FEDERAL COURT OF AUSTRALIA
Monroe Topple & Associates Pty Ltd v The Institute of Chartered Accountants in Australia [2001] FCA 1056
TRADE PRACTICES – applicant in business of providing support services to candidates undertaking studies for their “Professional Year” in order to qualify to apply to become members of respondent and to practice as “chartered accountants” – respondent incorporated by Royal Charter – respondent is only body which can authorise use of designation “chartered accountant” or acronym “CA” – respondent also sells support materials in competition with applicant and other entities – for enrolment fee in Professional Year modules, candidate automatically receives certain information about module, but candidate has option of buying or not buying respondent’s support materials – respondent replaces Professional Year Program with “CA Program” – for an increased enrolment fee, candidate is now provided automatically with module support materials as well as information about module – applicant complains that candidates in CA Program will not now buy any support material other than those provided by respondent upon payment of module enrolment fee – whether respondent performed its education and training function “in trade or commerce” – whether there was a “CA certification market”– whether there was a “certification market” – whether respondent had “substantial market power” in either of those markets – whether respondent took advantage of market power for anti-competitive purpose contrary to s 46 of Trade Practices Act 1974 (Cth) (“Act”) – whether respondent engaged in practice of exclusive dealing by imposing condition that candidates not acquire support materials from other suppliers in contravention of s 47 of Act – whether respondent entered into anti-competitive agreement or arrangement in contravention of s 45 of Act – whether respondent engaged in unconscionable conduct in contravention of s 51AC of Act – whether conduct can be unconscionable within s 51AC when neither party to the supply or acquisition complains and it is an unrelated third party against whom the unconscionable conduct is allegedly directed
WORDS AND PHRASES – “services” – “in trade or commerce” – “market” – “market power” – “substantial degree of power in a market” – “purpose” – “take advantage of”
Trade Practices Act 1974 (Cth), Part IV, ss 45, 46, 47; Part IVA, s 51AC
Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 applied
Plimer v Roberts (1997) 80 FCR 303 distinguished
Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) 167 CLR 177 applied
Re Queensland Co-operative Milling Association Ltd (1976) 25 FLR 169 followed
Australian Competition & Consumer Commission v Boral Ltd (2001) ATPR 41-803 cited
Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (t/as Auto Fashions Australia) (2001) 178 ALR 253 applied
Top Performance Motors Pty Ltd v Ira Berk (Queensland) Pty Ltd (1975) 24 FLR 286 followed
Kadkhudayan v W D & H O Wills (Australia) Limited [2001] FCA 645 cited
Warman International Ltd v Envirotech Australia Pty Ltd (1986) 11 FCR 478 followed
Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 35 FCR 43 cited
ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (1990) 27 FCR 460 cited
Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd (1982) 64 FLR 238 cited
Blomley v Ryan (1956) 99 CLR 362 cited
Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 cited
Hatfield v Health Insurance Commission (1987) 15 FCR 487 cited
Our Town FM Pty Ltd v Australian Broadcasting Tribunal (1987) 16 FCR 465 cited
Burswood Management Ltd v Attorney-General (Cth) (1990) 23 FCR 144 cited
Claremont Petroleum NL v Cummings (1992) 110 ALR 239 cited
Minister for Immigration & Multicultural Affairs v Mohammad (2000) 101 FCR 434 cited
Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (No 2) (2000) 96 FCR 491 cited
Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Pty Ltd (2000) 104 FCR 253 cited
Cameron v Qantas Airways Ltd (1995) 55 FCR 147 cited
Qantas Airways Ltd v Cameron (1996) 66 FCR 246 cited
Hurley v McDonald’s Australia Ltd (2000) ATPR 41-741 cited
MONROE TOPPLE & ASSOCIATES PTY LIMITED v THE INSTITUTE OF CHARTERED ACCOUNTANTS IN AUSTRALIA
N 826 OF 2000
LINDGREN J
6 AUGUST 2001
SYDNEY
| IN THE FEDERAL COURT OF AUSTRALIA |
|
| BETWEEN: | MONROE TOPPLE & ASSOCIATES PTY LIMITED APPLICANT
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| AND: | THE INSTITUTE OF CHARTERED ACCOUNTANTS IN AUSTRALIA RESPONDENT
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| DATE OF ORDER: | |
| WHERE MADE: |
THE COURT ORDERS THAT:
1. The application be dismissed.
2. The applicant pay the respondent’s costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
| IN THE FEDERAL COURT OF AUSTRALIA |
|
| BETWEEN: | MONROE TOPPLE & ASSOCIATES PTY LIMITED APPLICANT
|
| AND: | THE INSTITUTE OF CHARTERED ACCOUNTANTS IN AUSTRALIA RESPONDENT
|
| JUDGE: | |
| DATE: | |
| PLACE: |
REASONS FOR JUDGMENT
INTRODUCTION
1 The applicant (“MTA”) carries on a business of, to use the words of its further amended statement of claim (“the Pleading”):
“selling training materials to, and conducting training lectures at a post graduate level to assist, candidates undertaking studies to become certified as chartered accountants.”
That is MTA’s only business. The respondent (“ICAA”), is a body corporate constituted by Royal Charter which admits as members of it, with the right to use the appellation “chartered accountant” (and the acronym “CA”), persons who, already possessing an appropriate academic qualification, satisfy requirements stipulated by ICAA which are directed more specifically to competence to practise. For this purpose, ICAA sets the syllabus for practical studies, prescribes the method of assessment of the candidates’ performance, examines or otherwise assesses their attainment, and admits successful candidates to membership.
2 MTA complains that, in circumstances to be recounted, ICAA has engaged in certain conduct in a market, in which MTA competes, for the supply of “support services” to candidates undertaking studies for the purpose mentioned, which is prohibited by various provisions of Part IV of the Trade Practices Act 1974 (Cth) (“the Act”), and which has also constituted unconscionable conduct prohibited by s 51AC within Part IVA of the Act.
3 MTA seeks declaratory and injunctory relief as well as damages.
OUTLINE OF BAckground facts
4 ICAA was incorporated by Royal Charter granted on 19 June 1928. There have been Supplemental Royal Charters. The most recent one in evidence was issued on 23 August 2000. As well, ICAA has By-Laws and Regulations.
5 I was informed that in Australia there is no statutory restriction on practising as an accountant. However, the “badge” of membership of a professional accounting body is important in the accounting services market. The two major associations in Australia which provide that badge are ICAA and CPA Australia, which was formerly known as the Australian Society of Certified Practising Accountants (“the Society”). There are, however, others, including the National Tax and Accountants Association and the National Institute of Accountants. Members of ICAA and of the Society can be viewed as engaged in three principal areas of practice: as employees of “the Big Five” (formerly “the Big Six”) firms of chartered accountants, “second tier” firms and myriad small firms. The Big Five are PricewaterhouseCoopers, Ernst & Young, Deloitte Touche Tohmatsu (“Deloittes”), Arthur Andersen and KPMG (“the Big Six” included the two firms, Price Waterhouse and Coopers & Lybrand, prior to their merger into PricewaterhouseCoopers in 1998). ICAA has some 35,000 members and the Society some 90,000-100,000.
6 Membership of ICAA requires an approved university degree or other academic qualification, completion of ICAA’s Professional Year Program (“PY Program”) or (from 2001) CA Program, and three years’ full-time (or equivalent part-time) practical experience mentored by a chartered accountant in a work environment approved by ICAA (I address only “normal” admissions and ignore persons possessing overseas qualifications and other “special cases”). Accordingly, satisfactory completion of the PY Program or (from 2001) CA Program, is a necessary, but not a sufficient, condition of admission to membership. Upon applying to become a member of ICAA, a person must pay a prescribed application fee, as well as the initial membership subscription. Article 16 of the Charter provides that a member of ICAA may designate himself as a “Chartered Accountant” and may use after his name the acronym “CA”. By-law 32(a) provides for ICAA to issue a certificate of membership. The form of certificate of membership in use certifies that the person named in it was admitted to membership of ICAA on the date specified in the certificate “and is entitled to use the initials CA”. It is not disputed that only ICAA can permit the use of the designation “chartered accountant” or the letters “CA” and that it would be entitled to restrain an unauthorised person from using them. ICAA’s “admission to membership” and “certification” functions assume importance in the present case.
7 ICAA introduced the Professional Year (“PY”) in 1972. By means of the PY, ICAA formalised its position as to the skills to be attained between the tertiary academic stage and practice as a “chartered accountant”. Despite its name, the PY was not completed in a year: ordinarily the required number of PY modules would be completed over a period of one and a half years within a three year period of mandatory supervision by a chartered accountant. Until 2000, those modules were Accounting 1, Accounting 2, Taxation, Ethics and one of a range of “electives” which were in the nature of “advanced” studies. The first three have been referred to as “core technical modules”, and Ethics, a “core non-technical module”. A candidate did not enrol in the PY as such: enrolment was in the individual modules. Assessment in the modules in the PY Program was heavily weighted towards examination. In fact, 85 per cent of candidates’ marks was attributed to examination and 15 per cent to performance in “workshops”. The prerequisites and requirements of the PY Program (like those of the recently introduced CA Program) were set out in Regulations made by ICAA.
8 The nature and extent of what ICAA provided in respect of PY modules changed over the years. By the time of the recent replacement of the PY Program by the new CA Program it comprised:
(a) a module booklet, provided on enrolment, which included the syllabus, recommended reference material, information on the module and a number of exercises and problems to be completed by the candidate;
(b) face to face workshops by ICAA; and
(c) assessment.
9 Some State branches of ICAA provided a modicum of further assistance to candidates. For example, a State branch might arrange for particular members to give lectures with their areas of expertise. But the assistance was uneven between the States. In the mid to late 1980s and early 1990s, some of the larger firms, particularly some of the Big Six, developed more or less elaborate materials to assist their employees who were candidates in the PY Program, and, at least in some instances, for sale to such candidates generally. “PY support” became an important “recruitment tool”, that is, a means of attracting the best university graduates to become employees. Smaller firms were not in a position to offer this benefit. By 1995 KPMG, for example, had developed PY support materials which it not only provided as an employment benefit to its own employees, but also sold to other PY candidates. Another firm of chartered accountants which followed this course was Pannell Kerr Forster. The Queensland University of Technology (“QUT”) supplied PY support services to Coopers & Lybrand for the benefit of PY candidates employed by that firm.
