FEDERAL COURT OF AUSTRALIA

Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia [2002] FCAFC 197

TRADE PRACTICES – restrictive trade practices – misuse of market power – exclusive dealing – arrangements restricting dealings or affecting competition – appellant in business of providing course materials and other training support to candidates undertaking studies for their “Professional Year” (PY) in order to qualify to apply to become members of respondent and to practise as Chartered Accountants – respondent a non-profit organisation incorporated by Royal Charter – respondent in competition with CPA Australia and other bodies in providing certification of accountants (“certification market”) – respondent the only body which can authorise use of designation Chartered Accountant or acronym “CA” – respondent also selling support materials in competition with appellant and other entities (“PY support market”) – in return for enrolment fee in PY subjects (“modules”) candidates automatically receiving certain information about module but with option of buying respondent’s support materials – respondent replaces PY Program with “CA Program” where, for a slightly increased enrolment fee, candidate is now provided with an integrated educational service including module support materials as well as information about module – appellant complains that candidates in CA Program will not now buy any support materials other than those provided by respondent upon payment of module enrolment fee – whether respondent’s supply of education and training in connection with its CA Program the provision of services in trade and commerce – whether PY support market was replaced by “a new CA support market (strictly so called)” – whether a market existed in which the respondent provided certification to persons becoming members of itself (“CA certification market”) – whether respondent had a substantial degree of market power in the CA certification market – whether respondent had a substantial degree of market power in the certification market – whether respondent had as a substantial purpose eliminating or substantially damaging competitors or deterring or preventing persons from engaging in competitive conduct in the CA support market – whether respondent engaged in predatory pricing – whether respondent supplied services in examination and assessment in the CA certification market on the condition that candidates acquire support services from the respondent – whether there was the purpose or effect of substantially lessening competition for s 47 of the Trade Practices Act 1974 (Cth) – whether there was a relevant provision for s 45 of Act – whether there was the relevant purpose or effect for s 45 of Act – whether s 51AC of Act applies where there was no supply or acquisition of goods or services as between respondent and applicant – whether conduct of respondent unconscionable

WORDS AND PHRASES – “market”

Trade Practices Act 1974 (Cth)  ss 4, 45, 46, 47, 51AC

Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 at 603 applied

Plimer v Roberts (1997) 80 FCR 303 at 305G, 310D, and 327A applied

Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177 at 202 applied and at 187-189 discussed

NT Power Generation Pty Ltd v Power and Water Authority (2001) 184 ALR 481 at 331 followed

International Salt Company v United States  332 US 392 (1947) at 395-396 cited

Melway Publications Pty Ltd v Robert Hicks Pty Ltd (t/as Auto Fashions Australia) (2001) 178 ALR 253 at [52] referred to

Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 35 FCR 43 at 62 referred to, at 66 applied

Warren v Coombes (1979) 142 CLR 531 cited

Abalos v Australian Postal Commission (1990) 171 CLR 167 distinguished

Minister for Immigration, Local Government & Ethnic Affairs v Hamsher (1992) 35 FCR 359 at 369 applied

Biogen Inc v Medeva PLC [1987] RPC 1 at 45 cited

Esso Australia Resources Ltd v Federal Commissioner of Taxation (1998) 164 ALR 293 cited

Parras Holdings Pty Ltd v Commonwealth of Australia [1999] FCA 391 cited

AktieBolaget Hassle v Alphapharm Pty Ltd (2000) 51 IPR 375 cited

Members of the Yorta Yorta Aboriginal Community v State of Victoria (2001) 180 ALR 655 cited

Dowling v Dalgety Australia Limited (1992) 34 FCR 109 at 139 followed

South Sydney District Rugby League Football Club Ltd v News Ltd (2001) 181 ALR 188 cited

Australian Competition and Consumer Commission v Boral Limited (2001) 106 FCR 328 cited

Re Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) 36 FLR 134 at 168 followed

SWB Family Credit Union Limited v Paramount Tourist Services Pty Ltd (1980) 48 FLR 445 at 454 followed

Trade Practices Commission v TNT Management Pty Ltd (1985) 6 FCR 1 at 50 followed

Tillmanns Butcheries Pty Ltd v Australasian Meat Employees’ Union (1979) 42 FLR 331 at 346-348 followed

Australian Competition and Consumer Competition v CG Berbatis Holdings Pty Ltd (No 2) (2000) 96 FCR 491 at 494-496 cited and at [5] to [28] referred to

Blomley v Ryan (1956) 99 CLR 362 cited

Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 cited

Louth v Diprose. (1992) 175 CLR 621 cited

Re Queensland Co-operative Milling Association Ltd (1976) 25 FLR 169 referred to

Eastman Kodak Co v Image Technical Services Inc 504 US 451 (1992) at 481 – 482 and 462 distinguished

Bannock et al  Dictionary of Economics 1998 at p.262

Professor Brunt  “Market Definition Issues in Australia and New Zealand Trade Practices Litigation” (1990) 18 ABLR 86 at p.96

MONROE TOPPLE & ASSOCIATES PTY LIMITED v THE INSTITUTE OF CHARTERED ACCOUNTANTS IN AUSTRALIA

N 1249 OF 2001

BLACK CJ, HEEREY AND TAMBERLIN JJ

19 JUNE 2002

SYDNEY

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

THE COURT ORDERS THAT:

1.                  The appeal is dismissed.

2.                  The appellant pay the respondent’s costs of the appeal including reserved costs.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

BLACK CJ:

1                     I have had the advantage of reading the separate reasons for judgment of Heerey J and of Tamberlin J.  I agree with their Honours that the appeal should be dismissed with costs.  

2                     I agree generally with the reasons for judgment of Heerey J, but in relation to some specific issues, I prefer to adopt what Tamberlin J has said.

3                     I agree with the observations of Tamberlin J about whether there was a Chartered Accountant (CA) certification market and about whether the conduct of the Institute of Chartered Accountants in Australia had the effect of substantially lessening competition in a market within the meaning of s 45(2) of the Trade Practices Act 1974 (Cth).  I agree with his Honour’s conclusions on those issues.  

4                     Although I can see the force of the reasoning of the learned primary judge that what is described as the PY (professional year) support market came to an end with the end of the professional year program and that a new CA support market came into being, I agree with Heerey J and Tamberlin J that the correct conclusion is that the market that previously existed for PY support services for the Institute’s certification qualifications was varied as a consequence of the new educational regime introduced by the CA requirements.

5                     I also agree with the additional observations made by Tamberlin J in relation to s 47(2) and s 47(10) of the Act.  

Associate:

Dated:              19 June 2002

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

HEEREY J:

Introduction

6                     The respondent The Institute of Chartered Accountants in Australia (the Institute or ICAA) is incorporated by Royal Charter.  Its members are entitled to use the description “Chartered Accountant” and the initials “CA”.  Persons seeking membership (Candidates) must have an appropriate University degree or equivalent academic qualification.  They must then pass examinations and assessments conducted by the Institute.

7                     For some years the Institute has provided training for Candidates.

8                     The appellant Monroe Topple & Associates Pty Ltd (MTA) together with, from time to time, some accounting firms and a university, has also provided such training.  MTA says there has developed in Australia a market for the provision of written course materials and other training support for Candidates (the CA support market).

9                     Between 1995 and 2000 the Institute, in respect of each of a number of subjects (called “modules”),

(i)                  issued a “Module Workbook” which contained, inter alia, the course description, textbook lists, workshop problems and other general information and some assessment tasks;

(ii)                conducted workshops and examinations;

(iii)               offered for sale, in competition with MTA and others, instructional and support material, principally a “Technical Guide” and also an “Examination Guide” and a “User Guide”.

10                  Up until 2000 the Institute charged an “enrolment fee” for the services and materials in (i) and (ii).  The Institute charged separately for each of the materials in (iii), Candidates being under no obligation to acquire them.

11                  In 2000 the Institute commenced supplying to Candidates all material required for a module (including instructional and support material) for no charge beyond the enrolment fee.

12                  MTA says that the Institute has and had the power to affect competition in the CA support market because it is a gatekeeper by reason of its exclusive right to enrol and assess Candidates.  Except for its gatekeeper role, the Institute could not require Candidates to purchase anything from it.  Moreover, the charge now made (the enrolment fee) was less than the cost to the Institute of providing the relevant materials and services.  The Institute has thus engaged in predatory pricing.

13                  MTA asserts that the conduct of the Institute in bundling together material and services previously the subject of separate charges, and in fixing its charge at less than cost, contravenes ss 45 and 47, or alternatively s 45, of the Trade Practices Act 1974 (Cth) (the Act) and is also unconscionable conduct within the meaning of s 51AC of the Act.

14                  MTA’s claim was dismissed by the trial judge (Lindgren J):  [2001] FCA 1056.  MTA now appeals. 

The Institute

15                  The Institute was incorporated by Royal Charter on 19 June 1928.  There have been a number of supplemental Charters, the most recent being granted on 23 August 2000.  The principal objects of the Institute as contained in its Charter include the following:

“3(a)   to advance the theory and practice of accountancy in all its aspects;

    (b)  to recruit, educate and train a body of members skilled in such theory and practice”.

The Institute also has by-laws and regulations.

16                  In Australia there is no statutory regulation of the accountancy profession or restriction on the use of the description “accountant”, although some of the functions carried on by accountants are subject to statutory regimes such as those dealing with company liquidators, bankruptcy trustees, auditors and tax agents.  However, the badge of membership of a professional accounting body is important in the market for the provision of accounting services.  The two major bodies in Australia are the Institute and CPA Australia (the Society), formerly known as the Australian Society of Certified Practising Accountants.  There are some other smaller bodies including the National Tax and Accountants Association and the National Institute of Accountants.  The Institute has some 35,000 members and the Society approximately 90,000 to 100,000. 

17                  Membership of the Institute requires, in addition to academic qualification, the completion of a practical training program prescribed by the Institute.  Up until 2001 this was known as the Professional Year Program (PY Program) and thereafter the CA Program.  In addition a Candidate must complete three years full time, or the part time equivalent, in practical experience mentored by a chartered accountant in a work environment approved by the Institute.

18                  On applying to become a member of the Institute a Candidate must pay a prescribed application fee as well as the initial membership subscription.  As already mentioned, membership entitles a person to use the designation “Chartered Accountant” and the initials “CA”: Charter, Art 16.  By-law 32(a) provides for the Institute to issue a certificate of membership.  The form of certificate names the person as being admitted to membership of the Institute on the date specified and states that the person “is entitled to use the initials CA”.  It was common ground in the present case that only the Institute could permit the use of the description Chartered Accountant or the initials CA and that it would be entitled to restrain unauthorised use.

The Institute’s PY Program

19                  The Institute introduced the PY Program in 1972.  Notwithstanding its name, the PY program would normally be completed over a period of one and a half years within the three year period of mandatory supervision by a chartered accountant.  Up until 2000 the modules were Accounting 1, Accounting 2, Taxation and Ethics, all of which were “core” modules, and a range of electives.  A Candidate did not enrol in the PY Program as such; enrolment was in the individual modules. Prerequisites and requirements of the PY Program (and the CA Program which replaced it) were set out in the Institute’s regulations. Assessment of Candidates in the PY Program was heavily weighted towards examination, which counted for  85 per cent of the maximum achievable mark, the remaining 15 per cent being attributed to performance in workshops.

Other providers of PY Program support

20                  Prior to 1995 some State branches of the Institute provided what his Honour called “a modicum” of assistance to Candidates, such as lectures by members and booklets called “Aspects to Consider Kits”.  But this was uneven as between States.

