FEDERAL COURT OF AUSTRALIA

TRADE PRACTICES - exclusive dealing under s 47(7)(a) of the Trade Practices Act 1974 (Cth) - respondent’s refusal to supply services under agreement to a pharmacy - communicated reason was that it was no longer a member of particular franchise - respondent asserted not actual reason - held to be a substantial reason.

TRADE PRACTICES - exclusive dealing under s 47(7)(a) of the Trade Practices Act 1974 (Cth) - appropriate penalty - injunctive relief sought by respondent - consideration of conduct - no loss incurred  - declarations sufficient in circumstances.

Trade Practices Act 1974 (Cth), ss 4(2)(c), 4C(b), 4F(b), 47(7)(a)

ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248 considered and applied

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v HEALTH PARTNERS INCORPORATED

SG 74 of 1996

MANSFIELD J

ADELAIDE

22 DECEMBER 1997

THE COURT DECLARES THAT:

1.         The respondent, in trade or commerce, engaged in the practice of exclusive dealing as described in par 2 below which constituted a breach by the respondent of s 47(7)(a) of the Trade Practices Act 1974.

2.         The practice of exclusive dealing referred to was, or was constituted by:-

(a)        During the period from 23 January 1996 to 29 February 1996 the respondent made it known to Kenneth Ian Haddy and Pantaleo Amato (“the pharmacists”) by letter dated 23 January 1996, that as from 1 March 1996 the respondent would refuse to supply services to the pharmacists pursuant to its agreement with the pharmacists dated 3 May 1993, for a substantial reason that the pharmacists had not acquired Chem-mart naming rights services and Chem-mart promotion and merchandising services from Chem Mart Pty Ltd.

(b)        During the period from 23 February 1996 to 1 March 1996 the respondent made it known to the respondent’s members by letter dated 23 February 1996 that as from 1 March 1996 the respondent would refuse to supply services to the pharmacists pursuant to its agreement with the pharmacists dated 3 May 1993, but would provide like services to “Goodwood Day/Night Chem Mart” pharmacy on the basis that it had become a Chem-mart pharmacy, for a substantial reason that the pharmacists had not acquired Chem-mart naming rights services and Chem-mart promotion and merchandising services from Chem Mart Pty Ltd.

(c)        From some time in February 1996 and by no later than 28 March 1996 the respondent refused to supply services in that it did not identify in its promotional brochures printed in about February 1996 the pharmacists’ business as participating with the respondent in providing health benefits by way of discounts off their normal selling prices for pharmaceutical and other products to be purchased from them by the respondent’s qualifying members, for a substantial reason that the pharmacists had not acquired Chem-mart naming rights services and Chem-mart promotion and merchandising services from Chem Mart Pty Ltd.

3.         For the purposes of the findings of fact referred to in par 2 above:

(a)        the respondent’s “qualifying members” means such of the respondent’s members who contributed to the respondent’s “gold extras” table and the dependants of such members, and members of the “police extras plan” who contributed to the “gold extras” table and dependants of such members, as set out in the said agreement dated 3 May 1993.

(b)        The services to be provided by the respondent to the pharmacists under the said agreement dated 3 May 1993 were rights or benefits by way of:-

(i)         rebates on the prices charged by the pharmacists for dispensing prescriptions to qualifying members;

(ii)        payment of annual agency fees in relation to the gross value of purchases from the pharmacists of non-prescription products by qualifying members each year;

(iii)        discounts on insurance contribution rates otherwise charged by the respondent to eligible persons; and

(iv)       identifying the pharmacists and their business as participating with the respondent in providing ancillary health benefits to qualifying members.

(c)        “Chem-mart naming rights services” means the right to use the names “Chem-mart” and “Chem mart” as part of the business name used by the pharmacists.

(d)        The term “Chem-mart promotion and merchandising services” means promotional merchandising material, quality control programs, point of sale material, marketing advice, national and State wide retail promotional services and product procurement services.

(e)        The respondent’s promotional brochures:-

(i)         were caused to be delivered to a number of pharmacies in about February 1996 and to the pharmacists on or about 28 March 1996;

(ii)        were titled “A Better Life Through Better Care.  Health Partners”;

(iii)        were marked “Effective 1/2/96”;

(iv)       were for the purpose of display and dissemination at such of the pharmacies listed in the promotional brochures as requested copies of the same; and

(v)        were caused to be delivered at least to the pharmacies known as Unley Road Chem Mart, Collinswood Chem Mart, North Adelaide Village Pharmacy and the Green Dispensary and were for the purpose of display and dissemination at those pharmacies.

THE COURT ORDERS THAT:

1.         The respondent should pay to the applicant its costs of the application to be taxed.

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

REASONS FOR JUDGMENT

The applicant alleges the respondent has breached s 47(7)(a), Trade Practices Act 1974 (“the Act”) and seeks declaratory relief under s 80 of the Act together with the formal recording of findings of fact for the purposes of s 83 of the Act.

The resolution of the application depends essentially upon factual matters only, many of which are not in dispute.  It is possible therefore to record most of my findings without specific reference to the evidence.  In some respects there were relatively minor matters of fact in issue as between witnesses.  Putting aside the principal witness for the respondent, whose evidence is critical and is discussed below, I am satisfied that each of the other witnesses who gave evidence was truthful, and that the evidence was broadly speaking reliable.  The findings below reflect that assessment.

The applicant alleges that the respondent engaged in “third line forcing”, by terminating or proposing to terminate an agency or franchise contract because the agent or franchisee would not be or remain a member of the Chem-mart group of pharmacies.  Its own documents suggest that it did engage in that conduct.  The reason why the evidence of its principal witness is critical is that he says, despite those documents, its reason for its conduct was not as the documents suggest.  It will therefore be necessary to review his evidence carefully.

BACKGROUND

The respondent is an association incorporated under the Associations Incorporation Act 1985 (SA).  It has at all material times carried on business as a private health insurer in South Australia pursuant to its registration as a registered health benefits organisation under s 73, National Health Act 1953 (Cth).  That business was carried on until 3 April 1995 under its former name “S.A. Public Service Association Health Benefits Fund Incorporated”, and thereafter under the current name “Health Partners”.

Also, at material times, Chem Mart Pty Ltd is a corporation which owns or has the right to use the names ‘Chem-mart’ and ‘Chem mart’ (used hereafter as “Chem-mart” to encompass either usage).  It has operated under that name since 1976.  Its parent company F H Faulding & Co Ltd has been at material times the registered proprietor of the mark ‘Chem-mart’, under the Trade Marks Act 1955 (Cth) in accordance with certain representations of the mark and for a range of applications.  Nothing turns upon the precise form of the mark, or its registration.  Chem Mart Pty Ltd is authorised in South Australia to license the use of the mark and of the name Chem-mart.  Chem Mart Pty Ltd licenses certain retail pharmacists to use the Chem-mart name.  Participating retail pharmacists pay an entrance fee and a monthly fee for such rights.  In more recent years the terms of such licensing agreements have become more formalised.  In earlier periods, the arrangement was apparently less formal.  The use of the name Chem-mart was licensed to selected practising pharmacists, whose licensing entitled them to use that name and to benefit from the overall extensive promotion of the name Chem-mart and of the Chem-mart group and from the purchase of merchandise at concessional rates to enable competitive pricing.  It is not necessary to describe in detail the promotional and merchandising services available to pharmacists who were members of the Chem-mart group.