10 The provision of PY support services was seen by graduates applying for employment as a valuable adjunct to other forms of remuneration that were being provided by prospective employers. That is, it assumed some importance that a firm of chartered accountants be in a position, in one way or another, to provide, or arrange for the provision of, PY support services for accounting graduates wishing to obtain employment with them.
11 ICAA determined on the syllabus and identified those competencies, possession of which a candidate was expected to demonstrate in an examination. As well, ICAA prescribed reading lists and tasks to be undertaken by candidates in connection with workshops which were designed to focus the candidate’s attention on the material to be learned for the purpose of the examination. ICAA did not, however, provide “comprehensive” support services of the kind provided by the likes of KPMG, Pannell Kerr Foster and QUT. Those support services were by way explanations, elaborations and stand-alone expositions, of the technical subjects.
12 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.
13 In late 1993 and early 1994, Barry Stanley 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. Professor Gary Monroe of Western Australia was already supplying training to PY candidates in that State. Mr Topple met Professor Monroe in November 1993. Mr Topple made several visits to Australia and immigrated to this country in April 1994. He became associated with Professor Monroe in MTA. Mr Topple had observed that PY candidates were obtaining support services from the Big Six or from other service providers including Professor Monroe, Hall Chadwick and Pannell Kerr Forster. He spoke to the Big Six about what he could offer their employees. Arthur Andersen, Deloittes and Price Waterhouse engaged MTA to provide support services to PY candidates employed by them. KPMG continued to provide such services to its own employees. In 1995 Ernst & Young also became a client of MTA. Coopers & Lybrand, however, used the services of QUT.
14 In the result, MTA was providing PY support services to the candidates employed by four of the Big Six. It also provided those services to non-Big Six candidates. I am satisfied that MTA provided PY support services to a substantial number and proportion of the candidates enrolled in modules in the PY Program.
15 ICAA commenced to sell support material to students in 1995, in competition with, inter alia, MTA. In particular, it developed “Technical Guides” which included solutions to the workshop problems that had been set in the same module in previous years (ICAA used to provide solutions to workshop leaders, but not to students). By the time of the recent events, which have given rise to this litigation and which are referred to below, ICAA was issuing to candidates, upon their enrolling in a PY module and paying the associated enrolment fee, a “module workbook”, and separately offering for sale to them, through its bookshop, the support material mentioned.
16 From 2001, the PY Program has been superseded by a “CA Program”. As appears in the chronological account of events below, this change resulted from a PY Review Task Force Report of December 1995 and subsequent work and deliberation within ICAA. In several ways the CA Program does not sit comfortably with the provision of support services by MTA. In particular:
· for an unidentified and unidentifiable part of the module enrolment fee, the candidate now receives substantial (ICAA describes them as “comprehensive”) support materials from ICAA itself, that is, the candidate cannot elect not to receive ICAA’s CA support materials and to take, for example, MTA’s instead;
· there is much less emphasis on examination as a method of assessment and much more emphasis on the candidate’s responses to workshop and other exercises set by ICAA;
· exercises given in ICAA’s workshops and questions it sets in the examinations are linked to the ICAA module materials.
17 In their written submissions, counsel for MTA outline the case their client seeks to make as follows:
“11. In 1998 the respondent resolved to combine into one package the printed materials that had previously been distributed and priced separately. The two bodies of material then existing were, first, the materials in ... the module workbook, comprising the course description, textbooks lists, workshop problems and other useful or general information concerning the course, and second, the Technical Guide, Exam[ination] Guide and a User[’]s Guide. Further, notwithstanding the Modules remained the same size, duration and method of presentation (with changes of name) the price of the aggregate was determined to be the same as the existing price of enrolment only.
12. This decision was in fact implemented for the first time in 2000 in the ‘Capstone’ module, a transitional module from the PY to the CA Program.
13. This decision was further implemented in 2001 by the introduction of the ‘FRA’ (Financial Reporting and Assurance) module, ... the first technical module of the new CA Program.
14. The materials supplied to students by the respondent as part of the Candidate Learning Package (‘CLP’) at no additional cost to the enrolment fee now include not only the material being the course description, examination description, ‘workshop’ (now ‘focus groups’) problems and two assignments (the assessment material) but also the technical material, the mastery of which is to be assessed.
15. This latter material was that which was previously contained in the Technical Guides of the respondent. The content of the Technical Guide was the equivalent (although briefer) of the material produced by the applicant, other accounting firms and other suppliers of technical material to students for examination.
16. A comparison of the CLP for the FRA module of the CA Program with previous PY Technical Guides produced by the respondent is contained at Annexure A to these submissions. [I discuss this comparison later.]
17. It is the conduct of the respondent in ‘bundling’ the technical material with the course description material, assignments and ‘focus group’ problems, and the supply of the bundle on enrolment in consideration of the enrolment cost that the applicant complains of in the proceedings.
18. The applicant contends that both the market for the supply of technical or instructional material (i.e. that which is to be studied, as distinct from that which deals with methods of assessment, assessment tasks and the like) and its own business is wholly or substantially compromised by the conduct of the respondent in bundling material and supplying them:
a. as an unseverable part of the enrolment package; and
b. at no separate price or cost.
19. The applicant contends that the conduct contravenes the Trade Practices Act in various respects more particularly set out below.”
the pleading
18 The following is what the Pleading alleges. In fact, however, there is no substantial controversy as to the facts: the dispute is as to their legal significance.
General
19 There are several markets which, the Pleading asserts, form part of the factual background to the proceeding. They include, but are not limited to, an “accounting services market”, a “certification market” and a “CA certification market”.
20 The “accounting services market” is defined as a market in Australia for the supply of accounting services by professionally qualified and recognised persons styled generally “accountants” and, in particular, accountants certified by, and described as members of, particular professional bodies, including the members of ICAA, who are known and described as “chartered accountants”, and the members of the Society, which are the principal participants in the certification market (6-9 – numerals in bold are references to paragraphs of the Pleading). ICAA admits the existence of the accounting services market.
21 The “certification market” is defined as:
“a market for the provision of the services comprising examination, and certification or admission into membership of learned societies of persons wishing to provide accounting services as members of, and using the name and style of the learned societies,¼.” (8)
22 The “CA certification market” is defined more narrowly as:
“a market for the supply of the service of the certification and admission to membership of the [ICAA] of persons as chartered accountants.” (10)
Paragraph 11 of the Pleading is as follows:
“Within Australia, at all material times, certification as, and the capacity of a member of [ICAA] to describe him or herself as, a chartered accountant, in the market for accounting services or otherwise, lawfully may be supplied by, and only by, [ICAA] by reason of [its] Royal Charter¼and convention.”
(Accordingly, the CA certification market is a sub-market of the certification market.)
23 As a result of the foregoing, ICAA has “substantial market power in the CA certification market and in the certification market”. As “particulars” the Pleading states that there is no close substitute in Australia for certification as a chartered accountant, which is a service supplied by ICAA alone, and a person’s capacity to participate in the accounting services market is determined or substantially influenced by his or her certification by, and membership of, a professional body such as ICAA (12).
24 ICAA and the Society, as part of the certification process, conduct examinations and other forms of assessment of the competence and learning of candidates for membership of them (13), and there has developed:
“a market for the education and training of accountants in general and candidates for admission to membership of learned societies and [ICAA] in particular” (“the training market”). (14)
At all material times MTA has carried on business in the training market as a trainer and educator of candidates for membership of ICAA (15). To become certified by ICAA as a “chartered accountant” a candidate must satisfy it that he or she has sufficient skills and competence in areas of accounting practice (“modules”) specified by ICAA (16). ICAA alone decides on the method of assessment of a person seeking membership of ICAA and certification as a chartered accountant (17, 18).
25 At all material times until 2000, the process by which ICAA determined the competence of, and, if appropriate, certified, persons as chartered accountants, was the PY Program (19). Until 1999 the modules in the PY Program were Ethics, Accounting 1, Accounting 2, Taxation and one of several elective modules, but, as a transitional measure, in and from 2000 the elective modules have been consolidated into a compulsory module called the “Capstone module” (20, 21).
26 In and from 2001, ICAA is introducing a new education program in substitution for the PY Program, called the “CA Program” (22). (The Capstone module will disappear after full implementation of the CA Program.)
27 ICAA has charged a fee to PY candidates on a “per module” basis in return for which a candidate was entitled to receive written material limited to a course outline and explanatory materials, to attend, participate in, and be assessed in respect of, workshops conducted by ICAA, and to sit for, and be assessed in respect of, examinations also conducted by ICAA (23, 24). Importantly, prior to the introduction of the transitional Capstone module in 2000, candidates did not receive in return for the enrolment fee, “module course materials or other training support” (“support services”) (25). On the contrary, where ICAA did produce support services, it sold them to candidates at a price separate from the module enrolment fee (26). (Part of MTA’s case is that ICAA has now “bundled” support materials produced by it into the mandatory enrolment process and fee.)
28 There was, within the training market:
“a market for providing support services to candidates undertaking studies to become certified as a chartered accountant” (“the CA support market”). (27)
(Accordingly, the CA support market is a sub-market of the training market.) From about 1994 there have been several participants as suppliers in the CA support market, including MTA (28). Until about 1994 ICAA participated in the support market and offered support services to candidates, then ceased doing so, then re-entered that market in late 1995, from which time it has been in competition with, inter alia, MTA (29, 30). From about 1994 the support services provided by participants in the CA support market have included written materials for use in private study which cover the syllabus set by ICAA for each module, examination guides and face to face teaching (31). Until 2000, in which year the sole exception was the Capstone module, all the participants in the CA support market have charged a fee for providing support services (32). As part of its participation in the support market, MTA entered into arrangements with several accounting firms to provide support services to their employees for payment by the firms, and has also contracted to supply support services to candidates directly (33). Since about 1994 MTA has had contractual arrangements with Arthur Andersen, Deloittes, Ernst & Young and Price Waterhouse (now merged into PricewaterhouseCoopers) for the provision of support services, including written course training materials and face to face teaching, and three of those firms, Arthur Andersen, Deloittes and Price Waterhouse, entered into three-year contracts with MTA in 1994 which were renewed in 1997 and which expired in 1999 (34).