21                  In the mid to late 1980s and early 1990s some of the larger accounting firms developed materials to assist their employees who were Candidates and, in some instances, for sale to Candidates generally.  PY support became an important recruitment tool as a means of attracting the best university graduates to a particular firm.  Smaller firms were not in a position to offer this benefit.  By 1995 KPMG  had developed PY support materials which it provided for its own employees and others. Two other firms of chartered accountants, Panel Kerr Foster and Hall Chadwick, did likewise.  The Queensland University of Technology (QUT) supplied PY support services to Coopers & Lybrand for Candidates employed by that firm.

22                  In late 1993 and early 1994 Mr Barry Topple, who had been active in providing training for accountants seeking admission to the Institute of Chartered Accountants in England and Wales, took steps towards commencing a similar business in Australia.  Together with Professor Gary Monroe of Western Australia he established MTA.  By 1995 MTA was providing PY support services to Arthur Andersen, Deloittes, Price Waterhouse and Ernst & Young.  KPMG continued to provide such services to its own employees and Coopers & Lybrand used the services of QUT.  MTA also provided PY support services to employees of smaller accounting firms.  His Honour found that MTA “provided PY support services to a substantial number and proportion of the candidates enrolled in modules in the PY Program”.

23                  As already mentioned, in 1995 the Institute commenced to sell support material to students in competition with MTA and the other providers.  Before turning to the detail of this development, reference might be made to an observation of his Honour (speaking of the post 1995 period):

“The evidence suggests that ICAA thought the module booklet, workshops and the source and reference materials to which candidates were referred were sufficient to permit them to master the PY modules.  According to the evidence, “one of [ICAA’s] primary educational philosophies [was] to develop in Candidates the ability to identify and solve problems [and to require] Candidates to learn how to search for information, distil the important aspects of that information and then use it appropriately”.  ICAA saw rote learning, the provision of “the correct answers” for candidates to learn, and general “spoonfeeding” as antithetical to its educational philosophy.  But a conflict between that philosophy and market forces explains, at least partly, the recent developments which have given rise to this proceeding.”

 Provision of PY support by the Institute

24                  In November 1994 the National Education Committee of the Institute (NEC) recommended to the Institute’s Executive that:

1.         The ICAA:

(i)                 issue a strong formal statement that technical courses offered as PY support, while useful for some candidates, are not essential to pass the PY.  This is because the PY syllabus and module material is developed to enable candidates to appropriately prepare for the assessment requirements of the module. 

(ii)               reinforce this statement by not directly providing technical support courses in any State. 

2.         State branches continue to offer PY support in the form of

·        co-ordination of study groups

·        counselling of candidates

·        co-ordination of Aspects to Consider Kits

·        sales of past examination papers.

25                  In an accompanying recommendation from the Institute’s Director, Education (Mrs Gillian Cappelletto) it was noted that there had been a reaction from small firms recruiting graduates.  These firms believed that they were being disadvantaged because they were not receiving the same support as those in the Big Six (i.e. Price Waterhouse, Coopers & Lybrand, KPMG, Deloittes, Ernst & Young and Arthur Andersen – with the merger of the first two these large firms have since become the Big Five).  Mrs Cappelletto noted that in order to achieve an equitable environment for all Candidates the Institute in most States had started to provide PY support and that support varied from State to State.  She commented on the cost to the Institute of this and the “mind-set of candidates” to the effect that they believed that PY support was absolutely necessary and were putting pressure on their employers to provide it.  She noted the number of private providers “who have now come into the market” in particular MTA, who “have been very active”, QUT, Pannell Kerr Foster and Hall Chadwick. 

26                  On 28 November 1994 the Executive Committee considered the report.  As to the recommendation for a formal statement that technical courses offered as PY support were not essential, the Committee called for further information and research. In January 1995 Mrs Cappelletto reported on a survey among Candidates. This showed 60 per cent worked for Big Six firms which undertook internal PY support while the remaining 40 per cent were “the market for PY support”. The report stated there were at least four external providers who could capture the balance of the market (the 40 per cent) and that strong marketing by at least one of the four, MTA, would “no doubt increase demand”. The report set out some “major concerns”, including the “mind-set of Candidates which has developed regarding the necessity of PY Support” and the “desire of Candidates to use PY Support to reduce research and problem solving components of the PY”.

27                  In 1995 there was a change in the policy of the Institute.  Following a further report by Mrs Cappelletto to the NEC on 30 March, and commencing with the Accounting I module in July, the Institute made available a three part package of support material as follows (the descriptions of contents, and the recommended prices, come from Mrs Cappelletto’s report):

·        PY-  A User’s Guide (a brief guide to the PY, not specific to any particular module, about 12 pages in length and “an outline of how to approach the PY and achieve success”). Price $15

·        PY – A Technical Guide: Accounting I (specific to that module and drawn from the previous year’s module reorganised to a topic by topic structure with cross referencing where necessary, each topic having a short introduction and specific reference to text (including page numbers), Accounting Standards, and legislative provisions, followed by questions from the previous year and answers drawn from the group leader’s technical guidance notes, enhanced for use by candidates).  Price $80.

·        PY – An Examination Guide: Accounting I (about forty pages in length, a full guide to the examination including tips on preparation as well as previous examination questions, with a topic by topic structure and suggested answers together with general comments including extracts from the examiner’s comments, this to in effect replace the Aspects to Consider Kits).  Price $20.

28                  The move by the Institute into the PY support market provoked opposition from existing participants.  For example, on 11 May 1995 Hall Chadwick wrote to Mrs Cappelletto protesting at the Institute competing directly with its own members.  The firm pointed out that the Institute was “contradicting its own advice to candidates that PY support was not essential to their success by institutionalising the delivery of the support that, by the Institute’s own statements, the candidates don’t really need”. On 1 August 1995 Mrs Cappelletto wrote to MTA, Hall Chadwick and QUT advising that the Institute’s first offer of PY support materials was in respect of Accounting I and that the materials were being sold through the Institute’s bookshops.  The letter included the following:

“We have entered the market with some degree of uncertainty and I appreciate the impact that we may have on your material.  We have however, made our decision based on members’ requests and have done so only after careful consideration.  At this stage, we do not intend to provide any face to face delivery to support the written materials.”

29                 In December 1995 a “PY Review Task Force” presented its report to the Executive Committee of the Institute.  The report recommended that any changes to the PY format be limited to “fine tuning rather than radical change”. It recommended that the NEC be requested to monitor, inter alia, “PY support by external providers and the impact on the firms and the PY”.  In connection with this recommendation, the Report stated as follows:

“PY Support has been an issue much discussed in the last 12 months and has a big impact on the total cost of the PY to firms.  It is recognised that PY Support was initially developed by firms to assist candidates with the PY but also to create recruitment advantages.  Over time, the perception that PY Support is necessary has grown and the long term impact of the additional cost is of concern.  The entry of the ICAA into the PY Support market at a relatively low cost is endorsed and further work by the National Education Committee to ease the burden of PY Support would be positive.

Cost of the PY will have an impact on demand and the ICAA is able to control the direct cost of modules and the number of modules.  It has some impact on the time taken by candidates to prepare modules but virtually no impact on a number of other costs (eg internal support programmes, study leave).”

30                  As his Honour noted, the report made reference to the Institute’s “competitive edge” in attracting graduates to the Institute rather than the Society.  In his Honour’s view the Task Force “clearly saw (the Institute) as being in competition with the Society”. 

31                  In 1996 the Institute provided a background paper to Managing Partners of the Big Six.  This proposed two major changes.  The first was a trial of computer based training to be provided by the Institute in the Ethics module in 1996 with a view to being introduced into Accounting I in March 1997, then progressively into the other modules in 1997/1998.  The second was the provision of supplemental support by seminars if required.The background paper stated the following “Advantages” which the proposed changes offered to the Big Six:

“1.       Overall saving for firms.  Currently most of the Big 6 are providing PY Support with different cost structures in each firm.  The ICAA provision of this material in the module folder is very cost effective as the costs would be spread over the full complement of candidates.  For Tax 1996 the total enrolment is 2695.

2.         The introduction of interactive Computer Based Training which would apply to a number of topics in each module, means that candidates, when working through exercises, receive automatic feedback including explanations.  This could not only save candidates substantial time working through materials but also will make workshops more productive as group leaders would be able to focus on issues rather than achieving a ‘correct’ answer.

3.         Currently, there are a number of PY Support providers in the market and many candidates are photocopying everything that is available.  This is expensive for firms in terms of photocopying and also for some candidates as it adds to the time spent on the module (sometimes in a non productive way) and often increases the level of anxiety.

This structure would give the Big 6 the opportunity to discontinue the current PY support.  Although the ICAA would increase the module cost by approximately $120, this would include the cost of the support and Computer Based Training and would represent a substantial saving compared to the current PY support costs.  If additional optional seminars were required, a fee would need to be determined for this service.”

32                  One reaction to the background paper was an internal e-mail from Susan Henry of Deloittes to Ian Blair of that firm.  As his Honour noted, Ms Henry’s understanding summarised the case MTA sought to make in the present proceeding. (Ms Henry is speaking in relation to a meeting she had with Stephen Harrison, Executive Director of the Institute):

“Ian, from my meeting with Stephen I understand that the Institute is looking to capture the lucrative market for outsourced PY support.  The impetus comes from a push by small firms who say they can’t afford the sort of support provided by the Big 6  and the (Institute) wanting a piece of the pie so to speak.  The only caveat being the Institute doesn’t want to compete with the other external providers, they want to provide the service on a monopoly basis and need a commitment that all Big 6 firms will agree to this.

To achieve the above the Institute will bundle up its support service with enrolment in each PY module and argue that they can’t be unbundled and sold as separate services.  Thus they will become the external provider of PY support for all PY participants.”

33                  The e-mail goes on to note that Deloittes were “very happy” with the services of MTA.  The cost was about $500 per person per module which was significantly less than it would cost to produce the service in-house and pass rates had improved significantly in the three years Deloittes had been using MTA.  She concluded:

“My view is that if the Institute can provide a quality, cost effective service and we can maintain our pass rates, I don’t see any problem using them.  I do however, think their product should speak for itself and compete on the market with other providers.”

34                  On 4 July 1996 Mr John Harvey of Price Waterhouse spoke to Mr Harrison who made the following note of the conversation:

“(Price Waterhouse) are quite happy for the Institute to sell PY material but they would not be happy if this were done in a monopolistic situation.  They would wish to see the Institute compete in the marketplace.  In making this comment (Mr Harvey) added an interesting suggestion that if the use of computer based teaching was built into the PY support material, its costs could be built into the price and would give us a competitive edge in the marketplace.  Certainly (Price Waterhouse) would be very interested in the development of computer based teaching for the PY.”

35                  On 7 August 1996 MTA wrote to Mr Harrison a letter which included the following:

“It has come to our attention that the Institute has advised a number of parties that it intends to require all PY candidates to purchase its preparation materials when they enrol in a module and that it will do so by including the cost of such materials in the cost of the module which will be appropriately increased.  Consequently, when a PY candidate enrols in a module, he or she or his or her employer will be forced to pay an additional amount on top of that currently payable which is referrable to the provision of your preparation materials.

We are concerned that your proposal will have significant and detrimental impact on the ability of our organisation to compete with you in the market for preparation materials.  It is our view, and we understand also yours, that by requiring that a candidate pay for your materials and by increasing the cost of the module the candidate or his or her employer will almost certainly not be likely to purchase our preparation materials, notwithstanding that they are significantly different from yours.”

36                  The letter asserted that the Institute proposal would constitute contravention of the provisions of Pt IV of the Act.  The Institute replied on 22 August 1996 advising that it was not its current intention to include the printed PY support material within the existing PY module.

