture of compliance in George Weston. There was certainly a culture of compliance at senior levels. Rather, the circumstances suggest that there was, in certain respects, less than rigorous attention to detail in the implementation of the compliance regime.’[68]

In Australian Competition and Consumer Commission v Rural Press Ltd [69], Mansfield J found there was not shown to be ‘any underlying cultural attitude on the part of the respondent corporations, except that demonstrated by the conduct of [four officers], which indicates ignorance or disregard for the provisions of the Act’. His Honour said that the attitude of a contravener to compliance with the Act is a relevant factor in determining penalty. Importantly he added:

‘The absence of an appropriate compliance culture may warrant a higher penalty.’[70]

In Australian Competition and Consumer Commission v Allans Music Group Pty Ltd[71], Tamberlin J regarded the failure to have any satisfactory process in place to ensure compliance with the Act as ‘... an important consideration when examining the conduct of the defendant’. However the establishment of an extensive compliance program in response to the acknowledged contravention was a mitigating factor.

In Australian Competition and Consumer Commission v SIP Australia Pty Ltd [72], Goldberg J considered penalties for price fixing. In that case the evidence did not show that the company or its directors had any consideration or regard for the Act in the manner in which they conduct SIP’s business. His Honour proceeded on the basis that at the time of the contraventions ‘... there was a complete lack of any corporate culture of compliance with the Act’. The late implementation of a compliance program was ‘... very much a case of shutting the stable door after the horse has bolted’.

The significance of legal advice and the uncertainty and complexity of the law in determining penalty was considered by the Full Court of the Federal Court in Universal Music Australia Pty Ltd and Others v Australian Competition and Consumer Commission.[73] In that case penalties of $450,000 had been imposed on Universal Music Australia Pty Ltd and Warner Music Australia Pty Ltd in respect of contraventions of the provisions of the Trade Practices Act relating to exclusive dealing. The maximum penalty available was $10 million in each case. The ACC had sought a penalty of $8 million. In deciding that the penalties imposed were inadequate the Full Court observed that Universal and Warner were each substantial participants in a significant industry in Australia. Neither was entitled to any discount for cooperation, apology or remorse. Neither was entitled to any discount simply because the conduct ceased after ACCC intervention. Each was only to be penalised for the conduct which did take place. Although short lived, the purpose of that conduct was to snuff out the emergence of a form of competition, through parallel importation of CDs, which had been opened up in the interests of consumers by amendments to the Copyright Act. The trial judge had taken into account the complexity of the case and the uncertainty of the law prior to the decision. The Full Court was not prepared to allow a discount by reason of that matter. It said:

‘... the contravening conduct was plainly and deliberately anti-competitive in its intent. It was conduct which, at least, ran a serious risk of being in breach of the Act. If this was appreciated, then the fact that the risk came home against expectations does not entitle the perpetrator to a discount. If the existence of the risk was not appreciated, then the company concerned misunderstood the law applicable to an important area of commerce and would not be entitled to any discount.

The fact that legal advice was obtained by one of the parties was also of little consequence. It illustrates that risk was appreciated. However, legal advice is obtained for the benefit of the company and only for the benefit of the company. It is not a discounting factor. If legal advice is wrong that is a matter between the company and the legal adviser.’ [74]

The Court went on to say:

‘In our opinion, to give a substantial discount for these factors sends the wrong signal to the commercial community. It will encourage risk-taking and pushing the boundaries of anti-competitive conduct. If, nonetheless, a proceeding is instituted, it will encourage the most vigorous possible defence, in an endeavour to demonstrate the supposed complexity and uncertainty of the law.’[75]

The penalties imposed upon each of the contravenors were increased to $1 million in each case.

Mention should also be made of the availability under the Australian Trade Practices Act of the various forms of non-punitive injunctive order requiring the implementation of education and compliance programs within contravening firms, the publication of corrective notices and other specific purpose orders. While injunctive relief is available under s 93 of the ICCC Act in respect of contraventions of provisions of ss 50 to 67, such injunctions are directed to restraining persons from engaging in contravening conduct in the future or being accessory to such contraventions. They would not appear to authorise orders of the kind mentioned under the non-punitive injunctive provisions of the Australian statute.