29 During 1999 and 2000 ICAA published the following statements:
“(a) a new program called the CA Program will replace the PY program;
(b) the CA Program will begin in 2001, with enrolments into the first “preliminary module” commencing towards the end of 2000;
(c) in 2000 there would be a transitional module called the Capstone introduced to replace the elective modules in the PY Program. The Capstone module would be a case-based integrative module;
(d) the fee for the first Capstone module would be higher than for the other modules as the study material would be supplied at no extra cost and would be much more comprehensive and would make unnecessary any separate support material;
(e) the new CA Program will have five modules, the Preliminary, three Technical modules and a Final Integrative Module;
(f) the compulsory fee for each module in the new CA Program would include a comprehensive package of support materials;
(g) the materials included in the fee charged for each module in the new CA Program would reduce the need for additional materials other than the normal reference materials.” (35) (my emphasis)
30 In and from February 2000 (the enrolment date for the first offering of the Capstone module) ICAA has implemented, and it continues to implement, the actions foreshadowed in the statements referred to in subpars 35(c) and 35(d) of the Pleading (set out in [29] above) in relation to the Capstone module (35A). In and from February 2001 (the enrolment date for the first offering of a technical module in the CA Program) ICAA has implemented, and it continues to implement, the actions foreshadowed in the statements referred to in subpars 35(f) and 35(g) of the Pleading (set out in [29] above) in relation to the CA Program (35B).
31 (Paragraphs 1-35B of the Pleading, summarised above, plead facts which are the background to the following pleading of particular “causes of action” under the Act.)
Section 46 – taking advantage of market power
32 MTA’s case under s 46 (in Pt IV) of the Act is pleaded in pars 36-45 along the following lines.
33 ICAA is the sole provider of certification in the CA certification market and its conduct in that market is not constrained by the conduct of competitors, potential competitors or potential candidates in that market (36, 37). Accordingly, ICAA has substantial power in both the CA certification market and the certification market (38). ICAA’s conduct described in subpars 35(c)-(g) and pars 35A and 35B of the Pleading (see [29] and [30] above):
“does not and will not permit the supply of the services of enrolment, examination and certification to be separately priced or unbundled from the supply of support services.” (39)
Further, the pricing of support services by ICAA as so described is:
“predatory in that such services are ostensibly supplied at no cost to candidates so that the price is below the separate cost of production and delivery of the support services.” (40)
34 Accordingly, the purpose, or a substantial purpose, of ICAA’s described conduct in the CA certification market has been to eliminate or to damage substantially its competitors in the CA support market, or to deter or prevent persons from engaging in competitive conduct in the CA support market, or to do both (41). By engaging in that conduct, ICAA has taken, continues to take, and is likely to continue to take, advantage of its substantial degree of power in the CA certification market or the certification market (or both), for the purposes described in par 41 of the Pleading (42) and has contravened s 46 of the Act (43) and engaged in conduct of a kind referred to in par 80(1)(a) of the Act (44). (Paragraph 80(1)(a) empowers the Court to grant an appropriate injunction on the application of any person where the Court is satisfied that a person has engaged or is proposing to engage in conduct that constitutes or would constitute a contravention of a provision of, inter alia, Pt IV or Pt IVA of the Act.)
35 In consequence of ICAA’s described conduct, MTA has suffered and continues to suffer loss and damage. In particular, clients of MTA, including Arthur Andersen, Deloittes and PricewaterhouseCoopers, have declined to renew their contracts with MTA (45).
Section 47 – exclusive dealing
36 MTA’s case based on s 47 (in Pt IV) of the Act is pleaded in pars 46-57 of the Pleading along the following lines.
37 ICAA has supplied in the CA certification market and the certification market services of examination and assessment for a fee to persons seeking certification as a chartered accountant (47). In 2000 in relation to the Capstone module (part of the PY Program) ICAA has done so on the condition that candidates undertaking that module must acquire, in addition to the examination and assessment services, support services, including written course materials, from ICAA (48). In and from 2001 in relation to all modules forming part of the CA Program, ICAA has done so and will continue to do so on that condition (49).
38 Paragraph 50 is as follows:
“By reason of the unilateral and compulsory supply by the respondent of support material at no separate or apparent cost to the candidates for assessment and its representations to such candidates as set out in sub-paragraphs 35(d), (f) and (g) and paragraphs 35A and 35B above [see [29] and [30]], the purpose and effect of the conduct of the respondent is that it is a condition of the acquisition of the said support materials on the said terms from the respondent that the candidate will not, or will not except to a limited extent, acquire support material from other suppliers of support materials.”
39 Accordingly, ICAA has supplied, and is proposing to supply, services on condition that the acquirer will not, or will not except to a limited extent, acquire support services from a competitor of ICAA (51), and has engaged, and proposes to continue to engage, in the practice of exclusive dealing (52).
40 MTA and ICAA have supplied, and continue to supply, services in the CA support market and ICAA’s conduct has the purpose, or has or is likely to have the effect, of substantially lessening competition in the CA support market (53, 54).
41 Accordingly, ICAA has contravened s 47 of the Act and has engaged in conduct of a kind referred to in par 80(1)(a) of the Act (55, 56).
42 As a result, MTA has suffered loss and damage of the kind referred to in par 45 of the Pleading (see [35]) (57).
Section 45 – contract or arrangement substantially lessening competition
43 The Pleading pleads contravention of s 45 (in Pt IV) of the Act in pars 58-71 along the following lines.
44 In 2000, ICAA has made, and it intends to continue making, a contract or arrangement with each candidate who undertakes or proposes to undertake the Capstone module (60) and has given effect to, and intends to continue giving effect to, that contract or arrangement (61). The contractual arrangements with all candidates are in identical, or substantially identical, terms (62) and provide that a person undertaking the Capstone module:
“will be supplied with and must acquire, in consideration of the compulsory fee paid to the respondent to undertake that module, support services, including written module course materials, from the respondent at no separate price or cost and may not elect not to receive those services and not to pay so much of the fee as properly relates to the supply of those services.” (63)
45 ICAA’s described conduct has the purpose, or would have or be likely to have the effect, of substantially lessening competition in the CA support market in the following ways:
“(a) foreclosing entry of new competitors into the CA support market;
(b) preventing price competition or any effective competition in the market for the supply of training materials and support services in the CA support market as between the respondent and the applicant and as between other suppliers and the respondent;
(c) foreclosing or substantially inhibiting prospects of sales by existing participants in the CA support market;
(d) destroying or substantially damaging the business of each participant, other than the respondent, in the CA support market.” (64)
46 In and from 2001 ICAA has made and intends to continue making a contract or arrangement with each person undertaking a module in the CA Program (65) and has given effect to, and intends to continue giving effect to, such a contract or arrangement (65A). The contracts or arrangements with the candidates undertaking modules in the CA Program are, and will continue to be, in identical, or substantially identical, terms (66) and contain and will continue to contain a provision similar to that relating to the Capstone module in the PY Program referred to above (67). ICAA’s conduct in this respect has the purpose, or would have or be likely to have the effect, of substantially lessening competition in the CA support market in the ways particularised above in respect of ICAA’s conduct in respect of the Capstone module (68). Accordingly, ICAA has contravened s 45 of the Act and has engaged in conduct of a kind referred to in par 80(1)(a) of the Act (69, 70).
47 As a result, MTA has suffered loss and damage of the kind referred to in par 45 of the Pleading (see [35] above) (71).
Section 51AC – unconscionable dealing
48 Finally, MTA pleads contravention of s 51AC (in Pt IVA) of the Act in pars 72-78 of the Pleading along the following lines.
49 During 2000 ICAA has supplied, and intends to continue to supply, in trade or commerce, the following services in relation to the Capstone module to each candidate for admission to membership of ICAA:
“(a) examinations and other forms of assessment of the competence and learning of each candidate; and
(b) upon passing the Capstone module (being the final integrative module) and satisfying the respondent that the candidate has shown sufficient skill and competence to be certified as a chartered accountant, certification and admission to membership of the respondent.” (73)
50 In consideration of the fees paid and to be paid by candidates, ICAA has supplied and intends to continue to supply, in trade or commerce, written course materials in respect of the Capstone module, and has represented that no other support services are required or desirable for students to acquire (74). Accordingly, in connection with the supply or possible supply of the services mentioned, ICAA has engaged in conduct that is, in all circumstances, unconscionable in the following respects:
“(a) candidates are actively persuaded, by the representation, and economically induced or precluded, by pricing, from acquiring the support services of the applicant or any other participants in the CA support market, other than the respondent;
(b) candidates, as a matter of practical reality, are required to use the support services of the respondent, regardless of the quality of those services to the exclusion of any competitor's services;
(c) the applicant, as a matter of practical reality, is foreclosed from effecting any, or any but an insignificant number of, sales of its Capstone module course materials because the support services supplied to candidates by the respondent are:
(i) supplied on a compulsory basis;
(ii) acquired by candidates on an involuntary basis;
(iii) supplied on the basis that no separate price is charged or nominated for them;
(iv) supplied effectively without charge, whereas there is a substantial charge for support services supplied by the respondent in respect of other modules;
(v) physically included within other materials supplied by the respondent, being core and explanatory materials, which are essential to candidates in that they contain information about the module and instructions to candidates;
(vi) supplied in circumstances where the respondent has stated that its support services are superior to the support services produced by others in the CA support market, notwithstanding that the support services of the respondent substantially embody the approach utilised by the applicant in the materials which have been produced, developed and enhanced by the applicant, to the knowledge of the respondent;
(vii) supplied in circumstances where the respondent has stated that no other support materials are required by candidates for examination;
(viii) supplied in a manner which precludes the applicant from entering into competition with the respondent in relation to module course materials available for sale by the applicant; and
(ix) supplied in circumstances where that transaction and any sale of module course materials by the applicant are, and are intended by the respondent to be and are likely in fact to be, mutually exclusive.
(d) the purpose, or to the knowledge of the respondent the effect, of the conduct of the respondent, is, or includes, the destruction of the business of the applicant and any other participants in the CA support market;
(e) the purpose, or to the knowledge of the respondent the effect, of the conduct of the respondent, is, or includes, the appropriation to the respondent of the whole or a substantial part of the business of the applicant without purchase or compensation and without any discussion with the applicant;
(f) the conduct of the respondent constitutes unfair competition, in that the respondent, with market power in the CA certification market, has used that market power to destroy or substantially weaken its competitors in the CA support market, including the applicant.