37                  The Institute continued to conduct further internal reviews of its PY program. Meanwhile in May 1997 in its journal “Charter” the Institute advertised its PY support material.  The advertisement was headed:

“Why Would You Go to Anyone Else But the [Institute] for your PY Support Material?”

38                  The advertisement described the contents and quoted the prices for the User’s Guide, the Technical Guide and the Examination Guide.  It was stated that the three guides could be purchased as a pack or individually.  Another advertisement posed the question: “Who would know more about what material is relevant to the PY than those responsible for actually constructing the program?  The answer of course is nobody”. 

39                  In November and December 1997 Mr Topple wrote to the Institute complaining about the approach the Institute was adopting in relation to its involvement in the provision of market support such as refusal to release information about enrolment closing dates.

Change from PY Program to CA Program

40                  In April 1998 Mrs Cappelletto finalised on behalf of the NEC a “Detailed Background to Concept Paper - PY Post 2000”. Under the heading “Technologies for Learning” the document stated:

“Our instructional design would be aligned to the following delivery modes simultaneously:

·        Internet web site including chat groups

·        CDROM

·        written documents

·        focus session delivery [workshops]

·        examination.

It is anticipated that the written documentation will be transferred onto a  CDROM for each of the 5 principal core modules and supplemented with interactive current data, maintained on the Internet interface in a website.

All of the written material would be combined into one package per core area, including the module outline, technical guide and exam guide.  …  The legal advice received seems to indicate that provided there is no increase in fees, there would not be a problem in relation to restraint of trade.  The advice will need to be further [the sentence finishes here].”

.  .  .

The recruitment and training of authors and focus session leaders will be critical to a successful delivery of proposed structure and content.  Resources will be required for training and recruitment of authors and focus session leaders and an educational/instructional design resource to monitor and advise on the programme delivery.

The management of authors and focus session leaders will need to be reviewed.  To assist recruitment, marketing the benefits of leading focus sessions will need to be addressed.  Possible incentives include ‘customer loyalty programmes’ with CPE [Continuing Professional Education] rewards or reviewing the CPE hours awarded for PY activities.  Also there may need to be incentives to attend focus session training.”

41                  Shortly afterwards the NEC released a Discussion Paper (written by Mrs Cappelletto).  In the Executive Summary the following proposals were made:

·          preliminary segments on non-technical skills be offered during pre-requisite work experience;

·          three modules comprising core technical content develop required skills including some emphasis on non-technical skills;

·          a final integrative module be undertaken prior to admission to membership;

·          specialist education be developed post-admission;

·          materials provided to candidates be enhanced and incorporate innovative technologies;

·          electronic chat groups be introduced;

·          workshops be restructured and assessment methodologies adjusted;

·          total time commitment and cost be comparable to the current program;

·          the new program be called the CA Program;

·          a provisional membership category for graduates be considered.” 

42                  Recommendation 6 was “Style of materials provided to candidates to be more structured and more comprehensive”.  In respect of this the Discussion Paper stated:

“The package will include:

·        integration of the current module material [that is, the module which was provided upon enrolment without charge beyond the enrolment fee] and support materials [that is, the Technical Guide and Examination Guide which candidates might buy if they wish]

·        multi media products e.g. interactive computer based training

·        detailed learning outcomes and evidence guide, on a topic basis, to allow candidates to improve their understanding of the syllabi and to self-assess that the outcomes have been achieved

·        positive and personalised language which expresses the [Institute’s] values.

43                  Recommendation 11 was “Cost to be comparable to current program”.  It was stated:

“Despite the plan to introduce innovative delivery methodologies and more comprehensive materials, the reduction in selection of modules would mean that the overall cost of enrolment and the full CA Program would remain comparable to the PY.  This is very high value for money compared to other post graduate courses.”

44                  Some 4000 copies of the Discussion Paper were distributed throughout the profession. Big Six firms provided varying responses. On 4 June 1998 KPMG (itself a supplier of PY support services) wrote saying, inter alia:

“The final concern … is that the provision of Institute materials is likely to drive other providers from the market, leaving the Institute in a monopoly position.”

Coopers & Lybrand and Price Waterhouse (then in the process of merging) and Arthur Andersen wrote in generally approving terms.  Ernst & Young thought the proposal would “stop candidates gathering other notes” and that the firm “encourage(d) people to look at other materials”.   Deloittes thought the provision of “focused material by external providers or other sources not (to be) a disadvantage”.  They did not believe the proposal to be an effective use of the Institute’s resources and considered it unlikely the Institute would stop Candidates from “seeking other sources of additional study material”.

45                  On 24 July 1988 the NEC recommended that the National Council of the Institute approve the proposed introduction of the new CA Program. The form of the recommendations differed only slightly from those advanced in the Discussion Paper.  Recommendation 6 contained an addition to the effect that the style of the materials was to be “more candidate focused and with more opportunities for feedback to candidates”.  At its meeting on 27/28 September 1998 the National Council resolved:

“1.       A new post-graduate admission program be introduced to replace [his Honour’s emphasis] the Professional Year Programme with implementation commencing in 2000.  This program is to be developed to ensure that there is no reduction in the international recognition currently enjoyed by the PY.

2.         The new program will include the following features:

(a)       Preliminary segments on non-technical skills to be offered during the 52 weeks pre-requisite service period.

(b)   Three modules which develop higher order skills within a technical context.

(c)        A Final Integrative Module with emphasis on generic skills.

(d)       Specialisation to be provided through CPE (including Strategic Alliances) consistent with the CPE for Life Matrix proposed by the 21C Report.

(e)        Changes should take into consideration the strengths/ weaknesses of the current PY.

(f)        Style of materials provided to candidates and delivery to be more structured, more comprehensive, more candidate focused and with more opportunities for feedback to candidates.

(g)       New technologies to be incorporated where appropriate.

(h)       Internet applications to be incorporated, where appropriate, including opportunities for feedback and communication with other candidates and group leaders.

(i)                     Workshops to be restructured into Focus Sessions to provide candidates with an improved learning environment.

(j)                    Total time commitment to be comparable to current programme.

(k)                    Cost to be comparable to current program.

(l)                     Admission program should be called the CA Program.”

46                  Introduction of the new CA Program was delayed pending a vote on a proposed merger with the Society which took place in December 1998.

47                  On 1 July 2000 the Institute introduced a transitional module called “Capstone”, a consolidation of the elective modules offered in the PY Program.  For the 2000/2001 year the PY Program would consist of Accounting I, Accounting II, Taxation, Ethics and the Capstone module. The latter was offered for the last time at the end of 2001.  The new CA Program would consist of five modules:

·        CA Foundations

·        Three technical modules

-     Financial Reporting and Assurance

-         Taxation and Financial Reporting

-         Strategic Business Management

·        Final Integrative Module

CA Foundations was to be a prerequisite of the other modules.  The three technical modules could be completed in any sequence, but satisfactory completion of all three was to be a prerequisite for the Final Integrative Module.  Assessment for CA Foundations was to be:

·        Extension work 25 per cent

·        Focus sessions 40 per cent

·        Examination 35 per cent

For the three technical modules the percentages were to be:

·        Extension work 20 per cent

·        Focus sessions 30 per cent

·        Examinations 50 per cent

48                  For the Final Integrative Module the form or forms of assessment had not been finally determined at the time of the hearing.  His Honour accepted for the purpose of the proceeding a table prepared by Mrs Cappelletto which set out what she described as the main differences between the PY and CA Programs:

49                  The change in fees charged by the Institute was as follows.  In the year ending 30 June 2000 the enrolment fee was $690 for a PY technical module and $715 for the new Capstone module. In addition Candidates had the option of buying, for each technical module, the Technical Guide for $120 and the Examination Guide for $22. As from July 2000 these two publications were not offered for sale.  The Institute charged $720 for each PY module and, as the CA modules were introduced, $730 per module.

Legislation

50                  The following are the relevant provisions of the Act, set out in the sequence in which they are referred to in the further amended statement of claim :

“Section 46 – Misuse of market power

(1)       A corporation that has a substantial degree of power in a market shall not take advantage of that power for the purpose of:

(a)       eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;

(b)        preventing the entry of a person into that or any other market; or

(c)        deterring or preventing a person from engaging in competitive conduct in that or any other market.

(1A)     …

(2)       …

(3)       In determining for the purposes of this section the degree of power that a body corporate ... has ... in a market, the Court shall have regard to the extent to which the conduct of the body corporate ... in that market is constrained by the conduct of:

(a)       competitors, or potential competitors, of the body corporate ... in that market; or

(b)        persons to whom or from whom the body corporate ... supplies or acquires goods or services in that market.

(4)       In this section:

(a)        a reference to power is a reference to market power;

(b)       a reference to a market is a reference to a market for goods or services; and

(c)        a reference to power in relation to, or to conduct in, a market is a reference to power, or to conduct, in that market either as a supplier or as an acquirer of goods or services in that market.

            . . .”

51                  The case has been argued on the basis that the various markets propounded are markets for services.  Section 4 of the Act defines “services” as including

“… any rights (including rights in relation to, and interests in, real or personal property), benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce, and without limiting the generality of the foregoing, includes the rights, benefits, privileges or facilities that are, or are to be, provided, granted or conferred under:

(a)        a contract for or in relation to:

(i)         the performance of work (including work of a professional nature), whether with or without the supply of goods;

(ii)        the provision of, or the use or enjoyment of facilities for, ... instruction; or

…

but does not include rights or benefits being the supply of goods or the performance of work under a contract of service;”

52                  Section 4E of the Act provides, relevantly, as follows:

“For the purposes of this Act, unless the contrary intention appears, market means a market in Australia and, when used in relation to any … services, includes a market for those … services and other … services that are substitutable for, or otherwise competitive with, the first-mentioned … services.”

53                  Section 4F of the Act provides relevantly as follows:

“(1)     For the purposes of this Act:

(a)        ...

(b)        a person shall be deemed to have engaged or to engage in conduct for a particular purpose ... if:

(i)         the person engaged or engages in the conduct for purposes that included or include that purpose ... ; and

(ii)        that purpose ... was or is a substantial purpose ... .”

54                  Section 47 – Exclusive dealing

“(1)     Subject to this section, a corporation shall not, in trade or commerce, engage in the practice of exclusive dealing.

(2)        A corporation engages in the practice of exclusive dealing if the corporation:

(a)        supplies, or offers to supply,… services;

                                …

on the condition that the person to whom the corporation supplies, or offers or proposes to supply, the … services …:

(d)        will not, or will not except to a limited extent, acquire… services, or … services of a particular kind or description, directly or indirectly from a competitor of the corporation …

…”

55                  The definition of “services” in s 4 of the Act has already been noted.  Section 47(10) provides relevantly as follows:

“Subsection (1) does not apply to the practice of exclusive dealing constituted by a corporation engaging in conduct of a kind referred to in subsection (2) ... unless:

(a)               the engaging by the corporation in that conduct has the purpose, or has or is likely to have the effect, of substantially lessening competition; ...”

56                  Section 47(13) defines certain terms used in s 47. Section 47(13)(a) and (b) provide relevantly as follows:

“In this section:

(a)        a reference to a condition shall be read as a reference to any condition, whether direct or indirect and whether having legal or equitable force or not, and includes a reference to a condition the existence or nature of which is ascertainable only by inference from the conduct of persons or from other relevant circumstances;

(b)        a reference to competition, in relation to conduct to which a provision of this section ... applies, shall be read as a reference to competition in any market in which:

(i)         the corporation engaging in the conduct ... ;

. . .

supplies ... or is likely to supply ... services or would, but for the conduct, supply ... , or be likely to supply ... services; ...”