James Clarke Hill (“Mr Hill”) is the Chief Executive Officer of the respondent.  He has held that position, or that of General Manager, since he commenced employment with the respondent in 1985.  In about 1986, with the approval of his board, Mr Hill began to develop a pharmaceutical benefits scheme to be available to members of the respondent, as an ‘Extras’ option to its existing medical benefits scheme.  The scheme was “market driven”, that is, it was prompted by market research conducted for the respondent in 1986.  As a result of that research, Mr Hill first approached a pharmacist in the City of Adelaide to start the scheme.  That pharmacy was not a Chem-mart pharmacy.  Its owners, however, owned or operated three other pharmacies in outer metropolitan suburbs each of which was a Chem-mart pharmacy.  Mr Hill also approached other pharmacists who, to his knowledge, operated a “chain” of pharmacies or who operated large pharmacies.  Each happened to operate Chem-mart pharmacies.  Some agreed to participate with the respondent.  Others did not.  He pursued inquiries of other pharmacists, including the pharmacists, by referral by word of mouth.  As it happened, the on-referral process from one pharmacist to another resulted in the approaches being made only to Chem-mart pharmacies.  I accept that that was not a deliberate plan on Mr Hill’s part.  It is not surprising that those within the same buying group would refer Mr Hill to others in that group, following his first contact.

When the respondent’s ‘Extras’ scheme for its Fund members started on 1 March 1987, or by the end of 1987, there were seventeen participating pharmacies of which all but the city pharmacy first approached were Chem-mart pharmacies.  The scheme offered both retail or over-the-counter discounts and prescription benefits for prescriptions under the Prescription Benefits Scheme (“the PBS”) operating under the National Health Act 1953 to members of the respondent using the participating pharmacies.

It is not necessary to have a detailed understanding of the PBS.  The Department of Health publishes a list of prescription items with a regulated dispensing price, and the patient contribution.  The Department reimburses the dispensing pharmacist the difference between the dispensing price and the patient contribution.  If the dispensing price is less than the patient contribution, the maximum price is the dispensing price and the patient contribution is paid only to that extent.  In respect of such prescriptions the pharmacist may charge less than the scheduled dispensing price.

In broad terms, the respondent’s arrangement with pharmacists was that it would contribute part of the dispensing price for PBS prescriptions so that the liability of the patient as a Fund member of the respondent would thus be capped.  Those persons who were members of the respondent and chose to contribute to the ‘Extras’ so as to qualify for pharmaceutical benefits under the respondent’s scheme I shall hereafter call “Fund members”.  In respect of non PBS prescription items, similarly the Fund member’s contribution would be capped and the respondent would pay the balance to the participating pharmacist.  In effect, the respondent fixed a maximum prescription fee payable by its Fund members for any particular prescription.  That fee was less than the patient contribution determined by the Department.  The Fund member would be charged that fee by the participating pharmacist.  To the extent to which that amount, less the reimbursement from the Department, represented a shortfall on the regulated dispensing price or the dispensing price for non PBS prescriptions, the respondent made up the difference.

Participating pharmacies provided regular information to the respondent, upon which appropriate calculations were based, and payments made to them to reflect those arrangements.  Funds used for that purpose by the respondent, of course, were generated from Fund members’ contributions.  The participating pharmacies thus had the benefit of the custom attracted by that arrangement from Fund members.  It was supported by the respondent’s promotion of its scheme to its Fund members, so that their custom would be directed to a participating pharmacy.  In addition, the respondent paid participating pharmacies an annual agency fee, with a base of $2,000 but which in a broad way was revenue related.

For their part, the participating pharmacists also agreed to provide Fund members with a 20 per cent discount off retail or over-the-counter items.

In the processes of the respondent up to the launch of its “Chemist Plus” scheme on 1 March 1987 (as it was then called), I have found that there was no particular focus on the participating pharmacies being Chem-mart pharmacies.

As the scheme developed, so issues arose.  The original participating pharmacy in Adelaide itself was proposing to close, so the respondent decided to acquire that business to maintain its presence in the central shopping and business area.  Reports and financial analysis was prepared from time to time.  At one point, the scheme was described as “the new ‘Chem Mart’ scheme” and it was reported that five new Chem-mart pharmacies were being added to the scheme from 1 October 1987.  No material available during 1987 shows any particular focus on, or commitment to, Chem-mart pharmacies only.  The scheme, as operating, was the subject of a substantial review during 1991.  A discussion paper, including options for change, was made available to the existing participating pharmacies, and their comments sought.  On 22 September 1992, a paper on proposed changes to the scheme was submitted to, and approved by, the respondent’s board.  Those changes included the addition of new participating pharmacies, changes to the minimum patient contribution, the introduction of a formal written agreement with participating pharmacies, and other changes.  There was no explicit focus in that process on the participating pharmacies being Chem-mart pharmacies.  The board of the respondent approved the then proposals.  Participating pharmacists were advised.  A consultation program took place with the participating pharmacists.  It is clear that Mr Hill was the person responsible for those changes from time to time.  He signed the papers and reports which went to the board.  He dealt with the participating pharmacists.  He negotiated for new participating pharmacies.  At no time during those considerations, other than the one occasion mentioned, was there an explicit focus on Chem-mart pharmacies apparent.

Over the period 1987-1993 Fund members from time to time requested the appointment of a participating pharmacy in their area.  Again, no focus on Chem-mart pharmacies was apparent on the part of the respondent in those communications.  In 1989, as one participating pharmacy (a Chem-mart pharmacist) was not prepared to make available the 20 per cent discount to Fund members in respect of “special” retail sales, it was terminated as a participating pharmacy.  Another Chem-mart pharmacy in the area was appointed as a participating pharmacy.  How it was selected is not disclosed by the evidence.  The respondent, through Mr Hill, sent a welcoming and explanatory letter dated 20 March 1989 to that pharmacy which enclosed a proposed draft letter to be sent to Fund members in the area by that pharmacy.  It included:

“Not only do you save with the best prices that we offer as a Chem Mart Chemist, but you are also entitled to the added H.B.F. special benefits.”

In fact, the participating pharmacist which was proposed to be terminated made further representations to the respondent, and it remained in the respondent’s scheme.

Over the years, there were changes or additions to participating pharmacies.  They were arranged by Mr Hill and approved by the board on Mr Hill’s recommendations.  Although several of the new pharmacies were Chem-mart pharmacies, not all were.  There were some participating pharmacies which had been Chem-mart pharmacies and which changed to either independent pharmacies, to the Amcal group, or in one instance one pharmacist with several pharmacies started his own Chemplus group.  There were at least two occasions when a Chem-mart pharmacy applied to become a participating pharmacy, but was refused.  The reason for that refusal was in each case that there was already a participating pharmacy in the general area, whose business might be impaired by accepting that application.

A major change to the respondent occurred on 3 April 1995.  It then became a public health fund.  As a result, it proposed further promotional signage to its participating pharmacies.  I shall refer to that topic later in these reasons.  It was as a result of that decision that it had 35,000 promotional brochures printed in April 1995.  They were effective 1 April 1995.  About half were sent by direct mail to Fund members in metropolitan Adelaide.  That is the only occasion when a general mail out of such material took place at any time material to this action.  In June 1995 that brochure was reprinted with 20,000 copies and in September 1995 with 20,000 further copies for metropolitan Adelaide.  When the brochure was first printed in April 1995, it listed the participating pharmacies by suburb and name.  It did not include addresses or telephone numbers.  It added at the end of that list “Chem Mart Pharmacies are in the Telecom White Pages under the listing - Chem Mart”.  There were listed twenty nine pharmacies of which twenty three were Chem-mart pharmacies; two of the other six were operated by pharmacists as part of a business which included a Chem-mart pharmacy as a participating pharmacy.  When reprinted in September 1995, the brochure listed participating pharmacies by suburb, name, address and telephone number.  It did not have the rider about Chem-mart pharmacies.  There were then listed thirty one pharmacies of which twenty four were Chem-mart pharmacies.