(g) the conduct of the respondent towards the applicant at the time the applicant commenced providing support services, and subsequently to that time, provided an inducement to the applicant to continue providing those services and gave the applicant a legitimate expectation that the respondent would not act so as to prevent the applicant from providing support services and engaging in competition with the respondent if the respondent chose to provide support services.” (75)
51 Paragraphs 76-78 plead unconscionable conduct in and from 2001 in relation to the modules in the CA Program, in terms similar to those set out above in relation to the offering of the Capstone module as part of the PY Program in 2000.
legislation
52 The following are the relevant provisions of the Act, set out in the sequence in which they are referred to in the Pleading:
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) ¼
(2) ¼
(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.
. . .”
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 follows:
“services includes 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
(iii) ¼
¼
but does not include rights or benefits being the supply of goods or the performance of work under a contract of service.”
53 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.”
54 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 ... .”
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;
¼
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 ¼
. . .”
55 The definition of “services” in s 4 of the Act was noted in [52] above. Subsection 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 Subsection 47(13) defines certain terms used in s 47. Subparagraphs 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; ...”
The definition of “market” in s 4E of the Act was noted at [53] above. The relevant parts of s 4F of the Act were noted at [54] above.
Section 45 – contracts, arrangements or understandings that restrict dealings or affect competition
“(1) ¼
(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.”
The definition of “market” in s 4E of the Act was noted at [53] above.
57 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) ...”
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) ¼ ;
engage in conduct that is, in all the circumstances, unconscionable.
. . .”
Chronological sequence of events
58 It is convenient now to review, in chronological sequence, developments in and after 1994.
59 On 5 January 1994 Mr Topple met with Gillian Witten Cappelletto, the ICAA’s “Director, Education” (Ms Cappelletto held that position from 1990 to 2000 – she had been ICAA’s “National Education Manager” from 1987 to 1990, and has been its “General Manager, Professional Education” since 2000). (Mr Topple had first met Ms Cappelletto in August 1993). Mr Topple had already (in November/December 1993) spoken with Price Waterhouse, Deloittes, Ernst & Young and Arthur Andersen. (MTA commenced servicing Price Waterhouse, Deloittes and Arthur Andersen in July 1994 and Ernst & Young a year later, in July 1995.) Mr Topple told Ms Cappelletto that he was going to provide study materials to the firms for their employed PY candidates, and, in the case of some of the firms, lectures as well. Ms Cappelletto told Mr Topple that ICAA was considering ceasing to supply “Aspects to Consider” kits to candidates and that some State branches of ICAA had decided to discontinue the workshops they had been conducting.
60 In November 1994 the National Education Committee (“NEC”) of ICAA recommended to the ICAA’s Executive Committee that:
“1. The ICAA:
(i) issues 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 are developed to enable candidates to appropriately prepare for the assessment requirements of the module.
(ii) reinforces 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.”
The document which conveyed that recommendation was one from Ms Cappelletto and contained the following statement of the background to the recommendation:
“Since the commencement of the PY there have been a wide variety of courses offered.
The intensity of PY support increased in the late 80s when the Big 6 firms used PY support as a very valuable recruitment tool. The support intensified in the various firms and candidates were enticed to firms according to the amount of support provided to pass the PY. This created a reaction from small firms recruiting graduates who believed they were being disadvantaged because they were not receiving the same support as those in the Big 6.
In order to achieve an equitable environment for all candidates the Institute in most States started to provide PY support and the current support varies from State to State.
Over time in some States the offer of support courses had become quite demanding on staff time and Institute resources and in order to keep costs down sponsorship has been sought. In most cases the prices charged to candidates do not reflect the true cost, as indirect overheads are generally not allocated. This matter has received considerable attention during 1994 for a number of reasons:
1. Candidates receive information on PY support in module packs and in a number of States this has meant that information on sponsors has been included in module packs. Sponsorship generally has been by accounting recruiters and this has attracted the attention of the Big 6 who see provision of this material to all candidates as being the ICAA encouraging candidates to consider career moves.
2. The demand on staff time has caused concern about the priorities of the ICAA where it can be seen that less time is available for servicing mainstream PY candidates.
3. Comments from members about the cost of the PY, as the true cost is not just the Institute fee but also the PY support fee. Some years ago the Institute fees were seen as the only real costs of the PY with firms choosing to offer PY support. The mind set of candidates has changed in recent years to the extent that many believe that PY support is absolutely necessary to pass the PY and therefore they are putting pressure on their employers to provide it.
4. The number of private providers who have now come into the market. In particular Monroe Topple & Associates have been very active and other providers include Queensland University of Technology, Pannell Kerr Forster and Hall Chadwick. A number of the Big 6 are now using private providers for PY support. From a marketing point of view it is in the private providers’ best interests for candidates to believe that they cannot pass without having PY support.
5. The financial viability in some States has come into question to the extent that it is not seen as appropriate for mainstream PY candidates/members to be sponsoring the PY support courses.
Input from the State Committees responsible for PY support was also requested for the preparation of the report to the National Education Committee. The recommendations of this report are consistent with the views of the majority of the States.
If the above recommendation is accepted appropriate information would be provided to assist members in supporting the formal statement.”
Ms Cappelletto agreed that the NEC’s recommendation was essentially that ICAA not provide PY support but that the State branches provide co-ordination, counselling and the sale of past examination papers. She also said that, as at November 1994 and prior to that time, the States had provided a variety of haphazard and very low level PY support. She said she did not think the State branches were in competition with the private providers of support services because what the two were providing was so different. She said:
“If you look at what the States were doing, a lot of it was counselling of candidates, co-ordinating an ‘Aspects to Consider Kit’, which was past exam papers, not really in competition because it was so different.”
61 On 28 November 1994 ICAA’s Executive Committee considered the report from the Director, Education. The minutes of its deliberations include the following:
“With regard to the recommendation that the Institute issue a strong formal statement that technical courses offered as PY Support, while useful for some candidates, are not essential to pass the PY, Executive Committee indicated that before it would support the recommendation it would require further information, for example research on how many of 100 candidates availed themselves of PY Support courses.
Executive Committee agreed that States should withdraw the provision of PY Support courses where commercial courses were offered. However, in remote locations where such commercial courses were not available States would provide such Support.
State branches should also 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.” (my emphasis)
62 ICAA administered a “PY Support Telephone Questionnaire” to PY candidates. Ms Cappelletto said this arose from the Executive Committee’s call for “further information” and the fact that members of ICAA had approached her and others at ICAA stating that they would like ICAA to be involved in the PY Support “market”. In January 1995 Ms Cappelletto wrote a further report to the Executive Committee reporting on the results of the survey. The document stated that approximately 60 per cent of candidates worked for the Big Six and second tier firms (in oral testimony, Ms Cappelletto said that the 60 per cent worked for “about the top 20 firms”, and that about 50 per cent worked for the Big Six) and undertook internal PY support offered by their employers, while the remaining 40 per cent of candidates were “the market for PY support”. In oral testimony, she said that approaches had been made to ICAA on behalf of the 40 per cent asking it to provide PY support. According to Ms Cappelletto’s report, 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 document contained a limited analysis of the success rates for candidates undertaking only the limited PY support provided by the ICAA State branches. The report noted that the Western Australian branch did not provide technical PY support because of “the well-established courses offered by Professor Garry Monroe which [became] MTA”.
63 According to the report, the “two most popular providers of support” were ICAA and MTA. The report recorded that as MTA had commenced providing PY support nationally only as recently as 1994 for Accounting 1 (MTA’s first offering had been in respect of Accounting 1 in July of that year), Ms Cappelletto believed that its “market share [would] increase substantially”. The report expressed again the concern that many candidates saw PY support as “being beneficial in reducing the research required to undertake a module”. In oral testimony Ms Cappelletto explained that the PY support material provided by ICAA was designed to require candidates to research text books, Accounting Standards and legislation. That is, the candidate was required to go to primary source documents and was not provided with the relevant extracts from them in the materials provided by ICAA.
64 The report concluded by setting out the “major concerns that arose from the survey” as follows:
“1. The mind-set of candidates which has developed regarding the necessity of PY Support.
2. The concerns expressed by candidates where ICAA PY Support has already discontinued.
3. The desire of candidates to use PY Support to reduce research and problem solving components of the PY.
4. The impact of additional educational costs on the long term viability of the PY.”
In oral testimony Ms Cappelletto elaborated on those “major concerns”. For example, she said that one concern was that ICAA was not, as external providers of PY support were, encouraging candidates to start studying early, and another was that candidates wanted the “short cuts” provided by support materials as a substitute for researching primary source documents.
65 In early 1995 ICAA included in material issued by it statements that while PY technical support might assist some candidates, it was not regarded by ICAA as essential for candidates to pass the PY Program.
66 March 1995 marked the beginning of a change in policy direction for ICAA. In a report dated 30 March 1995, Ms Cappelletto recommended to the NEC that ICAA produce PY support material as three separate books as follows:
· PY – A User’s Guide
· PY – A Technical Guide
· PY – An Examination Guide
commencing with the Accounting 1 module for 1995. The report contained extracts from the minutes of the last preceding meeting of the NEC as follows:
“There was considerable discussion on the provision of PY support and the following points were raised.
· There is a mind set amongst PY candidates that it is essential for the PY.
· Concern that candidates are using PY support as a substitute for research.
· The provision of PY support has a large influence on the total cost of the PY to firms/candidates and could impact on the long term viability of the PY.
· Candidates in country areas could be disadvantaged if PY support is not provided.
· City candidates have more access to courses.
· The cost of the courses of external providers is high.
· If the ICAA enhanced the Group Leaders Technical Guidance Notes for modules and sold them subsequent to the module this would provide candidates with support material at a reasonable cost.
· If the ICAA enters this market it could have the beneficial effect of influencing the costs of the courses offered by the external providers.
· It would be of assistance to candidates if more source and research information is provided in the module booklets.
· The concern that provision of ICAA material could impose an additional cost on the Big 6 if their candidates considered this material vital.