57                  Section 45 – Contracts, arrangements or understandings that restrict dealings or affect competition

“(1)     . . .

(2)       A corporation shall not:

(a)        make a contract or arrangement, or arrive at an understanding, if:

(i)         …

(ii)        a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or

(b)        give effect to a provision of a contract, arrangement or understanding, ... , if that provision:

(i)         . . .

(ii)        has the purpose, or has or is likely to have the effect, of substantially lessening competition.

(3)       For the purposes of this section ... “competition”, in relation to a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding, means competition in any market in which a corporation that is a party to the contract, arrangement or understanding or would be a party to the proposed contract, arrangement or understanding, ... , supplies ..., or is likely to supply ..., …  services or would, but for the provision, supply ..., or be likely to supply ..., … services.

(4)       For the purposes of the application of this section in relation to a particular corporation, a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding shall be deemed to have or to be likely to have the effect of substantially lessening competition if that provision and any one or more of the following provisions, namely:

(a)        ...

(b)        the provisions of any other contract, arrangement or understanding or proposed contract, arrangement or understanding to which the corporation ... is or would be a party;

together have or are likely to have that effect.”

58                  Section 4F of the Act provides relevantly as follows:

“(1)     For the purposes of this Act:

(a)        a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding, ..., shall be deemed to have had, or to have, a particular purpose if:

(i)         the provision was included in the contract, arrangement or understanding or is to be included in the proposed contract, arrangement or understanding, ..., as the case may be, for that purpose or for purposes that included or include that purpose; and

(ii)        that purpose was or is a substantial purpose; and

            (b)        ...”

59                  Section 51AC – Unconscionable conduct in business transactions

“(1)     A corporation must not, in trade or commerce, in connection with:

(a)        the supply or possible supply of… services to a person ... ; or

(b)        …

engage in conduct that is, in all the circumstances, unconscionable.

            . . .”

MTA’s case

60                  Before the trial judge and on appeal MTA contended that in respect of the Capstone module in 2000 and the CA Program modules in 2001 the Institute supplied to Candidates, at no additional cost to the enrolment fee, certain training materials.  By conditioning enrolment for examination on the acceptance of such material, either at all or at one price, the Institute foreclosed competition between it and MTA and services in the CA support market.  The relevant provisions of the Act were contravened in the following ways.

In terms of s 46:

(i)         There was a market for the supply of the service of admission to membership of the Institute of persons as chartered accountants (the CA certification market).  The Institute was the sole provider of services in this market.

(ii)        There was also a market for the supply of certification as a member of a learned body of accountants (the certification market) in which the Institute and the Society and some smaller bodies were the providers of services.

(iii)       There was also a market for the provision of written course materials and other training support for Candidates (the CA support market).

(iv)       The Institute had a substantial degree of power in the CA certification market and the certification market.

(v)        The Institute took advantage of its power in the CA certification market and/or the certification market by not permitting the supply of the services of enrolment, examination and certification to be separately priced or unbundled from the supply of support services.

(vi)              Further, the pricing of support services by the Institute was predatory in that such services were ostensibly supplied at no cost to candidates so that the price was below the separate cost of production and delivery of the services.

(vii)             The purpose, or a substantial purpose, of the Institute was to:

(A)              eliminate or substantially damage competitors of the Institute in the CA support market; and/or

(B)              to deter or prevent persons from engaging in competitive conduct in the CA support market.

(viii)      As a consequence MTA has suffered loss and damage, including Arthur Andersen, Deloittes and PricewaterhouseCoopers declining to renew contracts with MTA.

In terms of s 47:

(i)                  The Institute has supplied and offered to supply in the CA certification market and the certification market services of examination and assessment to Candidates.

(ii)                In relation to the Capstone module in 2000, and the CA Program modules in 2001 and thereafter, the Institute has supplied its services of examination and assessment on the condition that Candidates must acquire, in addition to those services provided by the Institute, support services, including written module course materials, from the Institute.

(iii)               Because of the unilateral and compulsory supply by the Institute of support material at no apparent cost to Candidates, such supply is on condition that Candidates will not, or will not except to a limited extent, acquire support material from MTA, which is a competitor of the Institute.

(iv)              The engaging by the Institute in such conduct has the purpose or effect of substantially lessening competition.

In terms of s 45:

(i)                  The Institute made a contract or arrangement with each Candidate proposing to undertake the Capstone module.

(ii)                A provision of each contract or arrangement was that the Candidate would be supplied with and must acquire, in consideration of the compulsory fee paid to the Institute support services, including written module course materials, from the Institute at no separate fee and may not elect to receive those services and not to pay so much of the fee as properly relates to the supply of those services.

(iii)               The making or giving effect to such contracts and arrangements had the purpose, or had or would be likely to have the effect, of substantially lessening competition.

In terms of s 51AC:

(i)                  The Institute has used its monopoly position in the CA certification market to intercept potential transactions between candidates and external suppliers of CA support services such as MTA.

(ii)                The conduct of the Institute denies Candidates freedom of choice as to the quality of training.

As to remedies:

In relation to the Capstone module and the CA Program modules

(i)                  the Institute should be restrained from:

(A)              including “module course study materials within the core course outline and other explanatory materials” provided by the Institute to Candidates

(B)              charging a fee to Candidates such that “support services, including module course study materials, are included within the module fee”;

(ii)                the Institute should be required to “determine and separately charge candidates a commercial price for its support services, including module course study materials”.

Declarations, damages, interest and costs were also sought.

Decision of the primary judge

61                  His Honour held that the educational and training functions supplied by the Institute in connection with its CA Program (as distinct from the admission of Candidates into membership and the certification of persons so admitted) constituted the provision of services in trade or commerce.

62                  His Honour made the following findings as to the various markets alleged.  MTA had not established the existence of the CA certification market because there was absent the essential element of potential competition and potential substitutability in respect of the services provided in such alleged market.  However, there was a certification market in which at least the Institute and the Society participated as competitors.  As to the alleged CA support market, there was a PY support market which came to an end with the end of the PY Program.  There has arisen “a new CA support market (strictly so-called)”. 

63                   As to market power, in the market found to exist (the certification market) the Institute did not have a substantial degree of power because it was constrained by the Society.

64                  If, contrary to his Honour’s finding, there was a CA certification market, the Institute did not have a substantial degree of power in that market because its dominance arose by reason of its legal right, conferred by its Charter, alone to determine who should be admitted to membership of itself and therefore permitted to use the description “Chartered Accountant” or the letters “CA”.

65                  If the Institute had a substantial degree of power in the certification market or the CA certification market, it had not taken advantage of such power because, as already stated, it was doing no more than exercising its legal rights under the Charter.

66                  The Institute did not have the purpose of eliminating or substantially damaging competitors in the CA support market or deterring or preventing persons from engaging in competitive conduct in that market.  In adopting the CA Program in place of the PY Program, the Institute’s purpose was rather to have an education program which, as the Institute saw it, was “in accord with societal expectations of a chartered accountant”.  The Institute “simply gave little thought” to the effect the change would have on the commercial interest of providers of PY support such as MTA.  Its concern was only to cover cost.  The Institute’s subjective purpose was to improve the standard of its pre-admission educational program in the interests of Candidates, present and future members of the Institute and their present and future clients.

67                  His Honour did not accept that the CA support materials in large part repeated PY support materials which the Institute had previously offered for sale separately from enrolment.  CA Program support provided much more than written material and included, for example, the opportunity to participate in focus groups and receive feedback.  MTA had not established that there was substantial replication and repetition of its material.  Taking as an example the CA Program Candidate Learning Package for Financial Reporting and Assurance, this was “substantially new” in comparison with the former PY Program modules.

68                  Moreover, the Institute was a non-profit association.  It was not predatory pricing for it, in the implementation of its Charter objects, to sell its materials to candidates at cost, even though the effect of doing so may be to limit or even prevent the development of a CA program support market. 

69                  For the foregoing reasons the s 46 claim failed.

70                  As to s 47, his Honour repeated his earlier findings that there was no CA certification market, that the PY support market had ended and “a new CA support market (strictly so called)” had come into being, and that the Institute did not act for any of the anti-competitive purposes mentioned.

71                  Further, it was not a condition of the contract between the Institute and Candidates that a Candidate would not acquire CA support services other than those supplied by the Institute itself as part of the consideration for which the enrolment fee was paid.  It was not sufficient to show merely that a likely consequence of a corporation supplying services is that the acquirer will not acquire substitutable services from its competitors.

72                  Moreover, s 47 did not, in his Honour’s view, catch a condition that the acquirer acquire goods or services from the same supplier.  The issues of the purpose or effect of substantially lessening competition therefore, his Honour said, did not arise: [236]-[238].  Nevertheless, he went on to express the view that there was not the purpose, or likely effect, of substantial lessening of competition in what his Honour had characterised as “the new CA support market (strictly so called)”.  His Honour said (at [243]):

“That market is not one in which there existed any competition able to be lessened.  The recent creation of the CA Program has apparently created such a market, if a limited one.  The prohibited practice of exclusive dealing is not established by the circumstance that ICAA has not made possible the development of a new market for support services as extensive as the PY support market”.

73                  The s 45 claim failed for the same reasons.

74                  As to unconscionable dealing, s 51AC only applied to transactions between a “supplier” and a “business consumer”.  The expression “in connection with” in s 51AC requires that the conduct impugned “accompany, go with or be involved in” the supply of goods or services and it was not sufficient that, as alleged in the present case, such supply be the occasion of unconscionable conduct of the supplier to an unrelated third party with whom the supplier has no dealings at all.

75                  In any case, there was no serious misconduct, or conduct showing no regard for conscience or what was right or reasonable.  The Institute’s change of training requirements may have had the effect of disappointing the expectations of those who had the business of selling PY support services, but that fell short of unconscionable conduct.

Section 46(1): Was the Institute’s supply of education and training in connection with its CA Program the provision of services in trade and commerce?

76                  As already noted, his Honour found in favour of MTA on this issue.  The Institute by notice of contention attacked this finding.

77                  His Honour found that the Institute sells education and training students to many Candidates “for a very substantial monetary return on a highly organised, systematic and ongoing basis”.  The Institute did not contend that there was no evidentiary basis for that conclusion (indeed the most recent figure for PY Program revenue, the 2000 financial year, was $7,883,000).  His Honour continued (at [139]):

“While it may not be necessary that all of those features be present in order to satisfy the expression ‘in trade and commerce’, the presence of all of them makes it clear that the expression is satisfied in this case.”

78                  I agree with his Honour’s conclusion.  His Honour, in my view correctly, rejected the argument that because the Institute was a non-profit organization and conducted its PY Program and CA Program education only seeking to recover costs it was necessarily not conducting those activities in trade or commerce.  What is important in this context is not the profit making or non-profit making status of the entity or whether, for whatever reason, it does or does not obtain a profit or desire to make a profit from the activities in question.  Rather, attention must be focussed on the nature of the activities themselves.  The expression “in trade or commerce” in Part IV of the Act, as well as in s 52, “ … can be construed as referring only to conduct which is itself an aspect or element of activities or transactions which, of their nature, bear a trading or commercial character”: see Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 at 603.  The provision, for reward, of training and education services, if carried on systematically, is a trading and commercial activity.  Everyday examples are the provision of education and training in relation to foreign languages, or English, or skills such as cooking or photography, or sports such as golf or tennis.

79                  As his Honour noted, the Full Court in Plimer v Roberts (1997) 80 FCR 303 drew a distinction between, on the one hand, the selling of door tickets, video tapes and audio cassettes in relation to lectures about Creationist theory and Noah’s Ark and, on the other hand, the content of what was said in the lectures.  The former was accepted to be conduct in trade or commerce, the latter not: (see per Davies J at 305G, per Branson J at 310D and per Lindgren J at 327A).