Conclusion
The introduction of competition law into Papua New Guinea brings with it opportunities and challenges for the courts which have to exercise jurisdiction in the area. If the experience of the courts in Papua New Guinea reflects that of the courts in Australia there will be a significant learning curve as judges and counsel familiarise themselves with the application of economic concepts in this area of the law. Given the similarity between the language of the ICCC Act and the Australian Trade Practices Act, the courts of Papua New Guinea will have the benefit of the Australian experience and jurisprudence in this area. That is not to say that the development of the law in this country will be identical to that in Australia. The particular circumstances of Papua New Guinea may well throw up a range of factual situations which have not had to be faced by Australian judges. I trust, however, that the Australian experience will be of some assistance and that we may learn from each other in the coming years.

---

[1] Stone, J (1968) Legal Systems and Lawyers Reasonings, Maitland pp 263-264.
[2] Ibid
[3] ICCC Act 2002 s 33(8)
[4] ICCC Act s 45(2)
[5] Defined in ICCC Act s 45
[6] ICCC Act s 45
[7] ICCC Act s 58
[8] Parl Debates H of R 16 July 1974 pp 227-228
[9] Brunt M, 1975, ‘Economic Overview, Monash Trade Practices Lectures pp 2-3
[10] [1989] HCA 6; (1989) 167 CLR 177
[11] [1989] HCA 6; (1989) 167 CLR 177 at 191 (Mason CJ )
[12] [2003] HCA 10; (2003) 195 ALR 609
[13] [2003] HCA 10; 195 ALR 609 at 625 [87]. See also at 641 [164] per Gaudron, Gummow and Hayne JJ.
[14] [2003] HCA 10; 195 ALR 609 at 663 [260] citing Ball Memorial Hospital Inc v Mutual Hospital Insurance Inc 784 F 2d 1325 (1986) at 1338.
[15] Adelaide Steamship Co Ltd v King and Attorney-General [1912] HCA 58; (1912) 15 CLR 65 at 76
[16] ICCC Act s 45(1)
[17] ICCC Act ss 50 and 51
[18] ICCC Act s 52(2)
[19] ICCC Act ss 53 and 57
[20] ICCC Act s 58
[21] ICCC Act s 69
[22] 5th Edition, Aspen Law & Business, 1997
[23] (1976) 25 FLR 169 at 187-188
[24] Ibid at 188
[25] Cited in Heydon, Trade Practices Law, Vol 1 at 3.210
[26] (1976) 25 FLR 169 at 188
[27] Australian Gas Light Co v Australian Competition and Consumer Commission (No 3) (2003) ATPR 41-966 at 47,705.
[28] (1976) 25 FLR 169 at 188
[29] [1989] HCA 6; (1989) 167 CLR 177 at 188
[30] [1989] HCA 6; (1989) 167 CLR 177 at 200
[31] (2001) 205 CLR 1 at 21
[32] [2003] HCA 10; (2003) 195 ALR 609 at 635 [136]
[33] [2003] HCA 10; (2003) 195 ALR 609 at 635 [138]
[34] (1975) 25 FLR 169 at 189
[35] [2003] HCA 10; (2003) 195 ALR 609 at 646 [184]
[36] [2003] HCA 10; (2003) 195 ALR 609 at [139] per Gleeson CJ and Callinan J
[37] [2003] HCA 10; (2003) 195 ALR 609 at 637 [147]
[38] [2003] HCA 10; (2003) 195 ALR 609 at 648 [191]
[39] Heydon, Trade Practices Law at 3.225
[40] (1990) 24 FCR 313
[41] [2000] FCA 38; (2000) ATPR 41-752 and [2000] FCA 1381; (2000) ATPR 41-783
[42] Australian Gas Light Co v Australian Competition and Consumer Commission (No 3) [2003] FCA 1525; (2003) ATPR 41-966 at 47,732