It was agreed that:
i. specific references would be provided in the module booklet to assist candidates with research.
ii. the issue of packaging previous modules for sale through the Bookshop should be further investigated. The Divisional Director, Education would prepare a proposal to be submitted to the next meeting which would include the costs of this venture.
iii. states could continue to provide financially viable technical support courses for the time being.
The Divisional Director, Education reported that Mr Barry Topple from Monroe Topple & Associates had requested more information from the ICAA to assist him in the preparation of course material. He required more access to and feedback from Syllabus and Examination Sub-Committees.
IT WAS RESOLVED that this kind of information would not be given to Monroe Topple & Associates and the Divisional Director, Education was requested to advise Mr Topple that he would receive no more information than was freely available to other trainers.”
The report from Ms Cappelletto to the NEC stated:
“The rationale for providing the support material as recommended includes:
1. The belief that there should be an alternative provider in the market as there is some risk that one of the current providers [no doubt a reference to MTA] will longer term achieve a monopoly. It appears that this provider has a plan to not only monopolise, but also extend the operation to bring it closer to the current situation in the UK with training colleges [a situation with which Mr Topple was very familiar].
2. There is concern about the cost of the PY and the possibility of firms not encouraging graduates to undertake the program. Our support could be provided at a much cheaper price than other external providers.
Executive Committee are keen for us to provide support in the form of the previous year’s module enhanced for sale to candidates. I believe they will want to make a decision in the near future and I would not want this to occur before further input from the NEC. Unfortunately to delay until our next meeting in May would make it impractical for us to have support material for July, and such a delay would provide an opportunity for consolidation of the PY support problem in the market place.”
The report suggested a three-part package of PY support material as follows:
· PY – A User’s Guide (a brief guide to the PY which would not be specific to any particular module, would be about 12 pages in length and would be “an outline of how to approach the PY and achieve success”)
· PY – A Technical Guide: Accounting 1 (specific to the Accounting 1 module and drawn from the previous year’s Accounting 1 module, re-organised to a topic by topic structure, with cross-referencing where necessary, each topic having a short introduction and specific references to texts (including page numbers), Accounting Standards, and legislative provisions, followed by questions from the previous year and answers drawn from the Group Leaders’ Technical Guidance Notes, enhanced for use by candidates)
· PY – An Examination Guide: Accounting 1 (about 40 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 appropriate extracts from the examiner’s comments – the Examination Guide would, in effect, replace the current “Aspects to Consider Kits” which State branches were “desperate to hand back to National Office”)
67 The report noted that the author of the Accounting 1 material for 1994 had offered to prepare the three books for $10,000. The report recommended that the three books sell for the following prices:
· PY – A User’s Guide $15
· PY – A Technical Guide $80
· PY – An Examination Guide $20
(The “Aspects to Consider Kit” had been selling for $6 to $20, depending on the State in question).
68 The report concluded:
“It is believed that we will still take the position that PY Support is not essential to all candidates, but can be of assistance to some. Providing this package is a service to the candidates and firms.”
69 Apparently the recommendation which finally went to the Executive Committee of ICAA from the NEC and which was approved was that as from Accounting 1 in 1995, ICAA produce PY support material in the form of three separate books being PY – A User’s Guide, PY – A Technical Guide and PY – An Examination Guide. As noted earlier, the Technical Guides contained material related to the module workshops.
70 For each core technical module, that is, for each core module except Ethics, ICAA began to sell the Technical Guide and the Examination Guide through its bookshop. Ms Cappelletto states in her affidavit:
“This was mainly in response to members’ requests that the Institute provide more structured support and also as a result of the Institute wishing to standardise its support nationally.”
71 Ms Cappelletto’s testimony, however, was that it was a misconception to think that PY support was necessary in order to complete satisfactorily a PY module. She said she thought a misconception to that effect had spread throughout the profession, including among small firms and their staff, from the recruitment practices of the Big Six in the mid to late 1980s. She thought that candidates had come to rely on PY support, some of which she described as “spoon feeding”, as a substitute for identification and location of primary source materials.
72 The decision of ICAA to enter the PY support market provoked protests from the existing participants in that market. For example, on 11 May 1995 Hall Chadwick wrote to Ms Cappelletto as follows:
“We note the reasons given by you as being relevant to this decision, such as the needs of smaller practitioners, the costs of PY Support, the ICAA’s concerns about one of the major external providers of PY Support and, fundamentally, concerns about future membership of the ICAA if the costs of the PY (in total) are seen to outweigh the benefits.
Whilst we understand these reasons, we nevertheless do not accept that they constitute justification, whether wholly or in part, for the ICAA competing directly with its own members, in the form of the partners of this Firm. We would have expected non-competition with members to be a core value of the ICAA. We are dismayed that this appears not to be the case and we are further dismayed that the partners of Hall Chadwick, as well as any other members of the ICAA involved in PY Support, were not approached to assess their views on this matter prior to the decision being taken.
For your information, over the past 18 months Hall Chadwick have committed substantial resources to the development of its PY Support program, not least of which has been the recruitment of a dedicated professional to run the program, the upgrade of our training facilities to accommodate the growing number of candidates registering for our program, the complete revision and improvement of our core module manuals and sessions, the commencement of preparation of manuals for the advanced modules and the enhanced marketing of our program including additional advertising in Charter. The PY Support program is a significant element of our longer-term Education Strategy and there are sufficient obstacles confronting this Firm in its achievement of this objective without having to add direct competition from our own professional body.
...
The ICAA is contradicting its own advice to candidates, that PY Support is not essential to their success, by institutionalising the delivery of the support that, by the ICAA’s own statements, the candidates don’t really need. We would suggest that the ICAA’s advice would be far more convincing if they did not provide support.
...
In summary, we are of the view that the ICAA should abide by its earlier decision to withdraw from PY Support. If such a decision is irrevocable, then we would argue most strenuously that the ICAA provide ‘guidance’ manuals only (comprising past workshop and examination material) and refrain from providing ‘support’ in the manner in which the market is currently providing.”
73 On 17 May 1995 QUT wrote to Ms Cappelletto seeking clarification in relation to the nature of ICAA’s proposed PY support materials and offering QUT’s assistance in that respect. The letter stated that the impact of the availability of ICAA’s support materials on QUT’s own program was uncertain and would depend on the form that ICAA’s materials would take, as to which further information was sought.
74 On 31 May 1995 Hall Chadwick wrote again to Ms Cappelletto in support of that firm’s delivering a comprehensive PY support program on behalf of ICAA. The letter asserted that ICAA’s decision “could see the monopolisation of the PY support market”.
75 It seems then that both Hall Chadwick and QUT were quick to see that competition from ICAA would have adverse implications for their activities.
76 In July 1995, ICAA introduced its first PY support materials.
77 On 1 August 1995 ICAA (Ms Cappelletto) wrote to Barry Topple of MTA, Paul Mentzalis of Hall Chadwick and Peter Best of QUT, a letter which stated that ICAA’s first offer of PY support materials was in respect of Accounting 1 and that those materials were being sold through ICAA’s bookshop. Each of the three letters contained the following paragraphs:
“We have entered the market with some degree of uncertainty and I appreciate the impact that we may have on your materials. 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.
Materials we are using for support have been drawn from previous modules and therefore, there has been limited outsourcing. We have had offers from three of the current providers of PY Support to assist us in the provision of our materials, but at this time, due to the nature of our support, have made the decision not to accept any of these offers.”
(The first sentence in the second paragraph was a reference to the fact that the Technical Guides were based on the “answers [to the questions set for workshops for the module in question in previous years] drawn from the [workshop] Group Leaders’ Technical Guidance Notes … enhanced for use by candidates”.)
78 In December 1995, a “PY Review Task Force” presented its Report to the Executive Committee. According to the Report, the Executive Committee of ICAA had requested the Task Force to undertake “a broad review” of the PY. Overall, the Task Force concluded that the PY had many strengths reflected by the very high level of satisfaction which candidates and members of ICAA had with it. Accordingly, 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).”
79 The Report also recommended that the “National Careers Marketing Committee” of ICAA be requested to ensure that it “promotes the PY qualification and the CA designation” and “increases the ICAA presence on campus as a way of continuing to attract the best students to chartered accounting and thus to the PY”. Other measures were recommended for adoption as ways of promoting “chartered accountancy as a career”. In support, the Report stated:
“Overall, promotion of the PY and CA designation is seen as a very important aspect. The ICAA currently achieves very high quality members because the PY attracts the best quality graduates who then undertake the PY. Some of our competitive edge would be lost if we were to no longer attract the best graduates.” (my emphasis)
This passage is one illustration of ICAA’s perception that it was in competition with the Society for the best university graduates and for preferred status in the thinking of the public generally and of prospective clients in particular. Annexed to the PY Review Task Force Report was, inter alia, a table headed “PY/CPA Fact Sheet” which compared the PY introduced in 1972 and a training program which the Society had introduced in 1986. For example, whereas 52 weeks’ with a chartered accountant was required prior to enrolment in the PY, the Society did not impose any similar pre-requisite. Whereas in the case of the Society, assessment was entirely by multiple choice examinations, in the case of the PY assessment was described, in effect, as follows:
| | Participation in workshops | 15% | |
| | Examination – extended answers Examination – multiple choice | 65%) 20%) | 85% |
The PY Review Task Force clearly saw ICAA as being in competition with the Society. This is not surprising in view of the competition between members of the two organisations in the accounting services market.
80 Finally, the cost to candidates of the PY was stated to be at that time (December 1995) as follows:
| | Technical module $610 x 4 Ethics module | $2,440 $265 -------- $2,705 | | |
| | Application fee for membership of ICAA | $400 ------- $3,105 ===== | | |
81 From February 1996 to July 1996 meetings were held between representatives of ICAA and of the Big Six to discuss issues arising out of the PY Review Task Force Report. ICAA provided a background paper for the Managing Partners of the Big Six. The background paper referred to the PY Review Task Force and to research by Chant Link & Associates, commissioned by ICAA, which had shown a high level of member and candidate satisfaction with the PY. However, the background paper proposed two major changes. The first was that it was proposed to trial “Computer Based Training” provided by ICAA in the Ethics module in 1996, with a view to its being introduced with the Accounting 1 module in March 1997, then progressively into the other modules during 1997/1998. (Computer based training was in fact introduced into the Ethics module in May 1996.) The second was the proposed provision by ICAA of PY support in the form of the User’s Guide, Technical Guide and Examination Guide, all of which could, according to the background paper, be supplemented 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.” (my emphasis)
82 The meetings prompted responses. On 14 June 1996, for example, Susan Henry of Deloittes sent an internal e-mail to Ian Blair of Deloittes in relation to a meeting she had had with Stephen Harrison, Executive Director of ICAA, stating, inter alia, as follows:
“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 ICAA wanting a piece of the pie so to speak. The only caveat being the Institute don’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 they can’t be unbundled and sold as separate services. Thus they will become the external provider of PY support for all PY participants.