Section 46(1):  Had the PY support market been replaced by “a new CA support market (strictly so called)”?

80                  His Honour carefully analyzed the evidence as to the differences and similarities of CA modules compared with the PY modules they replaced.  As will be seen, this becomes important for other aspects of the case.  However, on the present issue I am not persuaded that such changes that occurred had the effect that one market ended and a new and quite different and discrete market came into existence.  Markets are necessarily dynamic things, extending over time.  In any given market, developments in technology, changes in fashion and consumer tastes, economic circumstances and an infinite number of other factors may affect a market so that a snapshot at one point in time looks quite different from one taken earlier.  However, that does not of itself mean that there is not a continuing market.  When jet aircraft were introduced into the market for air travel in the 1960s the market remained the same.  The service provided  (passenger air transport) was the same.  One would not say that an old market ended and a new market started, simply because the service provided became, by reason of technological change, substantially more efficient.  Likewise in the present case, the services sought and supplied (training that imparted practical knowledge and skill in accountancy) also remained the same.  Candidates year by year seek membership of the Institute.  There is a continuing need for them to obtain practical knowledge and skill sufficient to satisfy the Institute’s requirements for admission, notwithstanding that the content of that knowledge and skill, and the Institute’s methods of assessing its acquisition, must inevitably change from time to time, as would be the case in any field of vocational education.  The fact that in 2000 there was a major change in the Institute’s requirements and methods of assessment does not change the relevant characterisation of the service that was provided in the CA support market.  That service was providing whatever it takes for Candidates to meet the admission requirements of the Institute from time to time.

Section 46(1):  Did a CA certification market exist?

81                  In s 4E of the Act the term “market” is defined to mean “a market in Australia”.  The definition goes on to say “and when used in relation to any … services, includes a market for those … services and other …services that are substitutable for, or otherwise competitive with the first mentioned … services”.  The part of the definition dealing with substitutability is concerned with the outer limits of any given market, not the central concept of a market, something which the Act does not attempt to define.  It was put on behalf of MTA, and I accept, that, at least in the context of s 46, a market is a place or circumstance in which actual or potential exchanges can occur between buyers and sellers of economic goods or services, that is to say, goods or services which are relatively scarce, have utility and are transferable.  To similar effect, Bannock, Baxter and Davis in their Dictionary of Economics (Penguin,1998, at 262) define “market” as:

“A collection of homogeneous transactions.  A market is created whenever potential sellers of a good or service are brought into contact with potential buyers and a means of exchange is available.”

82                  Both the foregoing definitions speak of sellers and buyers in the plural.  Of course, a market can exist even if there is only one seller (or buyer).  This is because the concept is as much concerned with potentialities as present actualities.  Barriers to entry may be formidable, for example in pre-privatisation Australia where telephone services were provided by a statutorily entrenched monopolist.  But this could change, as in fact it did.  In such a case the good or service is something external to the monopolist.  The possibility always exists, however theoretical, for the good or service to be provided by new entrants to the market.  But the position is different when the good or service is incapable of separation from the identity of the supplier.  To take another example, there might be said to be an Australian novelists’ market in which novelists compete to sell their novels to publishers.  But one would not say there was a separate Tim Winton novels market or a separate Richard Flanagan novels market.

83                  I would therefore agree with his Honour that MTA did not make out a case for a separate CA certification market.

Section 46(1):  Did a certification market exist?

84                  His Honour found that there was a certification market in which at least the Institute and the Society participated as competitors.  The Institute did not challenge this finding on appeal.

Section 46(1):  Did the Institute have a substantial degree of market power in the CA certification market?

85                  Since I agree that there was no CA certification market it is not necessary to resolve this issue.  However, I would record my opinion that the fact that the Institute’s power in such a market flowed from its exclusive right, pursuant to its Charter, to grant certification to Candidates as Chartered Accountants would not lead to a finding that the Institute had no substantial degree of market power.  In Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177 at 202 Dawson J said:

“Nor is it helpful to categorize conduct, as has been done, by determining whether it is the exercise of some contractual or other right.  The fact that action is taken pursuant to the terms of a contract has no necessary bearing upon whether it is the exercise of market power in contravention of s 46.” [citations omitted].

This passage was cited by Mansfield J in NT Power Generation Pty Ltd v Power and Water Authority (2001) 184 ALR 481 at 331 as authority for the proposition that the exercise of contractual or other rights may constitute taking advantage of substantial power in a market.  Indeed, it is of the essence of competition law, whether it be sourced in Pt IV or other statutory provisions or in common law doctrines, that what would otherwise be legally enforceable rights and obligations must yield to another layer of legal controls.

86                  While it may be true to say that the Institute’s exclusive Charter-derived right to permit the use of the description “Chartered Accountant” or the initials “CA” is analogous to an intellectual property right, it would not follow that the Institute’s exercise of that right could not amount to a taking advantage of market power. An intellectual property right, such as a patent, may confer power in a market and the enforcement of patent rights against infringing competitors would be an exercise of market power were it not for the express exclusion by s 51(1)(a) of the Act: see International Salt Company v United States  332 US 392 (1947) at 395-396.

Section 46(1):  Did the Institute have a substantial degree of market power in the certification market?

87                  His Honour found that the Institute did not have a substantial degree of market power in this certification market because it was constrained by competition from the Society, a body which had almost three times as many members and was more substantial financially.  His Honour cited the observation by the majority in Melway Publications Pty Ltd v Robert Hicks Pty Ltd (t/as Auto Fashions Australia) (2001) 178 ALR 253 (at [52]) that “(i)t only requires sufficient level of competition to deny substantial degree of power to any competitor in [a] market”.  His Honour also observed that the essential figure of a substantial degree of market power is that the possessor of it is able to “to behave independently of competition and of competitive forces in a relevant market”: see Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 35 FCR 43 at 62.

88                  In my opinion, His Honour’s conclusion was plainly open on the evidence.  Senior counsel for MTA submitted that this conclusion was precluded by the fact that at trial it was common ground that the Institute had a substantial degree of market power in the certification market.  The MTA’s written submissions at trial were produced to the Court on the hearing of the appeal.  However, those submissions as to alleged lack of competition between the Institute and the Society were put as to the issue of the existence of the certification market, not to the question whether the Institute had a substantial degree of power in that market, if it existed.

Section 46(1):  Did the Institute take advantage of its power in the CA certification market?

89                  As I agree with his Honour that there was no such market, this question does not arise.

Section 46(1):  Did the Institute take advantage of its power in the certification market?

90                  For the reasons already mentioned, I agree with his Honour that the Institute did not have a substantial degree of power in that market.  Thus the question of taking advantage of power does not arise.

Section 46(1):  Did the Institute have as a substantial purpose

(a)               eliminating or substantially damaging competitors,

(b)               deterring or preventing persons from engaging in competitive conduct

  in the CA support market?

91                  It was not in dispute that “purpose” in s 46 refers to the actual subjective purpose of the corporation in question.  What is to be ascertained is “the intent of the corporation engaging in the relevant conduct”: see Eastern Express at 66.  His Honour found that

“ … in adopting the CA Program in place of the PY Program, (the Institute’s) purpose was to have an educational program which was as (the Institute) saw it, in accordance with society’s expectations of a chartered accountant.”  

His Honour noted the extensive deliberations and consultations which preceded the

change from the PY Program to the CA Program.  His Honour considered that the Institute, to the extent it thought about the matter, must have appreciated that the change ultimately made might well have an adverse effect on the business activities of external providers of PY support such as MTA, QUT and KPMG.  And in her report of 30 March 1995 Mrs Cappelletto referred to her fear that in the longer term MTA would achieve a monopoly.  His Honour continued (at [201]):

“But in my view it is clear that her concern was an educational one: she feared that a monopoly by MTA would bring the Australian situation ‘closer to the current situation in the UK with training colleges’ … - a result which, apparently she understood was to be avoided in Australia.  ICAA simply gave little thought to the effect that the recent changes would have on the commercial interests of providers of PY support, such as MTA.  It is important, in this context, to recall that ICAA is a non-profit professional association and that it has never been its concern to make a profit out of its educational and training activities.  Rather, it has been concerned only to cover their costs.  It was not ICAA’s purpose in providing comprehensive support materials to make a profit.”

92                  His Honour then referred to the cross examination of Mrs Cappelletto in relation to KPMG’s letter of 4 June 1998 where it was said that what was being proposed in the discussion paper would deprive candidates of free choice.  Mrs Cappelletto had replied:

“No, I didn’t believe that at all.   I believed that if we were going to keep the cost comparable and they chose to buy additional material, they had the opportunity to do that.  If we were, say, doubling our price or increasing our price substantially, then that could easily have been the impact but as we were not increasing the price, all we were saying it would be a very comparable price, then the opportunity for people to continue to spend extra was certainly there.”

His Honour continued (at [203]):

“Mrs Cappelletto’s view may or may not be unrealistic.  I accept that she held it.  As noted … there was only a very small increase in module enrolment fees as between, for example, the three technical modules in the PY Program ($720 per module) and the three technical modules in the CA Program ($730 per module).  Under the new regime, the candidate would not have occasion to pay $120 for a Technical Guide or $22 for an Examination Guide.  Some candidates who had been paying $720 + $22 + the price of MTA’s materials might find it acceptable to pay $730 + the price of MTA’s materials in order to receive both (the Institute) and MTA’s materials.  On the other hand, a candidate who was impressed by the quality of the (Institute’s) CA support materials might thing it superfluous to outlay anything more than the $730 module enrolment fee”.

After accepting MTA’s submission that the subjective purpose of the Institute was to be distinguished from the purpose of Mrs Cappelletto and was, in the absence of testimony from her superiors, to be inferred, his Honour said (at [205]):

“But the nature of the new CA Program, the differences between it and the replaced PY Program, the surrounding circumstances and the likely effects of the change, do not persuade me to infer that any of the anti-competitive purposes identified in s 46(1) was a substantial subjective purpose of ICAA.  The considerations mentioned are at least equally supportive, and I find them to be more supportive, of an inference that ICAA’s subjective purpose was to improve the standard of its pre-admission program in the interests of candidates, present and future members of ICAA and their present and future clients”.

93                  The primary facts in this case were largely uncontested.  On the issue presently under consideration, his Honour had to be satisfied, the onus being on MTA, that as a corporate body the Institute had one or more of the proscribed purposes.  While no doubt the appeal falls under the rubric of Warren v Coombes (1979) 142 CLR 531 rather than that of Abalos v Australian Postal Commission (1990) 171 CLR 167, the fundamental premise of appellate litigation remains.  MTA has to establish error.  The approach of the appellate court is that described by Beaumont and Lee JJ in Minister for Immigration, Local Government and Ethnic Affairs v Hamsher (1992) 35 FCR 359 at 369:

“ …  the hearing of an appeal in this Court is neither a trial de novo nor a trial of the case afresh on the record and the court is not obliged to proceed to make new findings of fact on all relevant issues and discharge the judgment appealed from if those findings differ from those of the trial judge and do not support the judgment.  The court must be satisfied that the judgment of the trial judge is erroneous and it may be so satisfied if it reaches the conclusion that the trial judge failed to draw inferences that should have been drawn from the facts established by the evidence.  The court is unlikely to be so satisfied if all that is shown is that the trial judge made a choice between competing inferences, being a choice the court may not have been inclined to make but not a choice the trial judge should not have made.  Where the majority judgment in Warren v Coombes (at 552-552) states that an appellate court must not shrink from giving effect to its own conclusion, it is speaking of a conclusion that the decision of the trial judge is wrong and that it should be corrected.”  (citations omitted)

94                  Also in Biogen Inc v Medeva PLC [1987] RPC 1 at 45 Lord Hoffmann said:

“The need for appellate caution in reversing the judge’s evaluation of the facts is based upon much more solid grounds than professional courtesy.  It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence.  His expressed findings are always surrounded penumbra of imprecision as to emphasis, relative weight, minor qualification and  nuance (as Renan said, la vérité est dans une nuance ), of which time and language do not permit exact expression, but which may play an important part in the judge’s overall evaluation.  It would in my view be wrong to treat Benmax [ v Austin Motor Co [1955] AC 370] as authorising or requiring an appellate court to undertake a de novo evaluation of the facts in all cases in which no question of the credibility of witnesses is involved.  Where the application of a legal standard such as negligence or obviousness involves no question of principle but is simply a matter of degree, an appellate court should be very cautious in differing from the judge’s evaluation”.