DEALINGS WITH THE PHARMACY IN ISSUE

At premises at 105 Goodwood Road, Goodwood, South Australia, Kenneth Ian Haddy and Pantaleo Amato (“the pharmacists”) have carried on business in partnership as retail pharmacists for some twenty years.  Goodwood is a suburb on the southern side of the City of Adelaide, and Goodwood Road runs north-south.  The pharmacists’ premises were on the eastern side of Goodwood Road.  For many years, and until 1 December 1994, they were licensed by Chem Mart Pty Ltd to use the Chem-mart name and generally operated their business as a member of the Chem-mart group of pharmacies.  That is because, in the latter half of 1994, the pharmacists decided they no longer wished to operate as a Chem-mart pharmacy.  Their reason was simply that they did not think the benefits of being a Chem-mart pharmacy warranted the licensing cost.  They gave notice to Chem Mart Pty Ltd.  From 1 December 1994, their business ceased to be a Chem-mart pharmacy.  The pharmacists’ business was, until 18 October 1994, carried on under the name “Ian Haddy.  Leo Amato - Goodwood Chemmart”.  From 21 October 1994 that business was carried on under the name “Ian Haddy - Leo Amato Goodwood Centre Pharmacy”.

There is an issue as to whether the respondent was notified of that decision or of that name change or when or how it learnt of those matters.  Mr Amato could not recall specifically informing the respondent that the pharmacists’ business had ceased to be a Chem-mart pharmacy.  There is no written record of such advice.  Mr Haddy said that he gave notice by telephone to the respondent in about October or November 1995.  The suggestion from Mr Haddy was that it was about the time of a proposed mail out planned for October 1995.  That evidence does not lie readily with the vagueness of his affidavit, nor with the terms of his statement apparently given to the applicant in about June 1996.  He said that he was aware that the brochure of the respondent issued in April 1995 described the pharmacists’ business as “Goodwood Centre Pharmacy Chem Mart” and he wished to ensure that the printing of the next brochure did not describe the business as a Chem Mart business.  The brochure as reprinted in September 1995 described that business as “Goodwood Chem Mart”.  Regrettably, he was “forewarned” on this issue by Mr Haddy before giving evidence.  Mr Haddy had given evidence before him.  It is necessary to assess his evidence in that light.  As I have said, I am satisfied that he was a truthful witness.  I also accept that, upon reflection and despite his affidavit being less precise on the point, he was able to recall that he made some such contact.  I am however not satisfied that his identification of its timing is of itself reliable.  I find that such contact was quite informal, certainly not direct to Mr Hill, and probably only late in 1995.  It may have been prompted by receipt by the pharmacists of the September 1995 reprint of the brochure.  I do not find that that communication came to Mr Hill’s attention before he first addressed the particular matters which give rise to this application.

Apart from that material, it is clear that the respondent learnt of that change of name by complaints or inquiries of its members in the latter part of 1995.  Again, there is no evidence which directly identifies when those matters arose.  It was prompted by the operations of another pharmacy on the opposite side or western side of Goodwood Road and about eighty metres south of the pharmacists’ premises.  That other pharmacy was at premises at 148 Goodwood Road Goodwood (“the other pharmacy”).  The other pharmacy had been operating also for some time.  It was also clearly after the steps had been taken to arrange for the September 1995 reprint of the brochure.  It was therefore in late 1995.

The other pharmacy, which specifically features in this case, was acquired by Peter Ting (“Mr Ting”) and Colin Roy Mellen (“Mr Mellen”) on 31 March 1995.  They already had a pharmacy at Cumberland Park:  the Cumberland Park Family Care Pharmacy.  It too is in a suburb of Adelaide south of the city and a little further south than Goodwood.  They had been unsuccessful in applying to become a participating pharmacy with the respondent in respect of that pharmacy at Cumberland Park.  They had been told that that was because the respondent already had a participating pharmacy at Goodwood.  That must have referred to the pharmacists’ business.  When that earlier application was made is unclear, but it was in about 1993.  The response they received was consistent with the practice of the respondent to endeavour to ensure its participating pharmacies were not so close as to damage each others business.

Prior to its acquisition on 31 March 1995, the other pharmacy was operated under the name Goodwood Day/Night Pharmacy.  When Mr Ting and Mr Mellen acquired it, they registered the name “Goodwood Day/Night Chem Mart” and operated the other pharmacy under that name.

I return to the dealings between the pharmacists and the respondent.  In 1987, as a result of discussions between Mr Hill and the pharmacists, the pharmacists orally agreed with the respondent to become a participating pharmacy of the respondent.

On 3 May 1993, after discussion between Mr Hill on behalf of the respondent and the pharmacists, that oral agreement was substituted by a written agreement in the form in evidence (“the agreement”).  From the point of view of the pharmacists, it merely formalised the terms of the oral agreement.  It is more precise and detailed in its terms than was the oral agreement, and reflected a range of financial obligations and benefits dependent upon the gross value of over-the-counter sales of the pharmacists and the relationship of the gross value of such sales to the average gross sales of such items by other participating pharmacies.  In practical terms, given the size of the business of the pharmacists, it made little or no difference to their obligations under the previous oral agreement or to the benefits they received under it.

Clauses 4 and 6 of the agreement provided:

“4.     In the event of any breach of this agreement by the Pharmacist HBF reserves the right to withdraw the provision of prescription benefits in respect of prescriptions dispensed to members by the Pharmacist.  Any such withdrawal will be effective from the expiry of seven (7) days written notice provided to the Pharmacist and no benefits will be paid in respect of prescriptions dispensed to members after the date of expiry of the notice.

. . .

6.     This agreement may be terminated by HBF at any time upon the expiration of thirty (30) days written notice provided to the Pharmacist.  No benefits will be paid in respect of prescriptions dispensed to members after the date of expiry of the notice.”

There was, as one might expect, some more or less regular contact between the pharmacists and the respondent, in particular through Mr Hill, in the years following 1987.  There were also some informal meetings between some pharmacists participating in arrangements with the respondent, to discuss possible improvements in the relationship between themselves and the respondent to their mutual benefit.  At one point, a liaison committee of such participating pharmacists was established to put on a more formal basis the means whereby participating pharmacists dealt with the respondent.  Neither of the pharmacists played an active role in that committee.  Although one issue which was addressed through that committee was whether all participating pharmacies were giving to Fund members the agreed 20 per cent discount on over-the-counter items when the particular pharmacy was selling an item or items at “special” prices, I accept the pharmacists’ evidence that they did give that 20 per cent discount on all such sales.  No conduct on their part on that topic provided the respondent with a reason to terminate the agreement.

At no time up to 22 January 1996 did the respondent, either through Mr Hill or anyone else on behalf of the respondent, indicate to the pharmacists that the agreement then in force between them was unsatisfactory from the point of view of the respondent.  The relationship between the pharmacists and the respondent to that time had been, as far as appearances and including any communications show, a satisfactory one.  No issue had been raised by the respondent expressing any concern about the size of their business.  Of the participating pharmacies with the respondent, the pharmacists’ business was, by a significant margin, the smallest.  In respect of each of the calendar years 1992-1995, it had the lowest number of prescriptions in number and dispensing value.  (I exclude from that observation two pharmacies as each of those two pharmacies was owned by a pharmacist who had another participating pharmacy in the same area, and the “bundling” of each of those two pharmacies with its complementary pharmacy was regarded by the respondent as appropriate).  The size of their business has not altered significantly over that period.  The pharmacists’ business, on those measures, was performing at about 70 per cent of the next lowest pharmacies (of which there were three during 1995), and very much less well than the larger pharmacies.  As might be expected, a similar picture is presented, whether the measurement is gross retail sales, gross retail sales to Fund members which attract the 20 per cent discount, or the numbers of such transactions, or other turnover related measurements.  It also had the worst, i.e. lowest ratio of prescription sales to retail sales of any of the participating pharmacies.