At present we use the services of Monroe Topple and by all accounts are very happy. The cost is about $500 per person per module (which is significantly less than what it would cost to provide the service in-house) and our pass rates have improved significantly in the three years we have been using them. For our money our people receive course material and 6 days of lectures.
At present 4 firms use Monroe Topple, 1 Queensland Institute of Technology and 1 runs PY in-house.
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.
I hope this helps and will be interested in the outcome of your meeting.” (my emphasis)
(Ms Henry’s “understanding” summarises the case MTA seeks to make in this proceeding.)
83 On 20 June 1996 John Harkness of KPMG told Stephen Harrison he would be “happy to see the Institute compete in the marketplace with [KPMG’s] PY support material, but would … be unhappy if [ICAA] were to mandate the costs of the PY support in the overall cost of the PY”.
84 Stephen Harrison made the following notes of his meeting with John Harvey of Price Waterhouse on 3 July 1996:
“The are quite happy for the Institute to sell PY material but they would not be happy if this was done in a monopolistic situation. They would wish to see the Institute compete in the marketplace. In making this comment he 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.
One of the other comments he made was that [Price Waterhouse] particularly enjoy dealing direct with Barry Topple. John made his comment in the context of having just said that his staff believe that dealing with the Institute is akin to dealing with the Public Service. If we are to go out and compete more actively in the marketplace we will need to consider how we provide effective customer relations, particularly by phone.” (my emphasis)
85 On 7 August 1996 MTA wrote to Stephen 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 a 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.
We have sought and obtained legal advice on this matter and have been advised that if you proceed with its implementation it would constitute a restrictive trade practice in contravention of one or more provisions of Part IV of the Trade Practices Act 1974 and that it may otherwise also wrongly impinge upon our rights. I would hope that you may have failed to consider this aspect and that it is not your intention to wrongly infringe the provisions of the Act and our rights.
We have no objection to competition on its merits in the marketplace but cannot accept behaviour such as that proposed by you, which can only improperly affect the interests of all parties who are in the market of providing preparation materials.
We must therefore ask that you do not proceed with your proposal any further and that you give us your unconditional written undertaking to this effect.
If you fail to give us your written undertaking not to proceed by 16 August 1996 we advise that we will seek to protect our rights in such manner as we are advised without further reference to you.
It goes without saying that it is not our wish for matters to come to this and that we encourage open and vigorous competition. I therefore invite you to discuss the matters raised in this letter with the writer as a matter of urgency with a view to amicably resolving them and without the need for resort to costly legal proceedings.” (my emphasis)
86 ICAA replied on 22 August 1996 advising Mr Topple that it was not the current intention of ICAA to include the printed PY support material within the existing PY module material. The meaning of this assurance is not clear to me, as apparently it was not to Mr Topple. On 28 August 1996 Mr Topple replied as follows:
“Thank you for your facsimile letter of 22 August 1996 from which we note that ‘it is not the current intention of the Institute to include the printed PY support material within the existing PY module material’. We understand this to mean that you do not intend to engage in the conduct about which we expressed concerns in our letter of 7 August 1996.
We thank you for your prompt advice regarding your intentions in this matter which, as previously advised, is of great concern to us.
While your letter is a brief statement of your position, we have taken it to mean that:
· the Institute will not seek to increase the charge for its PY materials or otherwise take any action which would mean that the purchase of those materials became compulsory
· the Institute will notify MTA immediately if there is any change from the position outlined in your letter of 22 August 1996
· no change in policy is envisaged in the foreseeable future.
I should be grateful if you would confirm in writing that our understanding of the Institute’s position is correct. On receipt of such confirmation we will instruct our lawyers not to commence action as originally proposed.”
87 On 3 September 1996 Mr Harrison replied advising that he was not in a position to bind any future National Council or Executive Committee of ICAA to any particular decision, but that ICAA would inform Mr Topple “if its position on this matter changes”.
88 In March 1997 the NEC conducted a “strategic planning day” to consider implementing the recommendations of the PY Review Task Force Report. It was determined that Ms Cappelletto should prepare a “draft concept paper on the future education for admission to [ICAA]”. That task was to occupy Ms Cappelletto in various ways until April 1998.
89 Ms Cappelletto testified that as background for the preparation of the draft concept paper, she conducted “focus groups of candidates and members in all major centres around Australia” and gathered information about the “competencies that would be required of new members post 2000” and “the strengths and weaknesses of the current PY”.
90 Meanwhile, in its journal “Charter” for May 1997, ICAA advertised its PY support material in terms which MTA submits are significant. The advertisement bore the title:
“Why Would You Go to Anyone Else But the ICAA for Your PY Support Material?”
Immediately below the heading, there appeared the following:
“For the most practical, concise, affordable and relevant PY support, you can’t go past the ICAA’s support package.
A USER’S GUIDE (non-module specific) This guide details the ‘must knows’ in being successful in modules, including study plans and preparing for workshops and examinations. Cost $15
A TECHNICAL GUIDE This guide is module specific and closely linked to the module material, ensuring continuity for candidates. It provides technical assistance on syllabus topics, with particular emphasis in the special topic areas. Technical concepts are illustrated by up-to-date, practical examples. Practical application is the key to success in the PY. Cost $100 (core modules), $120 (elective modules)
AN EXAMINATION GUIDE This unique guide includes the last three years’ PY examination papers and suggested answers. It also includes advice on study and examination techniques. Cost $20
ICAA support material offers you flexibility. You can purchase your support as a pack, which includes all three guides, or individually. Buy a pack of three guides and save.
To order your ICAA support material, simply return the order form printed on the front of your enrolment form or contact the ICAA Bookshop in your State. (For further information call 1800 659 397.)
ICAA PY Support … because it’s our PY”
Another advertisement repeated the question:
“Why would you go to anyone else but the ICAA for your PY Support?”
and stated:
“At the end of the day, the most important criteria that PY support material has to meet is relevance. And who would know more about what material is relevant to the PY than those responsible for actually constructing the programme? The answer of course is nobody.” (my emphasis)
91 On 26 November 1997 Mr Topple wrote to Mr Harrison “regarding [his] increasing concern at the approach which the Institute [was] adopting in relation to its involvement in the provision of PY support”. Mr Topple referred to a refusal of ICAA to release certain information until the enrolment closing date and asserted that those responsible for drafting the syllabus must have had a clear idea of the extent of each heading within the syllabus, and that those responsible for drafting workshop material, the examination paper and ICAA support material must have received a detailed briefing. Mr Topple’s letter continued:
“I could accept, albeit reluctantly, a lack of co-operation from the Institute if it was not involved in the commercial activity of selling PY support material. It has always been the case that there is a potential conflict of interest in the Institute acting as both examiner and support provider …. What the Institute is attempting to do is to abuse its position by acting in restraint of trade in order to obtain a competitive advantage in the marketplace.
This conflict of interest is further demonstrated in the circular which I understand was sent to all PY candidates enrolled on the current tax module. Not only is the content in very poor taste with critical comments on competing products it is patently misleading. Whilst not overtly stating as such, the flyer clearly leads the reader to assume that the Institute material is fully comprehensive such that the purchaser would not need to purchase further supplementary reading material. We have had numerous complaints from students who have found that the Institute material is far from comprehensive and have purchased our material in order to provide proper coverage.
I would respectfully suggest that the role of the Institute should be to ensure that it is held in the highest regard by its members and by the wider community. If it wishes to engage in commercial activities, the Institute must ensure that the interests of its members and students are not prejudiced. We are the major provider of PY support in Australia – over 1,700 students have enrolled with us for the current Taxation module. Our clients, both firms and individual students, expect us to provide appropriate material for the Advanced Business Advisory module. Already a number of firms have indicated that they will actively dissuade students from taking this module in 1998 and I have no doubt this will increase significantly if firms and students become aware that MTA is not producing material for this module.
You will no doubt be aware that it was necessary for us to take legal advice earlier this year when the Institute proposed acting in restraint of trade by making the purchase of their PY support material compulsory by including the cost in the module enrolment fee.”
92 On 28 November 1997 Mr Harrison replied as follows:
“Whilst I understand your concern, we are not in a position at this time to provide additional information. In general we believe that external parties would find it very frustrating to receive draft material which undergoes major change through the writing, reviewing and other quality control processes.
In respect to finalised material, you have been provided with the same information as the Institute’s support author.”
93 On 2 December 1997 Mr Topple replied, again expressing his concern that even draft material might have been released to ICAA’s authors of workshop material and examiners by the Syllabus Committee. His letter stated:
“My grave concern is that this information has been released, in whole or part, to the person responsible for the support material since this clearly breaches the differing roles of the institute as an examiner and as a commercial publisher. Whatever material, and changes to that material, is released to the author of the support material must be available to all organisations publishing support material. However frustrating it might be to be advised of changes – and I assume that the appropriate control procedures mean that there are not major changes in the interpretation of the published syllabus by the Syllabus Committee – it is even more frustrating to be left completely in the dark.
I have asked our authors to compile a list of their concerns on the interpretation of the published syllabus and I will forward them to you in the near future. Would you please confirm that:
(i) whatever material or information is released to Institute’s author is released to us: and
(ii) we will receive a timely response to our queries.”
94 Mr Topple wrote further letters on 15 and 17 December 1997 and Mr Harrison replied on 19 December 1997, repeating that while he understood Mr Topple’s concern, ICAA was not in a position at the time to provide additional information, and that in general it believed external parties would find it:
“very frustrating to receive draft material which [underwent] major change through the writing, reviewing and other quality control processes”.