            This passage has been followed or cited with approval in a number of Full Court decisions in this Court, for example Esso Australia Resources Ltd v Federal Commissioner of Taxation (1998) 164 ALR 293, Parras Holdings Pty Ltd v Commonwealth of Australia [1999] FCA 391, AktieBolaget Hassle v Alphapharm Pty Ltd (2000) 51 IPR 375 and Members of the Yorta Yorta Aboriginal Community v State of Victoria (2001) 180 ALR 655. 

95                  I am far from persuaded that his Honour’s finding of fact on this critical issue should be set aside.  It was based on a careful analysis of the evidence and his Honour’s own examination of the documentary material in relation to a sample module.  It is not inherently improbable. 

96                  I agree with the emphasis that his Honour placed on the non-profit character of the Institute.  Of course, that is not to say that such bodies are beyond the reach of Pt IV.  However, the proscribed purposes alleged here (eliminating or damaging competitors or deterring or preventing competitive conduct) usually, in the case of profit-seeking corporations, spring from a desire for profit.  The absence of such motivation in the case of a non-profit corporation is not necessarily conclusive, but it does point against a finding that such a purpose existed.

97                  It is sufficient for a proscribed purpose to be one of a number of purposes: s 4F(1)(b)(i); however a court still has to be satisfied that the particular purpose was a “substantial” purpose: s 4F(1)(b)(ii).  Here “substantial” is used in the sense of considerable or large: see Dowling v Dalgety Australia Limited (1992) 34 FCR 109 at 139 per Lockhart J.  His Honour was there considering “substantial” in the context of a substantial degree of market power but there is no reason to apply a different meaning to  “substantial” when used as a qualifier of “purpose”.  Moreover, the substantiality of the purpose necessarily has a subjective aspect.  Did the proscribed purpose, if it existed, loom large among the objects the corporation sought to achieve by the conduct in question?

98                  Even if, contrary to his Honour’s finding, the Institute had as a purpose one of the alleged proscribed purposes, in the sense that it was recognised as a possible outcome (see South Sydney District Rugby League Football Club Ltd v News Ltd (2001) 181 ALR 188) the evidence does not support a finding that the Institute had such a purpose as a substantial purpose.  Far and away the primary objective of the Institute was the improvement of professional training for accountants.

Section 46(1):  Did the Institute engage in predatory pricing?

99                  The phenomenon which economists and business people refer to as predatory pricing is not referred to eo nomine in s 46 or elsewhere in the Act.  Nevertheless, it seems that predatory pricing may contravene s 46 although there is controversy as to what precisely it involves, and in particular whether it requires an intention or expectation of recoupment of losses by supra-competitive prices: see Australian Competition and Consumer Commission v Boral Limited (2001) 106 FCR 328.

100               As put by MTA, and considered by his Honour, the issue of predatory pricing was tied up with the issue of bundling.  MTA contended that, prior to the changes complained of, the enrolment fee for a PY module was $720 and the Technical Guide could be purchased for $120.  After the changes the enrolment fee for the Capstone module or any CA Program module was $730, including the Institute’s support material.  In MTA’s contention, the support material repeated to a substantial extent material which could be found in the Technical Guides of the former PY modules.  As a result, the Institute had in substance obliged Candidates to buy material covered by the former Technical Guides and made it “very unlikely” that they would wish to buy CA support material from any other provider.  Further, the Institute was supplying the CA Program material at a low cost and perhaps below cost.  The Institute was only charging an extra $10 for material that had previously been made available for $120.

101               His Honour rejected this case for three reasons.  First, even if all the elements of MTA’s case were accepted they would not establish contravention of s 46 because the Institute was at liberty in the exercise of its Charter rights to make it a condition of membership that a person buy material from it at whatever price it nominated.  Secondly, it was not in fact established that the CA module support materials replicated the former PY Technical Guides.  As already noted, after a detailed analysis his Honour found that the CA Program modules and the materials prepared for them were “substantially new” by comparison with the former PY Program modules.  Thirdly, the Institute was a non-profit association.  It did not seek to conduct its pre-admission education activities at a profit or to have them generate a positive cashflow.  It looked at its pre-admission education costs as a whole and did not separate costs by reference to components and modules.  His Honour concluded that it was not predatory pricing for the Institute, in implementation of its Charter objects, to sell its materials to Candidates at cost, even if the effect of its doing so might be to limit, or even to prevent, the development of a CA Program support market.

102               It will be seen that the first reason is another way of stating his Honour’s conclusion that the Institute’s exercise of its Charter rights could not involve a contravention of s 46.  For the reasons already given, I do not agree.  Nevertheless, the remainder of His Honour’s reasoning seems to me a persuasive rejection of MTA bundling / predatory pricing case.  This can perhaps be best considered as an aspect of the purpose issue.  As a matter of fact, his Honour accepted the evidence of Mrs Cappelletto that the Institute was pricing its pre-admission activities simply to cover costs.  That was consistent with its Charter.  On any view, predatory pricing seems to require some purpose of damaging competitors.  As his Honour found, this was absent.

103               On the issue of pricing, it has already been noted that his Honour accepted Mrs Cappelletto’s evidence that the Institute considered that charging too high a price for its materials would have the practical effect of depriving Candidates of the choice of materials provided by MTA and others.  This seems obviously correct, given that Candidates would have to pay the Institute’s enrolment fees anyway.  So in the context of this case, for the Institute to charge a low price for its materials was pro-competitive.  A low price mitigated what would otherwise be a disincentive for Candidates to buy MTA’s materials.  MTA was thus better positioned to compete on quality.

Section 47(2):  Did the Institute supply services in examination and assessment in the CA certification market on the condition that Candidates acquire support services from the Institute?

104               The answer to this question must be in the negative, for two reasons.  First, although “condition” in s 47(2) need not necessarily have legal or equitable force (see s 47(13)(a)), as Deane J said in Re Ku-ring-gai Co-operative Building Society (No 12) Ltd (1978) 36 FLR 134 at 168:

“The section does not look at the origin of the condition upon which there is supply of services.  The section looks at the supply of services on that condition.”

And in SWB Family Credit Union Limited v Paramount Tourist Services Pty Ltd (1980) 48 FLR 445 at 454 Smithers J said:

“It is clear that the act of exclusive dealing contemplated by the section is the supply of services by A to B in circumstances such that is it a correct assessment of the facts, as at the moment of supply, to say that the act of supply as been performed pursuant to a transaction, the terms of which include some sort of arrangement between A and B, to which of course, B is a party which gives to the supply the character of being made on the condition that B will acquire the services from C, or to which some external factor is applicable which gives that character to the supply.  Supply in other circumstances might be a supply on the hope or even on the expectation that B would acquire the services from C, but it could not be a supply “on the conditions” that B will acquire such service”.

There is no evidence of any condition which would have the effect that when Candidates obtained support services from the Institute they were in any way inhibited from obtaining similar services from MTA or anybody else.  The way MTA pleaded this part of its case can be summarized as follows:

·          The Institute supplied in the CA certification market services of examination and assessment for a fee to Candidates;

·          In the year 2000 (for the Capstone module) and from the year 2001 (for CA Program modules) the Institute supplied services of examination and assessment on condition that Candidates must acquire, in addition to the examination and assessment services, support services including written module course materials, from the Institute;

·          By reason of the “unilateral and compulsory supply by the (Institute) of support material at no separate or apparent cost” to Candidates, “the purpose and effect of the conduct of the (Institute)” is that it is a condition of the acquisition of the support material on the said terms that the Candidates, will not, except to a limited extent, acquire support material from other suppliers.

105               This approach confuses the issues of purpose and effect with that of condition.  It really alleges no more than, in the words of Smithers J, hope or expectation on the part of the Institute that Candidates will not purchase support material from other suppliers, including MTA.  Even making allowances for the extended meaning given by s 47(13)(a), this is not the condition of which s 47(2) speaks.  At the time of supply of services to Candidates they are perfectly free to decide whether or not to also acquire support material from MTA.  Their decision would presumably be made on comparisons of the benefit to be derived from the extra cost.  For a trader to offer products A and B for a single price which might make the consumer more inclined to purchase the package and not buy a competing trader’s product B is not to impose any sort of condition within the meaning of s 47(2).

106               It is also noteworthy, as his Honour points out, that s 47 does not catch a supply on condition that the acquirer acquire goods and services from the same supplier.

Section 47(2) and (10):  Was there the purpose or effect of substantially lessening competition?

107               Given a conclusion that there was not the relevant condition, it is not necessary to consider this issue.

Section 45(2)(a)(ii) & (b)(ii):  Was there a relevant provision?

108               At the trial the parties submitted a number of questions for resolution by his Honour. In relation to the s 45 claim the first of these was:

“Is it is a provision of each contract between ICAA and each candidate that each such candidate will be supplied with and must acquire, in consideration of the fee paid to ICAA, the relevant services at no separate price or cost, and may not elect not to receive those services and not to pay so much of the fees as properly relates to the supply of those services”?

His Honour answered this question in the affirmative. On appeal the Institute did not attack this finding.  It appeared to be implicitly accepted that MTA should succeed under s 45 if either the purpose or effect element were made out.

Section 45(2)(a)(ii) and (b)(ii):  Was there the relevant purpose or effect?

The second of the s 45 questions was:

“If each such contract does contain such a term, does that contract [term] (alone or together with any other contracts entered into by candidates enrolling in that module) have the purpose, or [would it have or] be likely to have the effect, of substantially lessening competition?”

109               I have added the words in square brackets to make the issue raised conform with the terms of the section.  His Honour answered the question in the negative.  His Honour said (at [247]):

“Again, just as the parties in respect of the claim under s 45 relied on their submissions in respect of the claims under ss 46 and 47, so I rely on the reasons I gave in relation to those claims and, in particular, the reasons I gave:

·        for deciding that the PY support market came to an end with the PY and a new CA support market has come into being;

·        for deciding that there was no purpose or effect or likely effect of a substantial lessening of competition in a market in which ICAA supplied services; and

·        for deciding that relief should not be granted.”

110               As to purpose, I agree, for the reasons already given, that MTA did not make out its case. 

111               As to effect, it is to be noted that the section is also satisfied if the conduct is likely to have the effect of substantially lessening competition. This involves assessing the future effect of the conduct, considered as at the time it is engaged in: Trade Practices Commission v TNT Management Pty Ltd (1985) 6 FCR 1 at 50.  “Likely” does not mean “more likely than not”. It is sufficient that there is a real chance or possibility that a substantial lessening of competition will occur: Tillmanns Butcheries Pty Ltd v Australasian Meat Employees’ Union (1979) 42 FLR 331 at 346-348 per Deane J.  Tillmanns was a case under s 45D of the Act, but the reasoning of Deane J is equally applicable to the concept of likely effect in s 47(10).