Signage was a matter of discussion between the respondent and its participating pharmacies when the respondent was planning to become a public health fund.  It wanted to promote its signage at its participating pharmacies.  It acted to facilitate increased signage by window decals, shelving wall signage, and exterior and interior illuminated signs.  It invited the participating pharmacists to complete a signage order form.  The pharmacists did so.  They did not take up the offer to apply for an illuminated exterior sign, but ordered one each of the other options offered.  Prior to mid 1996, the pharmacists had only one external sign affixed to the front wall of their premises identifying their business as related to the respondent and promoting “Health Partners”.  It was only in mid 1996 that they ordered, and were supplied with, an illuminated exterior sign which has since been displayed.  No complaint or comment was made to the pharmacists on that score by the respondent at any time.

Administration of the arrangements recorded in the agreement between the pharmacists and the respondent was not very complex.  Appropriate records were kept by the pharmacists, and summarised monthly on forms provided by the respondent.  Those forms were provided to the respondent.  Presumably, they were then entered into the records of the respondent and checked in some way.  Generally, within two weeks of those forms being provided to the respondent, the pharmacists received a cheque representing their entitlement from the respondent under the agreement.  It was accompanied by computer summaries showing how that payment was calculated.  The evidence does not indicate any particular problems experienced in that process, especially in the period up to 22 January 1996.

There were other instances of the pharmacists being supported by the respondent.  In 1994 the respondent provided the pharmacists with addresses of those of its members within the pharmacists’ anticipated catchment area (selected by postcode), so that they could undertake a ‘mail out’ promotion.  It resulted in the revenue to the pharmacists’ business increasing a little.  The same occurred in late 1995.

Overall, there was nothing to indicate to the pharmacists up to January 1996 that their relationship with the respondent was unsatisfactory.  I find also that, judged objectively, there were no matters or communications between them which indicated any dissatisfaction on that score.  There was, in the relevant period, no dramatic or significant change to the turnover of the business of the respondents.  The only thing which changed was their decision not to continue as a Chem-mart chemist, and the consequences of that decision.

THE TERMINATION AND ITS AFTERMATH

On 23 January 1996 the respondent wrote to the pharmacists in the following terms:

“It is our policy that wherever appropriate we operate with Chem-Mart Pharmacies in our scheme.

You have deleted your Chem-Mart membership.  Accordingly, we advise the termination of our agreement with you effective 1st March, 1996.

I have appointed Goodwood Day/Night Chem-Mart to provide benefits for our members from that date.

Our agency fee with you has been paid to 31st December 1995.  We enclose a cheque for a further $1,000 which should provide ample compensation for the two months to 1st March 1996.

We will write to all our members in your area advising them of this change prior to the 1st March, 1996.

I take this opportunity of thanking you both for your service to our members.  I have certainly enjoyed our spirited discussions over the years.

I wish you both all the very best for the future.”

It was signed by Mr Hill on behalf of, and as Chief Executive Officer of, the respondent.  The pharmacists were both surprised and disappointed to receive that letter.  As I have found, they had no reason to anticipate or expect it.

By letter dated 30 January 1996 the pharmacists responded to that letter.  They expressed their dismay at the decision.  They recorded their long years of service to Fund members without complaint from any member or from the respondent.  They put forward reasons, both commercial and personal, why they regarded the decision of the respondent as erroneous, and as “morally unacceptable and completely unfair”.  They asked the respondent to reconsider its decision.  One significant part of that letter stated:

“We and our staff have put in much time and effort in establishing this clientele and for you to withdraw from our agreement and offer it to our immediate opposition because of their association with Chemmart (completely ignoring our long standing in the Goodwood community) is most unjust and we note there are several other pharmacies operating under the scheme who are not members of Chemmart.”

The respondent’s response, by letter of 5 February 1996, was short and to the point.  Again it was signed by Mr Hill.  It stated:

“Thank you for your letter dated 30th January, 1996.  Whilst I can understand that you would prefer to maintain our agency, it is our decision to change to a Chem Mart pharmacy.  It is true that we have other pharmacies in our scheme that are not Chem Mart pharmacies.  However, with all these pharmacies there is no Chem Mart alternative, and it is our preference to maintain Chem Mart pharmacies wherever possible.

Thank you once again for your service to our members.”

The Pharmacists consulted solicitors.  By letter of 26 February 1996, they wrote to the respondent.  That letter asserted that the conduct of the respondent, in terminating the agreement, constituted “third line forcing in breach of the exclusive dealing provisions” of the Act.  It drew attention to the penalties applicable under the Act.  It called upon the respondent not to terminate the agreement, and threatened proceedings if it did not promptly acknowledge that the agreement was not terminated.  By letter dated 28 February 1996, solicitors for the respondent responded in the following terms:

“Our client considers it has not breached the provisions of the Trade Practices Act 1974 in giving your client notice of termination of the Agreement dated 3 May 1993.

It’s sole purpose is to provide high quality services to its members at the most cost effective rate.  To this end, it sees no benefit to be derived from entering into protracted legal proceedings with your client that are unlikely to further this purpose, irrespective of the outcome.

Accordingly, it proposes that:-

1.     It withdraw the Notice of Termination and allow the arrangement to continue in the terms of the agreement dated the 3 May 1993;

2.     It write to those of its members who have been notified of the appointment of a new Health Partners Pharmacy to replace your client, advising of the continued appointment of your clients.  Having not heard further from your clients subsequent to its letter to them dated 5 February 1996, our client had written to its members advising them of the proposed change.  Your clients would also be reinstated in the list of Health Partners Pharmacies; and

3.     You notify the Australian Competition and Consumer Commission in Adelaide of the fact that the matter has been resolved.”

Those proposed terms of settlement were not accepted by the pharmacists.  They had made additional demands which were not met.  There was a further exchange of correspondence between solicitors.  The respondent, in that correspondence, continued to deny that it had breached s 47 of the Act.  The respondent nevertheless, by its solicitors, on 29 February 1996 formally withdrew the notice of termination.  That withdrawal was not done as a part of any settlement.  The evidence does not disclose how the ongoing issues between the respondents and the pharmacists were resolved, but it appears that they were.  The respondent restored the pharmacists to its coterie of participating pharmacies.  It continued, and continues, to treat the agreement as in force.

It had however written to 638 of its Fund members whose addresses by postcode reference indicated that they lived in the potential catchment area of the pharmacists’ business.  That letter is dated 23 February 1996.  It reads:

“We are very pleased to announce improved access to a Health-Partners Pharmacy in your area.  We welcome Goodwood Day & Night Chem Mart at 148 Goodwood Road, Goodwood as your local pharmacy from March 1, 1996.

Our new Health-Partners Goodwood Day & Night Chem Mart is open 7 days a week from 9.00 am to 9.00 pm.

We take this opportunity to thank Ian Haddy and Leo Amato of Goodwood Centre Pharmacy for the service they have provided Health-Partners members.  Goodwood Centre Pharmacy has withdrawn from the Chem Mart chain of pharmacies.  Our policy is, wherever possible, to use a Chem Mart Day/Night pharmacy.

We welcome Pharmacists Colin Mellen and Peter Ting and their staff to the Health-Partners Pharmacy Scheme.  Colin and Peter look forward to providing all the special pharmacy benefits and services you enjoy as a member of Health-Partners.”

That correspondence was followed shortly after by a further letter dated 1 March 1996 to the same Fund members in the following terms:

“Last week we wrote to you announcing improved pharmacy hours for you at Goodwood Day & Night Chem Mart.

A number of members have asked us to keep the existing Goodwood Centre Pharmacy in our scheme as well.

In response to this and other factors, we are pleased to provide the special Health-Partners benefits at both locations!

We look forward to working with both pharmacies to give you greater access to the most extensive pharmacy benefits.”

The respondent’s promotional brochure which I have described above was generally made available to the public, to Fund members and to potential fund members, and to participating pharmacies to be used to promote its services.  It is obviously a significant publication of the respondent in terms of its promotion.  It explains the health care benefits of membership, and includes details of the range of tables or membership levels available, the respective benefits of those various levels of membership, and a membership application.  The only general mail out of that brochure to members of the respondent had been in about April 1995 when the respondent became a public health fund.  The reprints in June 1995 and September 1995 were not circulated by general mail out.