Mr Harrison wrote a second letter of the same date to Mr Topple stating:
“Whilst the syllabus committee may have had some views on how the published syllabus knowledge level requirements and special topics will be interpreted, they did not communicate or impose any such views on the authors. The authors are competent professionals who act as an extension of the syllabus committee and interpret the published materials as they develop the module.
As previously indicated, in respect of finalised material, you were provided with the same information as the Institute support author.”
95 Not satisfied, Mr Topple replied, on 20 December 1997, asserting it was apparent the author of ICAA’s PY support material was receiving an “on-going briefing on the development of the syllabus”. He noted that Mr Harrison’s letter of 19 December referred only to “finalised material” and asked that ICAA supply MTA with “exactly the same draft briefing information as that being supplied to [ICAA’s] own authors”.
96 On 27 January 1998 Mr Harrison replied that while Mr Topple might be disappointed, ICAA was not able to provide answers to his requests, even in draft form, until ICAA’s PY technical team had reviewed the material. Mr Harrison’s letter stated:
“I can confirm that the author of the support material is not receiving an on-going briefing on the development of the module material and the syllabus. You appear to be concerned with reference to ‘finalised material’ in our letter of 19 December 1997. This reference was to our letter dated 28 November 1997. We can confirm that in October 1997, the support author was given a rough draft of possible questions which covered 25% of the module material. Following further reviews by the module authors and reviewers, this material is now of little value. This is the only material which has been supplied to the support authors.
With the exception of the above, you have been provided with the same information as the Institute’s support author.”
97 As noted earlier, it was in April 1998 that Ms Cappelletto completed the task assigned to her. In that month she finalised a confidential “Detailed Background to Concept Paper – PY Post 2000” on behalf of the NEC. It identified a number of issues requiring consideration, including “the role of the ICAA as the provider of education and development and the assessor of whether the required skills and competencies have been achieved” and “competitors and positioning of the ICAA”. 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].”
98 Some idea of the extent of involvement of ICAA in the educational process which was being proposed may be gained from the following paragraphs of the document:
“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.”
99 The document identified benefits for the employer as follows:
“For the employer, the new programme will provide employees with an emphasis on not only the technical skills, but also the many non technical skills which employers have consistently rated as extremely important. In addition, the more comprehensive module materials and revised delivery structures, will assist candidates in their completion of the programme with a view to ensuring minimum disruption in the work environment. The provision of the more comprehensive package will reduce the need for employers to provide additional materials to candidates to complete the programme.”
100 In April 1998 the NEC released a “Discussion Paper” on “PY Post 2000” (Ms Cappelletto wrote it). This document, which it had been earlier intended to call a “concept paper”, outlined proposals for the PY after the year 2000, and sought responses to 13 recommendations. The “Executive Summary” was as follows:
“Major changes are occurring within the business community which make it difficult to predict the future. One thing is certain and that is that Chartered Accountants will face unprecedented professional challenges in the next century. To successfully meet these challenges their education and training must be adapted to develop the knowledge, skills and attitudes required for the future.
The PY is highly respected now, but its relevance will decline if it is not enhanced in line with changing needs and challenges. The proposed changes will ensure that it remains a premier business qualification in Australia with international recognition.
The overall aim is to ensure that new Chartered Accountants make the best possible transition from the university environment into the fast changing business environment of the 21st century. The development of ‘learn to learn’ skills must be embedded in the program, with pre-admission education recognised as the foundation of ‘life-long learning’. The end result should be Chartered Accountants who are better communicators, more flexible in their outlook, better able to cope with fast-changing situations, more confident in their general business advice, and attuned to operating in the dynamic global business environment of the future.
The recommendations detailed in this paper were developed following consideration of a number of alternatives. They are designed to enhance the PY and in so doing tailor an admission program for the next century. This is consistent with ‘Chartered Accountants in the 21st Century’ [an ICAA paper based on a report from another “Task Force”], and the work currently being undertaken by the Vision 2020 Taskforce. The aim is to closely integrate the enhanced program with university study and practical experience. There will be maintenance of technical depth and rigour and development of additional skills which will be required by our future Chartered Accountants.
It is proposed that:
· 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.” (my emphasis)
101 Recommendation 6 was “Style of materials provided to candidates to be more structured and more comprehensive”. In respect of this recommendation, the Discussion Paper stated, inter alia:
“The package will include:
· integration of the current module material [that is, the module booklet which was provided upon enrolment without charge beyond the enrolment fee] and support material [that is, the Technical Guide and Examination Guide which candidates might buy if they wished]
· 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 ICAA’s values.”
Recommendation 11 was “Cost to be comparable to current program” and in this respect the Discussion Paper stated:
“Despite the plan to introduce innovative delivery methodologies and more comprehensive materials, the reduction in the selection of modules would mean that the overall cost of enrolment in the full CA Program would remain comparable to the PY. This is very high value for money compared to other post graduate courses.”
102 Ms Cappelletto said that some 4,000 copies of the Discussion Paper were distributed throughout the profession. She emphasised that although the Discussion Paper represented “the thinking at the time”, there was fundamental change subsequently. She said in relation to Recommendation 6, for example:
“I guess the base thinking is similar, but there have been incredible refinements, particularly around the presentation of this style of material and the delivery.”
103 Two hundred and forty five responses to the Discussion Paper were received. They were analysed. Eighty two per cent of respondents agreed, or strongly agreed, with Recommendation 6, 7 per cent disagreed or strongly disagreed, while 11 per cent were undecided. All 13 Recommendations were supported, all but two by more than 70 per cent of respondents.
104 My attention was drawn to the responses received from the Big Six. On 4 June 1998 KPMG, which, it will be recalled, was itself a supplier of PY support services as well as an employer of candidates, wrote a letter to ICAA which included the following:
“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. This being the case, there is a danger that feedback from candidates on the material will not be acted upon in a timely manner, because there will be no alternative providers. This is especially concerning given the state of the Institute's current materials … . It would mean that the improvements in the overall level of support currently enjoyed by candidates as a result of the healthy competition would disappear.” (my emphasis)
105 A letter dated 15 June 1998 was written on behalf of Coopers & Lybrand and Price Waterhouse (which were in the process of merging). The letter observed that provision of more comprehensive materials by ICAA would “create a level playing field for candidates”, but that “the existing technical guides [provided by ICAA] would require considerable enhancements to meet candidates’ expectations of support material”.
106 On 24 June 1998 Arthur Andersen sent an e-mail to ICAA indicating it “approved” or “strongly approved” of all 13 recommendations advanced in the Discussion Paper. It strongly approved of Recommendation 6.
107 On 26 June 1998 Ernst & Young observed:
“It is proposed that the ICAA support materials be integrated with the current module material and that this would stop candidates from gathering other notes. However, we as a firm, encourage people to look at other materials and also consider that we should offer support to our people studying PY.”
108 On 29 June 1998 (the letter appears to have been commenced on 23 June and finished on 29 June), Deloittes responded, remarking that the proposal constituted a fundamental change in ICAA’s direction with regard to education and would lead to its becoming “an educational institution”. Specifically in relation to Recommendation 6, the letter stated:
“The provision of focused material by external providers or other sources is not a disadvantage and serves to lessen the problem of candidates reading superfluous materials. We believe focussed support maximises the time candidates spend on reading relevant course material.
We do not believe candidates spend too much time reading rather than practising. Current material available to (our) candidates encourages them to practice their application.
The practical work experience gained by candidates should not be forgotten. It is and will continue to be a significant contribution to the ‘skill’ development of candidates.
Does the perceived ‘problem’ of students spending too much time reading, warrant such an investment (ie. offering a support material package) by the ICAA? We do not believe this is an effective use of ICAA resources.
It is unlikely the ICAA will stop candidates and firms from seeking other sources of additional study material.
Based on the quality of the material provided to-date, we question the statement; ‘the structure is intended to reduce the need for additional materials’. If, as has been indicated, the fees are not expected to increase significantly, we are concerned as to whether the necessary increase in quality will be adequately funded.
From the information provided, the benefits do not seem to justify the apparent costs involved.”
109 On 24 July 1998 the NEC considered the responses to the Discussion Paper. In September 1998 it recommended that the National Council of ICAA approve the introduction of the new CA Program. The form of the recommendations differed only slightly from those which had been advanced in the Discussion Paper. Recommendation 6 contained an addition to the effect that the style of 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, relevantly:
“1. A new post-graduate admission program be introduced to replace 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.
… ” (my emphasis)
110 Introduction of the new CA Program was delayed pending a vote on a proposed merger with the Society which took place in December 1998.
111 Of the new CA Program, Ms Cappelletto has testified as follows:
“It was, and continues to be, my belief that learning resources, learning activities and assessment methodologies of a fundamentally different nature to those in the PY would be required in order to develop the kinds of competencies which had been nominated by members and business leaders as being important to the success of Chartered Accountants in the future.”
112 On 13 October 1998 Mr Topple wrote to Mr Harrison reminding him that he had indicated in his letter of 22 August 1996 that “it is not the current intention of the Institute to include the printed PY support material within the existing PY module material”. Mr Topple referred to the PY Post 2000 Discussion Paper and asked Mr Harrison to confirm that ICAA’s position in this respect remained unchanged. On 3 November 1998 Mr Harrison replied, referring to ICAA’s planning over the preceding few years, and continued in relation to the Discussion Paper “PY Post 2000” as follows:
“This Discussion Paper recommends substantial changes in the PY including changes to structure, materials, delivery and assessment. These changes have been enthusiastically supported by members, candidates and the business community. The changes are such that it is not realistic to compare the materials as they will be in future with what we currently offer.
In relation to the proposed merger, the details of the new education program will not be developed until the result of the vote is known. It is not possible therefore for me to comment on the likely new program other than to refer you to the brief comments which will appear in the forthcoming Explanatory Statement.”
113 On 2 July 1999 MTA wrote to ICAA enclosing a report of Professor Graham Peirson in respect of the Discussion Paper “PY Post 2000” which MTA had referred to the Professor and of which his report was critical. In a memo of 16 July 1999 from Ms Cappelletto to Mr Harrison, Ms Cappelletto stated as follows:
“It is difficult to determine the real purpose of the Paper [of Professor Peirson]. One would assume that in this time of change Barry Topple is feeling somewhat insecure about the long term feasibility of his PY Support business.