112               It might be argued that the bundling and pricing arrangements introduced by the Institute at the time of the change to the CA Program would, by their nature, at the very least raise a distinct possibility of a substantial lessening of competition in the CA support market.  It would be that much harder for MTA to compete, given that Candidates were going to get from the Institute for free what MTA wanted to sell them.  The evidence of the reactions of people from the Big Six firms shows that participants in the marketplace in fact saw prospects in this way.  Moreover, the fact that KPMG withdrew from providing support points to a lessening of competition.

113               However, MTA’s case does not establish that there was, or was likely to be, a substantial lessening of competition as that term is defined ins 45(3).  There has to be competition in a market in which the Institute supplied services.  As already mentioned, I think there was a continuing market for CA support services.  I do not agree with his Honour that the former market ceased and a new “CA support market (strictly so called)” commenced.  But while the market essentially did not change, the role of the Institute did.  It ceased to sell, in competition with MTA and others, its Technical Guides and other publications.  Its role became purely that of an instructor, assessor, examiner and certifier, performing those functions in the integrated way disclosed by the evidence.

Section 51AC:  Does the provision apply where there was no supply or acquisition of goods or services as between the Institute and MTA?

114               As a matter of language s 51AC(1) is directed not to conduct in trade or commerce generally, but rather to conduct in trade or commerce in connection with a particular kind of transaction, namely the supply or acquisition of goods or services to or from a person (other than a listed public company).  This may be contrasted with s 52(1) which simply provides that a corporation shall not in trade or commerce engage in conduct that is misleading or deceptive or is likely to mislead or deceive. 

115               That s 51AC(1) is concerned only with conduct in relation to dealings between the corporation in question and a particular kind of person (a person other than a listed public company) is confirmed by s 51AC(3) and 51AC(4).  In each case some 12 factors which may be taken into account are stipulated.  It is true that they are non-exclusive but they are all concerned with dealings between “supplier” and “business consumer” (sub-s (3)) or between “acquirer” and “small business supplier” (sub-s (4)).  They contemplate that the Court is engaged in the task of determining whether there has been a contravention of s 51AC(1), and thus are confined to a particular kind of transaction, namely the supply or acquisition of goods or services as between stipulated categories of person.

116               The conclusion that s 51AC is not concerned with the impact of conduct on third parties is confirmed by the legislative history: see Australian Competition and Consumer Competition v CG Berbatis Holdings Pty Ltd (No 2) (2000) 96 FCR 491 at 494-496.  In the present case his Honour (at [255]-[259]) recounts in detail the legislative history.  It is not necessary to repeat that history in these reasons.  In my view it shows convincingly that the present s 51AC can be traced back to the original recommendation of the Swanson Committee in 1976 that unconscionable conduct be prohibited “to give the Act a greater ability to deal with the general disparity between buyers and sellers.”

117               I would therefore agree with his Honour that s 51AC has no application.

Section 51AC:  If the provision was applicable, did the Institute engage in unconscionable conduct?

118               MTA was far removed from those persons disadvantaged by age, illiteracy, drunkenness, emotional dependence and the like whom Equity, by the doctrine of unconscionability, has sought to protect from harsh bargains: see Blomley v Ryan (1956) 99 CLR 362, Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 and Louth v Diprose. (1992) 175 CLR 621.  (As to the concept of unconscionability in ss 51AA, 51AB and 51AC, reference should be made to the valuable discussion by French J in Berbatis at [5]-[28].)  In the present case there is in my view an unchallengeable finding that the Institute had acted in good faith for the improvement of the practical education of persons seeking to obtain the valuable right to practice as Chartered Accountants.  The worst that could be said is that the Institute, or perhaps some of its officers, did not think much of MTA’s role and were not particularly concerned that changes in the Institute’s programmes might damage MTA’s business.  This does not strike me as conduct which “shocks the conscience”.

Orders

119               The appeal should be dismissed with costs.

Associate:

Dated:              19 June 2002

ON APPEAL FROM A SINGLE JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

TAMBERLIN J:

120               I have had the advantage of considering the judgment of Heerey J and I agree with the conclusions reached by his Honour in dismissing the appeal.  I wish to make some additional observations with respect to two matters. 

121               The factual background and relevant legal framework are fully set out in the reasons of Heerey J and I will not repeat them. 

122               There are two matters in particular which I wish to address, namely:

(i)         whether there is a Chartered Accountant certification (ie “CA certification”) market and,

(ii)        whether the conduct of the Institute of Chartered Accountants in Australia (“ICAA”) had the effect of substantially lessening competition in a market under s 45(2) of the Trade Practices Act 1974 (Cth) (“the Act”)

123               In relation to the other matters raised on appeal I will briefly summarise my reasons for the conclusions which I have reached.

CA certification market

124               Counsel for the appellant submits that the primary Judge erred in not finding that there was a specific “CA certification market” as distinct from a “certification market”.  In relation to the latter, his Honour found that there was a market in which the ICAA and the Australian Society of Certified Practicing Accountants (“the Society”) participated as competitors. 

125               As the primary Judge points out, the Statement of Claim alleges that there is a market in which the services of certification and admission to membership of persons into a professional accounting body are supplied.  His Honour found that the ICAA provided “services” and that it was engaged in trade and commerce.  His Honour’s reasoning that there was no “CA certification” market, was as follows [at 158]:

“… MTA has not established the existence of the CA certification market because there is absent the essential element of potential competition and potential substitutability in respect of the services so defined.”

126               The appellant submits that the reasoning and conclusions of his Honour are flawed because he treated s 4E of the Act and the authorities, including Re Queensland Co-operative Milling Association Ltd (1976) 25 FLR 169 and Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177, as defining the intrinsic character of a market while that section and those authorities were only concerned with defining the outer parameters of the market by reference to substitution possibilities.  It is said they do not attempt to set out criteria which go to the existence of a market.  It is further said that there can be a market notwithstanding that there is no substitutability and an absence of competition because the existence of a market does not depend on those matters.  This, for example, is said to be the case in a market where there is a monopoly.  In such a market by definition there may be no competition and no elasticity of demand or substitutability of product or service.

127               It is also pointed out that a single product market, albeit rare, can exist.  In support of this the appellant referred to Eastman Kodak Co v Image Technical Services Inc 504 US 451 (1992) where it was said at 481 - 482 that:

“Kodak also contends that, as a matter of law, a single brand of a product or service can never be a relevant market under the Sherman Act.  We disagree. The relevant market for antitrust purposes is determined by the choices available to Kodak equipment owners. … Because service and parts for Kodak equipment are not interchangeable with other manufacturers’ service and parts, the relevant market from the Kodak equipment owner’s perspective is composed of only those companies that service Kodak machines … This Court’s prior cases support the proposition that in some instances one brand of a product can constitute a separate market. … The proper market definition in this case can be determined only after a factual inquiry into the ‘commercial realities’ faced by consumers.” (Emphasis added)

128               It will be noted that this passage does not attempt to formulate any general principle of law or economics which necessarily determines the outcome of an inquiry.  In contrast it emphasises that the question must be determined as one of specific factual analysis in every case.  The statement does not, in my view, advance the appellant’s case as to the existence of a CA Certification market.  Kodak involved a dismissal of a summary judgment application  against the Kodak corporation at an early stage of the proceedings based on limited evidence.  The United States Supreme Court was considering possible situations which could arise on that limited evidence.  The prior conduct complained of in that case, was in the context that there were other independent existing markets in Kodak parts and in servicing Kodak equipment.  Kodak was not a case where there was an absence of actual competitors or potential competitors in the markets.  The conclusion in that case, at 462, was that:

“For respondents to defeat a motion for summary judgment on their claim of a tying arrangement, a reasonable trier of fact must be able to find, first, that service and parts are two distinct products, and, second, that Kodak has tied the sale of the two products.”

129               The Court found that such a finding was open.  The case is dissimilar to the present proceedings because here the appellant is unable to point to any actual or potential competition in relation to CA certification. The ICAA certification services in this case are unique and always will be unique products or services in which there can never be any of the hallmarks of a market in the sense of competitive activity or substitution, assessing qualification for and conferring of, CA certification.

130               Where there is no competition in the market, because of domination by a monopoly, it cannot be said that “the market” has disappeared.  Whilst there may be no present competitive activity in a market dominated by a monopoly, it does not follow that there is no market because there is an absence of actual competition.  There may be potential competition.  However, prima facie, at least, the absence of actual or prospective competition in the goods or services in question or their substitutes, is an important indication that there is no market.

131               In my view, it is not correct to contend that the position in the present case is similar to that which prevails where there is a market but no competition or substitutability because an existing monopoly precludes any competitive or substitution activity.  In the case of a market dominated by a monopoly there may remain the prospect of future potential competition by the market being opened up.  In the present case there is no real prospect of such potential competition.  The conferral of a professional, educational certification or endorsement that the standards of a particular professional body have been met cannot, in my opinion, be considered analogous to a market in relation to a brand product.  As the primary Judge emphasised, the service offered and the training and educational activity engaged in are unique.

132               To speak in terms of a “CA certification market” therefore in the present case, is artificial and inappropriate. 

133               The contention that there is not a CA certification market so narrowly defined, in circumstances where there is a broader market for certification services, is supported by the fact that there is a broader market for certification which sits more easily with the concepts of competition and substitution within a market.  The existence of such a market tends to indicate that it is too narrow an approach to proceed on the narrower basis that there is a separate CA certification market.

134               Section 4E of the Act provides:

“… ‘market’means a market in Australia and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first-mentioned goods or services.” (Emphasis in Original)

135               The definition in s 4E is an inclusive definition which, theoretically at least, leaves open the possible existence of a market for goods or services where there is no substitution or competition.  The notion of substitutability is an extension of the concept of competition beyond competition between particular goods or services.  The emphasis in the definition, although not exhaustive, is on an area of commercial activity where there is or may be actual or potential competition or substitution.  It is difficult to conceive what description of market may exist where there is and can never be any potential for competition or substitutability.

136               When Mason CJ and Wilson J, in Queensland Wire (at 187-189), discuss the concepts of competition and substitution in relation to markets and market power, in my view, they are not simply referring to the definition of the boundaries of a market but they are referring to indicators as to the existence of a market, namely, the requirement that there exists actual or potential competition between those goods or services or between goods or services that are substitutable for them in the perception of market participants.  The authorities cited by their Honours, at those pages, lend support to the proposition that actual or potential competition or substitutability are core considerations although, they may not be exhaustive, in deciding whether a market exists. 

137               The issue could be approached another way.  If one asks the question who apart from the ICAA can confer CA certification as a chartered accountant either at the present time or foreseeably in the future?  The answer must be “no-one”.  This is because only the ICAA can ever confer such a CA certificate according to its standards and requirements.  The grant of its certification cannot ever be the subject of substitution or competition.  It is not possible to envisage the provision of CA certification by the Society or any other body.  Other bodies apart from the ICAA and the Society may be established from time to time and may offer admission into their accounting profession, but such entry involves a different service or product in a broader market namely, the market for certification as opposed to CA certification.  If the ICAA conducts itself in an unreasonable way in relation to its certification, then candidates for admission to the accounting profession can go to the Society, or any other body that offers certification, rather than to the ICAA. 

138               There is no sound commercial reason to define a narrow “CA certification market” as distinct from the broader professional qualification market for certification.  The reason it is sought to suggest that such a narrow market exists in the present case is that such a narrow description of the relevant market provides a convenient peg on which to base the claim of market power in a market area in respect of which it can be alleged that such power is being used in another market, namely the CA support market, to lessen competition in the latter market.