In February 1996 the respondent re-issued that brochure, “effective from 1 February 1996”.  It listed thirty two participating pharmacies.  It excluded the pharmacists’ business, and included Goodwood Chem Mart at 148 Goodwood Road Goodwood.  In June 1996 that brochure was again re-issued “effective 1 February 1996”.  It listed thirty three participating pharmacies, including the pharmacists’ business, as well as Goodwood Chem Mart.  In error, the same telephone number was given for each.  It was the telephone number of the pharmacists’ business.  That error was corrected in the next reprint of the brochure.

THE ISSUES

The allegation in the statement of claim is that by that conduct the respondent failed or refused to supply services to the pharmacists pursuant to the agreement for the reason that they had ceased to be a Chem-mart pharmacy.  It also asserts that the breach is made out by reason of the brochure published in February 1996, in particular by excluding the pharmacists’ business from the list of participating pharmacies in that brochure, and by not withdrawing it from circulation.

I have referred to the correspondence only to the extent necessary to record the significant communications which touch upon the respondent’s reason or reasons for its termination or purported termination of the agreement.  It was accepted that if the reason in fact was as recorded in that correspondence, a contravention of s 47(7)(a) of the Act would be made out, so long as there was conduct which amounted to a refusal to supply services to the pharmacists.

The relevant provisions of s 47 of the Act are:

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

. . .

(7)   A corporation also engages in the practice of exclusive dealing if the corporation refuses -

(a)        to supply goods or services to a person;

. . .

for the reason that the person or, if the person is a body corporate, a body corporate related to that body corporate has not acquired, or has not agreed to acquire, goods or services of a particular kind or description directly or indirectly from another person.

. . .”

There is no dispute that the respondent is a corporation, or that its business is in trade or commerce.  There is no other part of s 47 which, in the present circumstances, limits the operation of ss 47(1) and (7)(a) of the Act; in particular there is no notice under s 93 of the Act so as to invoke the operation of s 47(10A).  There is no dispute that the conduct of the respondent, if the agreement had been terminated, would have amounted to a refusal to supply services to the pharmacists.

The main issue is whether the applicant has proved that the reason for that (proposed) termination and the form of the February 1996 brochure of the respondent is that the pharmacists had not acquired, or had no longer agreed to acquire, goods or services from Chem-mart.  In that regard, s 4F(b) of the Act provides:

“For the purposes of this Act -

. . .

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

(i)         the person engaged or engages in the conduct for purposes that included or include that purpose or for reasons that included or include that reason, as the case may be; and

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

The defence was really one of confession and avoidance.  The respondent acknowledges the proposed termination of the agreement, and that the letter of 23 January 1996 purports to recite its reason for that termination.  It could hardly do otherwise.  It does not contend that, if that recorded reason were in fact its reason, or one of its substantial reasons, for that action, then that reason would constitute a contravention of s 47(7)(a) of the Act if there was also a refusal by it to supply services.  But it denies that the fact that the pharmacists’ business had ceased to be a Chem-mart chemist was its reason, or indeed any part of its reasons, for that action.  It denies the truth of what its correspondence asserts on its behalf.

The only witness it called was Mr Hill.  It bolsters its position by the fact that there is no commercial relationship between itself and Chem Mart Pty Ltd.  Thus (it says) it has no reason for tying its participating pharmacies to Chem-mart.  In part, as each of the brochures in evidence shows, a large majority but not all its participating pharmacies were Chem-mart pharmacies.  There is insufficient evidence to discern whether, in each suburb where there is a participating pharmacy that is not part of the Chem-mart group, there is or was available to the respondent a suitable Chem-mart pharmacist.  I have noted above two instances where an application by a Chem-mart pharmacy to participate in the respondent’s scheme was refused because of existing participating pharmacies, and in one of those cases the existing participating pharmacy was not a member of the Chem-mart group.

The defence then pleads that the agreement was terminable on thirty days notice, that the respondent’s policy in the selection of participating pharmacies included factors such as location, day/night operations, size and nature of business, numbers of Fund members in the area, and the available level of services to Fund members.  It specifically pleads the reasons for its termination of the agreement as follows:

“14.   (c)        that the respondent decided to terminate the written agreement with the Pharmacists for the reasons that:

(i)         the Pharmacists did not operate a seven day pharmacy and did not operate with after hours trading;

(ii)        it appeared to the respondent that the Pharmacists did not provide an appropriate level of service in comparison with other participating pharmacies and that that position was not likely to improve;

(A)        the Pharmacists’ financial results for prescription business had remained static for 1992, 1993 and 1994 compared with increases in the overall prescription business of the respondent;

(B)        the retail sales of the Pharmacists remained static for 1992, 1993 and 1994 compared with substantial increases in retail sales by other pharmacies with similar agreements with the respondent;

(C)        the Pharmacists’ pharmacy had the highest recorded ratio of retail sales to prescription sales of any participating pharmacy in the Health Partners scheme for the 1992, 1993 and 1994 years;

(D)        by ceasing to be a member of a buying group and by not having a strong enough business to operate without the competitive advantage of a buying group, the pharmacists might become even less competitive and offer a lower level of service to members of the respondent’s fund.

     (d)        that the statement contained in the letters to the Pharmacists dated 23 January 1996 and 5 February 1996 was not the reason for the termination of the written agreement.”

It is principally upon that part of the defence that this matter will be resolved.  In addition, the respondent disputes that its conduct constituted a refusal under s 47(7)(a) of the Act as, prior to termination of the agreement of which notice had been given, it withdrew that termination.

The respondent also contends that, in any event, it is inappropriate for any injunction or other relief to be ordered against it, because it withdrew the termination of the agreement before it became effective and is unlikely to engage in any such conduct in the future.

As I noted above, apparently some time after 23 January 1996, the respondent in February 1996 or perhaps in late January 1996 had caused its promotional brochure to be reprinted.  It excluded the pharmacists’ business from the list of its participating pharmacies.  The evidence shows that the version of the reprinted promotional brochure “effective 1 February 1996” and printed in about February 1996 (from which the name of the pharmacists’ business was excluded) was made available to Fund members and the public at the respondent’s premises, and was also provided to participating pharmacists upon request for replacement brochures to be available at those pharmacies.  It remained available to Fund members and to the public at least at four of the nine pharmacies which were checked by the applicant in August 1996 for that purpose.

Mr Hill gave evidence that he timed the letter to the pharmacists of 23 January 1996 and the availability of the brochure reprinted in about February 1996 to more or less coincide.  Thus he probably held back the letter for a little time.  He anticipated some adverse reaction to it from the pharmacists and from Fund members.  The publication of the reprinted brochure would enable him to present the decision as a fait accompli.

When the brochure issued in February 1996 was made available to the pharmacists on about 28 March 1996, the pharmacists added to their copies a small sticker adding their name.  Each deposed also to having caused a letter to be sent to the respondent requesting the omission be rectified.  However, Mr Amato was unable to recall drafting or signing or seeing any such letter, although he did discuss it with Mr Haddy.  He assumed the letter was sent.  Similarly, Mr Haddy did not recall the letter being sent, although it was discussed.  In the absence of the letter, or a copy, being produced, I find that probably the pharmacists discussed sending such a letter but ultimately did not get around to doing so.  Each may have expected the other to do so.  In my view, nothing really turns on their failure to request such a correction.