[43] ICCC Act s 45(2)
[44] (1975) 25 FLR 169 at 190
[45] (1979) 39 FLR 1
[46] Singapore Airlines v Taprobane Tours WA Pty Ltd [1991] FCA 621; (1991) 33 FCR 158 at 178
[47] Queensland Wire Industries [1989] HCA 6; (1998) 167 CLR 177 at 187
[48] [1988] FCA 338; (1988) 83 ALR 299
[49] Australian Meat Holdings Pty Ltd v Trade Practices Commission [1989] FCA 25; (1989) ATPR 40-932 at 50,092
[50] Tilmanns Butcheries Pty Ltd v Australian Meat Industry Employees Union (1979) 42 FLR 331 per Deane J; Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 87; News Limited v Australian Rugby Football League Ltd [1996] FCAFC 870; (1996) 64 FCR 410; Monroe Topple and Associates Pty Ltd v Institute of Chartered Accountants in Australia (2002) 122 FCR 110 at [111]. See generally Australian Gas Light Co v ACCC (No 3) [2003] FCA 1525; (2003) ATPR 41-966 at 47,703-47,705.
[51] Australian Gas Light Co v ACCC (No 3) at 47,705
[52] Rural Press Ltd v Australian Competition and Consumer Commission [2003] HCA 75; (2003) ATPR 41-965 at [41]
[53] Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission (2003) 201 ALR 636 at [242]
[54] Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd [1982] FCA 178; (1982) 64 FLR 238 at 259; Outboard Marine Australia Pty Ltd v Hecar Investments (No 6) Pty Ltd [1982] FCA 265; (1982) 44 ALR 667 at 669-70
[55] (1990) ATPR 41-061
[56] (1990) ATPR 41-061 at 51,800
[57] Brunt M, The Australian Anti Trust Law After 20 Years – A Stocktake’ (1994) 9 Review of Industrial Organisation 483 at 517
[58] See R French, ‘The Role of the Trial Court Judge in Pre-Trial Management’. A copy of this paper has also been made available electronically to the ICCC and may be reproduced as desired.
[59] (1991) ATPR 41-076
[60] (1991) ATPR 41-076 at 52,152. These factors have been approved and adopted in a number of subsequent cases including ACCC v Australian Safeway Stores Pty Ltd [1997] FCA 450; (1997) 145 ALR 36; NW Frozen Foods Pty Ltd v ACCC [1996] FCA 1134; (1996) 141 ALR 640; Trade Practices Commission v TNT Australia Pty Ltd (1995) ATPR 41-375; Trade Practices Commission v CC (New South Wales) Pty Ltd (1995) ATPR 41-406; Trade Practices Commission v Axive Pty Ltd (1994) ATPR 41-368.
[61] NW Frozen Foods Pty Ltd v ACCC [1996] FCA 1134; (1996) 71 FCR 285; J McPhee & Son (Aust) Pty Ltd v ACCC [2000] FCA 365.
[62] [1996] FCA 1134; (1996) 71 FCR 285 at 298
[63] For a review of relevant case law and an up to date account of the state of play on factors relevant to penalties see the recent judgment of Goldberg J in Australian Competition and Consumer Commission v Dermalogica Pty Ltd [2005] FCA 152, judgment in which was delivered on 2 March 2005.
[64] [1997] FCA 450; (1997) 145 ALR 36
[65] [2000] FCA 690
[66] [1997] FCA 450; (1997) 145 ALR 36 at 42
[67] Ibid at 53
[68] [2000] FCA 690 at [51]
[69] [2001] FCA 1065
[70] Ibid at [47]
[71] [2002] FCA 1552
[72] [2003] FCA 336
[73] [2003] FCAFC 193; (2003) 131 FCR 529
[74] [2003] FCAFC 193; (2003) 131 FCR 529 at 598-599
[75] [2003] FCAFC 193; (2003) 131 FCR 529 at 599