139               The rejection of the contention that there is a discrete CA certification market is also consistent with the concern of Part IV of the Act to protect the freedom and enhancement of competition and this presupposes that competition is actual or possible. 

Section 45(2)

140               The first question which the primary Judge had to answer in relation to this subsection was whether there was a provision in each contract between the ICAA and the enrolling applicant that the applicant would be supplied with and must acquire in consideration of the fee paid to the ICAA the relevant services at no separate price or cost and may not then elect not to receive those services or not to pay so much of the fees as properly relates to the supply of those services.  This question was answered in the affirmative by his Honour and is not challenged on appeal.

141               The next question was whether this contractual provision had the purpose of substantially lessening competition in the CA support market and his Honour answered this question in the negative.  His Honour said that the contract which he found to have been entered into did not have that purpose.  I agree with his Honour’s reasoning in reaching that conclusion.

142               His Honour then proceeded to consider whether the contract had the effect of substantially lessening competition in a market.  I agree with the conclusion of his Honour, in relation to the effect of the contract, but for different reasons. 

143               In relation to the effect of the contract on competition his Honour said at [247]:

“Again, just as the parties in respect of the claim under s 45 relied on their submissions in respect of the claims under ss 46 and 47, so I rely on the reasons I gave in relation to those claims and, in particular, the reasons I gave:

·        for deciding that the PY support market came to an end with the PY and a new CA support market has come into being;

·        for deciding that there was no purpose or effect or likely effect of a substantial lessening of competition in a market in which ICAA supplied services; and

·        for deciding that relief should not be granted.”

144               I do not agree with the conclusion of the primary Judge that the original support market came to an end and that a new support market came into being.  In my view, the market which previously existed in relation to PY support services for CA certification qualifications was varied as a consequence of the new educational regime introduced by CA certification requirements. The consequence of the change in the ICAA requirements was that the nature and features of those support services which were appropriate to provide support were different as between the PY support market and the CA support market. 

145               It is pertinent to observe that competition and markets do not remain static or fixed.  As Professor Brunt points out in her article, “Market Definition Issues in Australia and New Zealand Trade Practices Litigation” (1990) 18 ABLR 86 at 96:

“Competition is a process rather than a situation.  Dynamic processes of substitution are at work.  Technological change in products and processes, whether small or large, is ongoing and there are changing tastes and shifting demographic and locational factors to which business firms respond.”

146               In the present case what has occurred is that in order to enhance and modernise the professional standards of ICAA certified accountants to accord with perceived current needs in the accounting profession, there has been a shift in the perception as to the nature of the qualifications considered appropriate to practise as an ICAA certified accountant.  This perception or policy is manifested in the form of a workshop-based certification system which have been largely individually tailored to an appraisal-based approach.  This is a transition which was decided upon by the ICAA after a painstaking and detailed consultation process involving an examination of alternatives over several years.  The evidence indicates that some 4,000 copies of a discussion paper on the proposed future directions in training and appraisal were distributed in the first half of 1998.  This paper outlined the proposals to the profession.

147               In September 1998 the National Council of the ICAA made a decision to introduce the new postgraduate admission program to replace the PY program.  The history of the proposals are extensively set out in the judgment of Heerey J.  In the comparison table included in his Honour’s reasons when comparing the PY program and the CA program, it is evident that there has been a marked shift in emphasis from an examination evaluation, which formerly comprised 85% of the qualification process with a 15% workshop element, to the new CA program which involves in the order of a 65% workshop and appraisal component and a 35% examination-based component. 

148               At [233]-[234] in relation to the integrated nature of the materials and when considering the question of relief, the primary Judge said:

“Severing out newly created material from material which was in ICAA’s former PY support materials is impracticable.  Even in the sections which contain chapters or parts of chapters from the former Technical Guides, there is re-writing, addition and insertion. 

I would not make any order which would have the effect of dividing up ICAA’s CA support materials which ICAA characterises as ‘comprehensive’, based on sound educational theory and the product of extensive deliberation and consultation.”

149               Specifically, his Honour made the finding at [229] of his judgment, after considering the evidence given by Ms Cappelletto at [219]-[220], [224] and [225], that:

“In substance, on the evidence before me, the CA Program modules and ICAA’s materials prepared for them are substantially ‘new’ by comparison with the former PY Program modules and with ICAA’s Technical Guides prepared for those modules, and any associated market for CA support is a new and differently shaped, if reduced, market.”

150               In her affidavit Mrs Cappelletto, who was the person primarily responsible for the pre-admission education program of the ICAA, explained the highly integrated nature of the CA program, which she contended made it very difficult to segregate out different components in the program.  The materials, which are the subject of the so-called “bundles” requirement, are an integral part of the assessment process. She said in relation to the Capstone transitional module:

“36.     The materials for the Capstone module are an integral part of the module. … They comprise a major case study, questions and problems based on this case study, as well as two integrated web-based products. … Exercises given in the workshops and questions in the exam are linked to materials in the module … it is not possible for the materials to be separated from the assessment components without fundamentally altering the nature of the module and its method of presentation and assessment.

…

58.       The CA Program uses learning resources, learning activities and assessment methodologies of a profoundly different nature to those used in the PY.  The CA Program is designed to develop the following which I consider to be vital to success in a career in business, namely being:

·        informed;

·        technologically literate;

                        …

59.       I believe that the CA Program will provide an educational experience superior to the PY and will result in Chartered Accountants who are better prepared to meet the challenges of today’s … business environment.

60.       The materials which the Institute provides to Candidates on enrolment in a CA Program module encapsulate an interactive Candidate-centred approach using a diversity of learning activities and assessment methodologies aimed at learning by doing … rather than learning by passive participation. …

…

            Candidates are required to work through … materials and undertake activities.  Sixty five percent of the assessment will be attributed to non-exam activities extension work (or assignments) 25%, and participation in focus sessions 40%.  Given the type of competencies the Institute is aiming to develop through the CA Program, in my opinion a 100% exam would not be seen in the educational circles as a valid or appropriate method of assessment.

61.       The materials for the CA Program modules are an integral part of the module. … They comprise assessment activities, stimulus materials, and other material upon which assessment activities are based … it is not possible for the assessment components to be separated from the balance of the material without fundamentally altering the nature of the module and its method of presentation and assessment.”  (Emphasis added)

151               Although Ms Cappelletto was cross-examined in detail on the proposals there was no evidence to the contrary of what she asserted in relation to the above material.  The oral testimony of Ms Cappelletto which the primary Judge accepted, includes the following:

“I believe we put a lot of effort into a very comprehensive way of developing competencies and to start breaking that down would mean that we weren’t able to develop the competencies as well as we are because of the total integration of how we’re doing things and the reliance in various parts of the program on things that have been done in other parts of the program and previous parts of any module.

… I go back to the example I used before of Mike’s Bikes where they do it in CA Foundations.  It’s a business strategy simulation that gives them some base information.  It is again used again in the focus sessions in CA Foundations.  It will be referred to in the Strategic Business Management Module and what they have learned from that will be further developed in Strategic Business Management.  It will then be used as a product in the network version in the final integrating module.  So, there is a building as we go of the knowledge, skills and values but linked to various aspects.”

152               When asked whether it was possible to take out the technical material, Ms Cappelletto responded:

“It would be very difficult for us to achieve what we want to achieve.  We would have to review the whole assessment methodology because a lot of the assessment methodology links to activities that we have run the candidates through.”

153               As a consequence of the “profoundly changed approach” in moving to a highly integrated educational program based primarily on an individual appraisal system which focuses largely on case study materials and workshop appraisal throughout the course of the CA program, there is cogency in the ICAA submission that it is appropriate to ensure that those conducting the instruction and appraisal can be assured students address and have available the necessary material on which they are to be evaluated, in order to properly carry through the new educational program.  This is sought to be achieved by requiring that applicants should obtain and pay for their materials on enrolment so that there is an appropriate and uniform basis upon which the appraisal process can proceed. 

154               The nature of the materials in question is such that they are largely custom designed to constitute part of the appraisal process and on the evidence they cannot readily be separated out in any satisfactory manner.  The requirement that materials be paid for on enrolment is calculated to ensure that in the interests of effective professional assessment and certification, applicants have what is considered to be the necessary background for instruction and appraisal.

155               The new educational requirement meant that the market for ICAA examination support services has been substantially reshaped as a consequence.  In order to carry through the implementation of the CA program, the opportunity for support materials and services by third parties is in practical terms restricted to the supply of materials or services supplementary or complementary to the materials distributed on enrolment by the ICAA.  That does not mean that the market for support services has disappeared in relation to ICAA certification, but rather that, in a practical sense, the scope for supply of materials and services in which there is a market has been varied.  The parameters of the market have changed as a consequence of the changing requirements for education, training and certification as an ICAA certified accountant.  In the reshaped support market the ICAA does not compete because it provides the primary materials and services of appraisal and therefore, in my view, the change in requirements whereby materials are bundled with the enrolment application fee does not have a substantial effect on competition in that supplementary market within s 45 of the Act.  The dynamics of the market occasioned as a result of the change in the educational approach to ICAA certification has caused this reshaping of the character and extent of the market available to third party suppliers.

156               For these reasons I do not consider that the distribution of materials upon enrolment of the various modules of the new ICAA has any effect or likely effect of reducing competition in a market within the scope of s 45(2) of the Act.

157               I briefly summarise my conclusions with respect to the other matters raised on the appeal.

Market power – s 46

158               The primary Judge made a finding at [206] that :

“ICAA did not terminate the PY program and replace it with the CA Program for any of the purposes specified in subs 46(1).”

159               Although strictly I consider that what happened in relation to the change in the support market was not a termination of one market and its replacement by a “new market”, I agree with the primary Judge and with Heerey J that the evidence does not indicate that the conduct of the ICAA was actuated by any purpose specified in s 46(1).  The evidence supports the conclusion that the dominant purpose of the ICAA was to improve and reformulate its requirements and training requisite to qualify as an ICAA certified accountant.  Furthermore, I consider that the primary Judge was correct in his view that the change in the enrolment requirements to include provision and payment for prescribed educational materials and training services did not involve any exercise of “market power”.  Rather, what occurred was that as a collateral consequence of the ICAA performing its educational and certification functions under its charter in relation to the certification of Chartered Accountants, the market itself was reshaped.  This did not involve the exercise of “market power”.

Exclusive dealing – s 47

160               This claim fails because it is not a condition of the acquisition of support services that a candidate will not acquire support services from any other suppliers of those services or suppliers of materials.  Although the practical consequence of the requirement to acquire, as part of the enrolment process, may in fact lead to applicants not acquiring support services from other suppliers it is not possible to point to any condition which mandates that result.

161               Furthermore, properly analysed, even if there was a condition of exclusive supply, s 47(2) is not enlivened because it is not a condition of supply by the ICAA that applicants will not acquire services or materials from a competitor.  In this case the requirement imposed is that an applicant will acquire goods from the ICAA but otherwise an applicant is not constrained from acquiring materials or services from other persons.  As Lindgren J points out, s 47(1) is not directed to a condition that goods or services be acquired from the same or one supplier.  I also consider that because the educational requirements have changed so that the support market has varied to one where the market is for the supply of educational materials and training which are supplementary or complementary to those supplied by the ICAA, that there has not been any effect of substantially lessening competition in the relevant market, namely the supply of support services for CA certification within the meaning of s 47(10).  My reasons for this conclusion are more fully spelt out earlier in this judgment.

Section 51AC Trade practices Act

162               I agree with the reasoning and conclusion of Heerey J in relation to this claim.

CONCLUSION

163               The appeal should be dismissed with costs.

Associate:

Dated:              19 June 2002