MR HILL’S EVIDENCE

At some point during 1995, Mr Hill came to learn through his staff that some Fund members had complained that they were not getting benefits from the “Goodwood Chem Mart”.  Mr Ting, one of the partners in the Goodwood Day/Night Chem-mart also contacted Mr Hill as Fund members were seeking discounts at the other pharmacy.  He said that Mr Ting asked informally if the other pharmacy could become a participating pharmacy of the respondent.  Mr Ting did not give evidence, but as noted below, Mr Mellen did not confirm that assertion.  Mr Hill said that, Fund members had complained that they were going to the other pharmacy, now a Chem-mart pharmacy, but they were not getting discounts.

Consequently Mr Hill set upon a “review” of the pharmacists’ business.  He said that review was “in accordance with our policy”.  He was aware that it did not operate on a seven day basis, or after hours.  He had previously done nothing about that.  He was aware it had a relatively low turnover.  He was aware it had “a lack of stock”.  He had done nothing about that.  He asserted (contrary to the pharmacists’ evidence) that in 1992 or 1993 they had declined Fund members 20 per cent discount on some retail sales, but after discussion with the pharmacists that problem no longer persisted; Mr Hill was satisfied that thereafter they gave the proper 20 per cent discount.  Despite that, he considered their (alleged) earlier failure to provide that discount when considering whether to terminate the agreement.  I regard that matter as somewhat implausible.  He examined the data concerning their retail sales, total benefits paid for prescriptions and number of prescriptions of the pharmacists’ business.  It was both relatively low, and static.  It had been so for some years.  He noted by way of contrast that the overall retail sales and prescription benefits of participating pharmacies were increasing.  He also noted that the ratio of prescription sales to retail sales of the pharmacists’ business was relatively low, and significantly so, when compared to other participating pharmacies.  He was concerned that their business, because it was no longer a Chem-mart pharmacy, was not part of a buying group and might be less attractive to Fund members.  It would not have the benefit of larger group purchasing power, or be able to offer the group specials, or carry the range of stock of the buying chain.  He made no inquiries of the pharmacists in that regard.  He was aware that a number of participating pharmacists had either changed from the Chem-mart group to the Amcal group or had become independent of any buying group, but they were larger.  Thus, he says, he feared that the pharmacists would no longer be able to offer an appropriate level of service to Fund members, i.e. lower prices, specials and range of stock.  He decided in October or November 1995 to terminate them.  He did not discuss any of these matters with them.  He deferred implementing that decision until closer to the availability of the reprinted February version of the brochure.  There is no evidence that any particular analysis was done as to the net benefits to the respondent of their participation over the years, or in respect of say the 1994 or 1995 years or, in particular, the point at which the $2,000 per annum agency fee became an uneconomic payment to the respondent.  He thought the other pharmacy, with seven day and day/night operations, would better serve the Fund members interests.

There was no detailed report of any of those matters to the board of the respondent.  Mr Hill’s reports to the board of the respondent in September 1995, and in December 1995, referred to new participating pharmacies in laconic terms, including the following:

“Goodwood (Goodwood Chem Mart replacing Goodwood Pharmacy)”

He arranged for Mr Ting and Mr Mellen to sign a copy of the written agreement.  The subsequent course of correspondence is set out above.

Mr Hill says that the reason for his action was not as stated in his letters of 23 January 1996 and 5 February 1996 to the pharmacists.  He explained what his reasons were, and why he did not express them to the pharmacists (or to his board) as follows:

“I thought that their business was not providing an adequate service to members and that it was a poor business operation.  I thought it would have been insulting for me to tell Messrs Haddy and Amato what I thought of the problems with their business and why their business with this Fund was at such a low level.

It was for this reason that I thought it was convenient to use their cessation with Chem Mart as the reason advanced for terminating their agreement.

This was a convenient reason for me to offer.

I thought that it would avoid a confrontation with both Haddy and Amato and with certain of our members who would be likely to prefer to use that pharmacy.

It would also save Haddy and Amato embarrassment with our members.”

He also refers to the subsequent correspondence  He asserts that, following the letter to 638 Fund members on 23 February 1996, the respondent received a number of requests from Fund members requesting that the pharmacists’ business remain as a participating pharmacy.  There was no evidence that those persons’ requests were not recorded, or that the Fund members concerned were not available to give evidence.  None were called.  It must have been a prompt response from a large number, as Mr Hill said that he did expect some adverse reaction from some Fund members.  The 638 letters to Fund members were dated, and presumably posted, on 23 February 1997.  The withdrawal of the termination notice was advised to the pharmacists’ solicitors by the respondents’ solicitors by letter dated 29 February 1996, only six days later.

At the board meeting on 19 March 1996, Mr Hill’s report was in the following terms:

“Following discussions with the Chairperson, a minor change was made to the Pharmacy Scheme by changing the Goodwood Pharmacy to a Chem-mart across the road.  The reason for this change was that the pharmacy across the road had extended hours, operating seven days per week.  Also the retail sales recorded by the existing Goodwood Pharmacy hardly justified the agency fee we were paying to support them.  Unfortunately, in making this change I made an error in writing to Goodwood Pharmacy and advising them that one of the reasons for the change was that they had dropped the Chem-mart name and that we were changing to a Chem-mart across the road.  In making this statement I could have technically breached the Trade Practices Act.  Following advice from our solicitors they recommend that we retain the Goodwood Pharmacy and also the Chem-mart pharmacy across the road and we now have two pharmacies in the Goodwood area.  Apart from the on-going $2,000 annual agency fee which we are currently paying to the Goodwood Pharmacy there is no additional cost in having two pharmacies in Goodwood.  Also there is no requirement for us to pay this agency fee although the Chairperson feels that it is a good idea to continue paying the agency fee at this stage.”

THE REASON OF THE RESPONDENT

It was not contended that, for the purposes of this application, Mr Hill’s reason or reasons for the conduct complained of are not attributable to the respondent.  He was clearly the person within the respondent who had the role and responsibility of determining whether to terminate the pharmacists’ agreement and of taking action associated with that decision.  He reported to the board of his decision.  Apart from apparently discussing the matter informally with the chairperson of the board, no one else played a role in the decision.  The chairperson did not give evidence.

In reaching my conclusion on the respondent’s reason for the conduct complained of, or more accurately whether its reason or a substantial reason for that conduct, was because the pharmacists were not prepared to operate as a Chem-mart pharmacy and to acquire the Chem-mart products and services, I have carefully considered Mr Hill’s evidence.  I am mindful of the fact that the onus of proof on that question at all times lies upon the applicant.  The standard of proof is the civil standard, namely the balance of probabilities:  Trade Practices Commission v Nicholas Enterprise Pty Ltd (No 2) (1979) 40 FLR 83.  However, it is necessary to bear in mind the gravity of the matters alleged and the potential consequences to the respondent of an adverse finding in determining whether the necessary degree of satisfaction on the evidence has been reached:  Briginshaw v Briginshaw (1938) 60 CLR 336 at 347 and 362.

I have reached the view that the applicant has discharged that onus of proof in this matter.  I reject Mr Hill’s evidence that the withdrawal of the pharmacists from Chem-mart membership played no role in his decision.  It is in my view established to the necessary degree that the fact that the pharmacists had withdrawn from, and apparently were no longer prepared to maintain, their membership of the Chem-mart group was a substantial reason for his decision.

There are a number of reasons for forming that view.  Some are difficult to express, simply because they reflect my assessment of Mr Hill’s presentation as a witness.  I have made a number of observations above where, if his evidence were correct, other action than in January 1996 would or could have been taken.  I shall not repeat them.  I formed the view also that he was too readily prepared to make indisputable facts fit into his explanation for his decision when they did not readily do so.  An illustration is provided in relation to his identification of the “problem” which confronted him in late 1995 when both some Fund members, and Mr Ting, contacted him about Fund members seeking their discounts at the Goodwood Day/Night Chem-mart.  Mr Hill described that “problem” as one involving Fund members wanting to deal through the other pharmacy.  The evidence of Mr Mellen, which I accept, placed a different emphasis on the problem.

From 31 March 1995, when Mr Ting and Mr Mellen took over that pharmacy, they traded as Goodwood Day/Night Chemmart.  At about that time, they again applied to the respondent to become a participating pharmacy.  They were refused because the respondent already had a participating pharmacy at Goodwood, namely that of the pharmacists.  The respondent then believed that the pharmacists were still operating a Chem-mart pharmacy, although that arrangement had been cancelled some months beforehand.  On Mr Mellen’s evidence, the later problem of confusion did not result in that request being renewed.  It was the respondent which initiated the proposal, late in 1995, for the other pharmacy to become a participating pharmacy.  Their request was simply for the brochure to be clarified.  The person for the respondent who was said by Mr Mellen to have made that contact, Mr Collett, was not called to give evidence.  By that time, the respondent was, I find, aware that the pharmacists had ceased operating as a Chem-mart pharmacy.  The problem of Fund members applying for benefits to the “Goodwood Centre Chemmart” may have resulted simply from Fund members using the April 1995 brochure of the respondent.  It did not give the address or telephone number of the participating pharmacies, and it described the pharmacists’ business as a Chem-mart pharmacy.  It no longer was.  The September 1995 reprint of that brochure also described the pharmacists’ business as a Chem-mart pharmacy.  It is understandable then how Fund members who did not regularly use the pharmacists’ business, and who consulted the brochure, might approach the Goodwood Day/Night Chemmart.  It was not a difficult problem to address; the detail in the brochure could have been changed.  It was not a problem related to service or performance of the pharmacists’ business.  The respondent could have done a mail out to Fund members in the area, as it did in February 1996 to announce the change.

The respondent did not check with the pharmacists as to their attitude to the possibility of the other pharmacy becoming a participating pharmacy.  That was the practice it had adopted in the past in such circumstances.  Instead, it simply negotiated with the other pharmacy, and reached an agreement with it.  So far as I can determine, the only material alteration to the circumstances which might explain that response is that the pharmacists’ business had ceased as a Chem-mart pharmacy, and the other pharmacy had commenced as a Chem-mart pharmacy.  The responses of Mr Hill to the application in about 1993 for the Cumberland Park Pharmacy, and in about April 1995 for the Goodwood Day/Night Chemmart, to become participating pharmacies noted above provide no explanation for why he approached the circumstances in late 1995 differently.  The performance of the pharmacists’ business had not materially changed.  On the two earlier occasions, he had rejected the applications because of the pharmacists’ business as a participating pharmacy.

I did not find Mr Hill’s explanation for expressing his reason for the decision as represented in his letters an acceptable one.  He had not, according to his evidence, been slow to initiate communications with participating pharmacists, including the pharmacists, when he thought they were not offering the proper retail discount.  He was prepared to act in a peremptory way, without notice to the pharmacists, and to time the notice to correspond with the proposed February 1996 brochure reprint so that there would be little opportunity for the pharmacists’ or Fund members to react.  It would not be ‘insulting’ to make a decision based on the volume of the pharmacists’ business.  The evidence adduced suggests that a clear picture on that aspect could readily have been presented to them, and not lend itself to refutation.  He did not explain in any satisfactory way why that would be insulting, or even if it were, why he would not express that concern.

In addition, there was no reason at that particular time to undertake the financial analysis which he then deposed to.  That could have been done earlier, either on a regular basis or when the two requests by Mr Ting and Mr Mellen to join the respondent’s scheme were rejected.  It was not.  Despite Mr Hill’s suggestion of a policy of regular review of participating pharmacies, no such review is established by the evidence.  If there were such a review, on the evidence the pharmacists’ business would have been an obvious target for re-assessment.  No evidence of any such review was given.  In fact, the respondent’s business was of so little concern, despite its performance figures, that Mr Hill may not have visited that business for some two years prior to his decision.  There is no evidence to suggest any cost-benefit analysis of the pharmacists’ business to see whether the $2,000 annual agency fee was justified.  I have found that, despite Mr Hill’s evidence, that business did not present persistent problems to the respondent.

The respondent has not led any evidence of seeking information as to the performance of the other pharmacy, and the evidence of Mr Mellen suggests it did not do so.  If the reason for the change was performance related, one would expect such information to be sought.  It was known that the other pharmacy operated for longer hours, but beyond that it was not known whether the volume of business it transacted was equal to or more than or less than that of the pharmacists’ business.

Mr Hill is adamant that it has never been the explicit policy of the respondent only to appoint, or to prefer, Chem-mart pharmacies as participating pharmacies.  There is no minuted decision to that effect, either at board level or at the pharmacy committee level.  There are participating pharmacies which are not Chem-mart pharmacies.  As I have noted, the evidence does not disclose whether, in those cases, there is an appropriate Chem-mart pharmacy within the area which is of an acceptable standard and location and which wished to participate in the respondent’s scheme.  Those minutes on the other hand do reflect a sensitivity, in the case of proposed new participating pharmacies, firstly to consult with nearby participating pharmacies and secondly not to permit such participation where that might adversely impact upon the business of a participating pharmacist.  That process was not undertaken in this instance.

I have referred above to withdrawal of the termination notice on 29 February 1996.  I do not accept that that was prompted by Fund members’ complaints.  I have given above my brief reasons for that conclusion.  I conclude that the explanation for the changed attitude is simply that the respondent, through Mr Hill, wished to avoid the consequence potentially flowing from terminating the agreement for a reason which contravened the Act, and his letter to Fund members of 1 March 1996 simply “dresses up” the change of heart.

Thus there are a range of matters about Mr Hill’s evidence which in varying ways confirmed, and in some respects contributed to, my impression that on this important aspect of the case, I should not place weight on his evidence.  I make it plain that I have not reached that conclusion readily, nor by some simple weighing up of the matters referred to, but with the benefit of seeing him give evidence and deal with a number of those matters as presented to him in cross-examination, as well as the significance of those factors of themselves.

I find that the reasons for the respondent engaging in the conduct complained of included, at least as a substantial reason, that which the respondent asserted in its letters to the pharmacists of 23 January and 5 February 1996 and in its letter to selected Fund members of 23 February 1996.  I am not satisfied that that reason was its sole reason.  It may well have been.  I suspect that that reason was intertwined with a general perception that the pharmacists’ business was a low performer relative to other participating pharmacies.  I am satisfied that the cessation of the pharmacists’ business as a Chem-mart pharmacy (when the respondent learnt of that matter) was more than just the occasion for the general review of its performance, and was itself a substantial reason for its conduct as evidenced by the letters to the pharmacists and the February 1996 reprint of its brochure.

BREACH

It was contended that the respondent had not breached s 47(7)(a) of the Act as alleged because, on the evidence, there had not in fact been a refusal to supply services to the pharmacists.  The proposed termination of the agreement was withdrawn before it was implemented, although the letters referred to amounted to a proposed refusal to do so.  The applicant alleges the refusal to have been effected by the respondent was by the termination letter of 23 January 1996, reaffirmed on 5 February 1997, and by distributing the February 1996 reprint of the brochure to the pharmacists, and to other participating pharmacies, and by not withdrawing those brochures from circulation.  The promotion of participating pharmacies through the brochures of the respondent is part of the services supplied by the respondent.

“Services” is defined in s 4(1) of the Act.  The benefits of the agreement generally, and of that promotional material, clearly fall within that term.  Section 4(2)(c) of the Act provides:

“In this Act -

. . .

(c)   a reference to refusing to do an act includes a reference to -

(i)         refraining (otherwise than inadvertently) from doing that act; or

(ii)        making it known that that act will not be done.

. . .”

Section 4C(b) of the Act relevantly provides:

“In this Act, unless the contrary intention appears -

. . .

(b)   a reference to the supply  . . .  of  . . .  services includes a reference to agreeing to supply  . . .  services:

. . .”

By that combination of definitions, in my view the contentions of the applicant are made out.  The findings I have made mean that the respondent, between 23 January 1996 and 29 February 1996, refrained from agreeing to supply services, namely those services previously supplied under the agreement (and, due to the period of notice necessary under the agreement, which it in fact supplied during that period) for the reason, or for a substantial reason, which s 47(7)(a) prohibited.  During that period, but more particularly between 23 February 1996 and 1 March 1996, its conduct also constituted such a refusal by making its attitude on that matter known by its letter to its relevant Fund members.  Those findings also mean that the respondent, from the time when it made available the February 1996 reprint of the brochure, and while it had currency in the marketplace, refrained, and thereby refused, to include the pharmacists’ business in its brochures and so to supply services to it.  That February 1996 reprint of the brochure was probably available in February 1996 and on 28 March 1996 it was provided to the pharmacists.  It remained current at least until June 1996.  That position was rectified to some extent by the June 1996 reprint of the brochure, but the evidence shows that the February 1996 reprint of the brochure was still widely available in August 1996.  Again, that refusal was for a reason prohibited by s 47(7)(a) of the Act.

RELIEF

The applicant seeks injunctive relief, findings of fact for the purposes of s 83 of the Act, and costs.  It does not seek any pecuniary penalty.  Nor was it sought to establish that the pharmacists had suffered any particular loss.  That may be simply because they have resolved their differences with the respondent.  In the event that I should find the allegations in the statement proved, the respondent opposes the granting of any injunction.

Both counsel referred me to ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248.  In that case, the appellant had engaged in four specific acts of resale price maintenance, contrary to ss 48 and 96(3) of the Act.  Pecuniary penalty was imposed.  The trial judge also granted injunctive relief.  The appeal was solely concerned with the correctness of the exercise of the discretion granting the injunction, having regard to s 80 of the Act.  After referring in detail to the nature of statutory injunctive powers, and to the evolution of s 80, Lockhart J at 256 said:

“. . . the court should be given the widest possible injunctive powers, devoid of traditional constraints, though the power must be exercised judicially and sensibly.”

His Honour added that, although the grant of public interest injunctions as for example under s 80 of the Act is not to be impeded by traditional equitable doctrines, considerations arising from such doctrines are not irrelevant.  Such questions as

“. . . questions of repetition of conduct or whether it has ever occurred before or whether imminent substantial damage is likely . . .”    (at 257)

are relevant, though not necessary, features to the exercise of the power under s 80 of the Act.  See also Gummow J to the same effect at 265-267, and French J at 268.

I have sought to apply the directions of the Full Court on this application.  The conduct I have found established against the respondent is serious.  It is in the public interest that such conduct should be marked with the Court’s disapproval.  On the other hand, as counsel for the respondent pointed out, the respondent has no commercial relationship with Chem Mart Pty Ltd.  Its conduct was not directed to benefiting that company.  There is nothing to indicate that the conduct of the respondent as found in relation to the pharmacists’ business had occurred to the detriment of any other person in the past.  There is, in my view, very little likelihood of the respondent engaging in similar conduct in the future.  In the events which happened, the pharmacists were not at any time deprived of participating in the respondent’s scheme, save for being excluded from the respondent’s February 1996 reprint of the brochure which was in currency for a number of months.  The pharmacists responded to that problem by simply adding their business name to the copies of the brochure they had available.  There is no evidence suggesting that their omission from that reprint of the brochure, as made available at other participating pharmacies, caused them any particular loss, although in the nature of such things it is unlikely that any such consequence would come to their attention.  There is, on the other side of that coin, the fact that Fund members in their catchment area for custom received the letter of 1 March 1996 from the respondent, and that (as with the February 1996 reprint of the brochure) both the generally distributed brochure of April 1995 and its reprinted versions of June 1995 and September 1995, all of which referred to the pharmacists as participating in the respondent’s scheme, still may have had currency.

Notwithstanding the important considerations in the public interest to which I was referred by counsel for the applicant, in balancing the relevant considerations, I have in the exercise of my discretion decided that I should not grant the injunction sought.  I think in this instance the public interest will be sufficiently served by the recording of findings adverse to the respondent.  I accordingly formally record the following findings against the respondent in this matter:

1.         The respondent, in trade or commerce, engaged in the practice of exclusive dealing as described in par 2 below which constituted a breach by the respondent of s 47(7)(a) of the Trade Practices Act 1974.

2.         The practice of exclusive dealing referred to was, or was constituted by:-

(a)        During the period from 23 January 1996 to 29 February 1996 the respondent made it known to the pharmacists by letter dated 23 January 1996, that as from 1 March 1996 the respondent would refuse to supply services to the pharmacists pursuant to its agreement with the pharmacists dated 3 May 1993, for a substantial reason that the pharmacists had not acquired Chem-mart naming rights services and Chem-mart promotion and merchandising services from Chem Mart Pty Ltd.

(b)        During the period from 23 February 1996 to 1 March 1996 the respondent made it known to the respondent’s members by letter dated 23 February 1996 that as from 1 March 1996 the respondent would refuse to supply services to the pharmacists pursuant to its agreement with the pharmacists dated 3 May 1993, but would provide like services to Goodwood Day/Night Chem Mart pharmacy on the basis that it had become a Chem-mart pharmacy, for a substantial reason that the pharmacists had not acquired Chem-mart naming rights services and Chem-mart promotion and merchandising services from Chem Mart Pty Ltd.

(c)        From some time in February 1996 and by no later than 28 March 1996 the respondent refused to supply services in that it did not identify in its promotional brochures printed in about February 1996 the pharmacists’ business as participating with the respondent in providing health benefits by way of discounts off their normal selling prices for pharmaceutical and other products to be purchased from them by the respondent’s qualifying members, for a substantial reason that the pharmacists had not acquired Chem-mart naming rights services and Chem-mart promotion and merchandising services from Chem Mart Pty Ltd.

3.         For the purposes of the findings of fact referred to in par 2 above:

(a)        the respondent’s “qualifying members” means such of the respondent’s members who contributed to the respondent’s “gold extras” table and the dependants of such members, and members of the “police extras plan” who contributed to the “gold extras” table and dependants of such members, as set out in the said agreement dated 3 May 1993.

(b)        The services to be provided by the respondent to the pharmacists under the said agreement dated 3 May 1993 were rights or benefits by way of:-

(i)         rebates on the prices charged by the pharmacists for dispensing prescriptions to qualifying members;

(ii)        payment of annual agency fees in relation to the gross value of purchases from the pharmacists of non-prescription products by qualifying members each year;

(iii)        discounts on insurance contribution rates otherwise charged by the respondent to eligible persons; and

(iv)       identifying the pharmacists and their business as participating with the respondent in providing ancillary health benefits to qualifying members.

(c)        “Chem-mart naming rights services” means the right to use the names “Chem-mart” and “Chem mart” as part of the business name used by the pharmacists.

(d)        The term “Chem-mart promotion and merchandising services” means promotional merchandising material, quality control programs, point of sale material, marketing advice, national and state wide retail promotional services and product procurement services.

(e)        The respondent’s promotional brochures:-

(i)         were caused to be delivered to a number of pharmacies in about February 1996 and to the pharmacists on or about 28 March 1996;

(ii)        were titled “A Better Life Through Better Care.  Health Partners”;

(iii)        were marked “Effective 1/2/96”;

(iv)       were for the purpose of display and dissemination at such of the pharmacies listed in the promotional brochures as requested copies of the same; and

(v)        were caused to be delivered at least to the pharmacies known as Unley Road Chem Mart, Collinswood Chem Mart, North Adelaide Village Pharmacy and the Green Dispensary and were for the purpose of display and dissemination at those pharmacies.

In my view it is appropriate that the respondent should pay to the applicant its costs of the application to be taxed.  I so order.

Associate:

Dated:                          22 December 1997