The majority of the comparison links to the current PY and there is no recognition of the extensive research that we have undertaken to determine the needs of our future members and the weaknesses in the current PY. Perhaps the intention is to undermine the new CA Program so that National Council will retain the PY and therefore MTA might expect to retain a share of the support market. More likely, I suspect MTA is trying to undermine the whole educational process of the ICAA with the view to promoting the private provider situation that exists with the ICAEW [Institute of Chartered Accountants in England and Wales]. MTA would see themselves as well placed to be the major private provider and would therefore secure and expand their business.”
114 On 2 August 1999 there were internal e-mails within ICAA in connection with the placing of advertisements by MTA in “Charter”. The e-mails recognised a policy of not running “competitive” advertisements, and, in particular, not running MTA advertisements because they were “promoting a rival product”, that is, promoting a rival product to that of ICAA.
115 On 11 October 1999 Ms Nathan of ICAA sent an e-mail to Mr Harrison and Ms Cappelletto reporting on a meeting she had had with PricewaterhouseCoopers the preceding week. Her e-mail included the following:
“In relation to PY Support it is becoming clear that we will not capture the Big 5 market while we do not offer any additional face to face or mock exams. PWC are close to a decision not to renew their contract with MTA but rather to trial PLS [Professional Learning Systems Pty Ltd] for the first module in 2000 (Account 1). They seriously considered the ICAA but wanted more than just our printed material.
As you are aware they are very concerned about their pass rates in Taxation and I have encouraged them to supply me with specifications on what they would require from the ICAA in order for us to provide support for them for Taxation 2000.
This brings the broader issue of the ICAA providing additional services to individual Big 5 firms and also to other candidates on a group basis. This would be user pays and would be one method of us recapturing this important part of the market and therefore having influence on learning which is beyond the pure commercial interest of the likes of MTA.”
116 On 3 March 2000 Ms Cappelletto e-mailed Mr Topple in relation to his request for a copy of ICAA’s Capstone module materials. Ms Cappelletto stated that as the materials were being provided only to candidates who were enrolled and people directly linked with the module, ICAA did not propose to provide them to other parties. Mr Topple replied on 28 March asserting that ICAA had, for the past six years, regularly supplied MTA with a copy of module materials and stating he was disappointed that ICAA had now decided not to do so in relation to the Capstone module. His e-mail continued:
“We have on previous occasions paid for further copies of the module materials and in the circumstances I am willing to purchase a copy of the current Capstone materials. If the Institute is prepared to supply the materials on this basis please let me know the cost and I will arrange payment and collection.”
117 ICAA set the module enrolment fees for the PY and CA programs for the year commencing 1 July 2000 at $320 for the PY Ethics module, $720 for each of the three PY technical modules, and $730 for the Capstone module and for each CA Program module. According to Ms Cappelletto’s affidavit, for enrolments in February 2000 the enrolment fees had been $715 for the Capstone module and $690 for each PY technical module. At that time, there was, according to Ms Cappelletto’s concession, also the prospect that ICAA might earn $120 from the sale of the Technical Guide and $22 from the sale of the Examination Guide in respect of a PY technical module. But those two publications ceased to be offered for sale, apparently as from July 2000 enrolments.
118 A document released by ICAA provided information, in question and answer format, relating to the change from PY to CA. The document informed the reader as follows:
· 1999 was the last year that PY elective modules would be offered;
· In 2000 a transitional module called “Capstone”, a case-based integrative module, would be offered to replace the electives;
· In 2000-2001, the PY would consist of Accounting 1, Accounting 2, Taxation, Ethics and the Capstone module;
· The Capstone module would be offered three times in 2000 and two or three times in 2001;
· The Capstone module would be the final module of the PY;
· The fee for the first offering of the Capstone module (February 2000) would be $715 which was slightly higher than the fee for the other modules, as the materials for it would be more comprehensive;
· The new CA Program, which would replace the PY Program, would begin in 2001;
· The Accounting 1, Accounting 2 and Taxation modules of the PY would be offered for the last time in 2000, after which (that is, in and after 2001) candidates would undertake the technical modules of the CA Program;
· The Capstone module would probably be offered for the last time at the end of 2001 and candidates who had not passed all of the PY modules by then would be transferred into the CA Program and would undertake the Final Integrative module of the CA Program instead of the Capstone module;
· The new CA Program would be introduced in 2001, although enrolments in the first offering of the “preliminary” module (CA Foundations) of the CA Program would be towards the end of 2000;
· The new CA Program would have five modules, the preliminary CA Foundations module, three technical modules (Financial Reporting and Assurance, Taxation and Financial Reporting and Strategic Business Management) and the Final Integrative module.
THE PY AND CA PROGRAMS
119 The new CA Program consists of five modules:
· CA Foundations
· Three technical modules:
- Financial Reporting and Assurance
- Taxation and Financial Reporting
- Strategic Business Management
· Final Integrative module
120 CA Foundations is a prerequisite to the other modules; the three technical modules may be completed in any sequence; but satisfactory completion of all three is a prerequisite to the Final Integrative module. For CA Foundations, assessment is:
· “extension work” 25 per cent
· “focus sessions” 40 per cent
· examination 35 per cent
For the three technical modules, the percentages are:
· “extension work” 20 per cent
· “focus sessions” 30 per cent
· examination 50 per cent
The “downgrading” of examination as a form of assessment from its former 85 per cent is obvious. For the Final Integrative module, the form or forms of assessment had not been finally determined by the time of the hearing.
121 For the purpose of this proceeding Ms Cappelletto prepared the following table which set out what she described as the “[m]ain differences between [the] PY and CA Program[s]”:
|
| “PY | CA Program |
|
Modules (5) |
Core Modules Taxation Accounting 1 Accounting 2 Ethics Plus one of the following Electives Advanced IT Advanced Insolvency Advanced Audit Advanced Management Accounting Advanced Business Advisory Advanced Taxation
Capstone – transitional module replacing electives in 2000 and 2001 |
CA Foundations
Financial Reporting and Assurance
Taxation and Financial Reporting
Strategic Business Management
Final Integrative
|
| Competencies | Mainly Technical with some emphasis on non-technical skills | Technical with strong emphasis on non-technical skills |
| Learning resources | Module booklet including exercises and problems, and other reference material. Limited computer based training (CD ROMS) | Candidate Learning Pack (CLP) and other reference material. Extensive use of web-based products eg myCA, myCAportfolio, SPI, CD ROMS |
| Learning Activities. A wide variety of preparation activities as well as face to face | Four Weekly workshops of candidates in groups of 20 conducted by Group Leaders. Main emphasis is discussion of exercises and problems prepared from the module booklets prior to the sessions. | Four Fortnightly focus sessions of 20 conducted by Facilitators. Main emphasis is working in teams to apply knowledge, skills and values developed from undertaking activities in the CLP. This is done through completion of exercises in teams in the focus sessions. |
| Assessment | Strong emphasis on exams Workshop 15% Exam 85% | Much reduced emphasis on exams Varies between modules Extension (25% - 20%) Focus sessions (40% - 30%) Exam (35% - 50%)” |
The transitional Capstone module, while part of the PY Program, was devised as an aspect of the change from that program to the CA Program and reflects, in some respects, the educational philosophy which underlies the new CA Program. ICAA’s Professional Year Programme 2000 – Education Handbook states as follows:
“The elective modules were offered for the last time in 1999. The Capstone is a transitional module replacing the PY elective modules during the development of the CA Program. It will be offered in March 2000, July 2000, November 2000, March 2001, and July 2001.
The Capstone module consists of:
· a case study on which workshop preparation for the first three workshops is based;
· Internet-based product/s on which workshop preparation for the fourth workshop is based;
· four, three-hour workshops (the first workshop will be of 3.5 hours duration with the first half hour providing a ‘getting to know you’ session for candidates and group leaders before the formal workshop begins);
· exercises and discussions during workshops. Additional questions, linked to workshop preparation questions, will be provided by group leaders for candidates’ primary presentations. A sample exam question will also be included for candidates to practice (sic) their examination technique and receive feedback on their performance;
· a “mock” examination; and
· a three-hour module examination.”
In relation to “Module structure and coverage” the Education Handbook states:
“The Capstone module will be case study based, integrating material from the prerequisite modules. Information technology as it applies to business, will also be integrated throughout the materials in recognition of the increasingly important role it plays in the work of CAs. The module will be structured differently from the prerequisite modules because it is driven, in the main, by the need to integrate and enhance knowledge and skills already learned in these modules and in work experience. Candidates will extend their ability to think laterally across issues and situations and advise a client on the whole problem, rather than concentrate on the technical issues of just one discipline.”
122 But like the other PY modules and unlike the modules of the new CA Program, the Capstone is assessed as to 15% on the candidate’s contribution to workshops and as to 85% on examination performance.
123 When a candidate enrolled in his or her first PY module, ICAA provided him or her with a four-volume Members’ Handbook containing:
“... a full set of Australian Accounting Standards, and Auditing Practice Statements, AASB standards, Code of Professional Conduct, the ICAA Charter and By-laws, Miscellaneous Professional Statement, Points on Professional Practice and Admission Regulations.”
The Members’ Handbook lies outside the materials related to specific modules.
124 When a PY module commenced, a candidate received from ICAA, for no payment beyond the module enrolment fee, a “Module Pack”, which included:
· the module workbook stating the module content and containing workshop questions (not answers); and
· information about, inter alia, available PY support material and reference material.
ICAA offered for sale its support material for Accounting 1, Accounting 2 and Taxation. According to the Education Handbook, that support material comprised:
· “A Technical Guide providing extensive coverage of the current syllabi, particularly the Special Topic areas. It includes specific references to texts, standards and legislation, practical examples from past years’ module questions and suggested solutions.
· An Examination Guide providing previous PY examination questions and suggested answers, together with general comments and appropriate extracts from the Examiners’ Comments.”
125 Each PY module workshop comprised 20 candidates and was conducted by two “group leaders”. Under the heading, “What you need to know to prepare for workshops”, the Education Handbook stated:
“Each module consists of:
(a) research projects (for Accounting 1, Accounting 2 and Taxation modules only);
(b) written work and structured reading in preparation for workshops;
(c) exercises and discussion during workshops including sample exam questions (four three-hour workshops for technical modules and two three-hour workshops for the Ethics module); and
(d) a module examination (three hours for technical modules and one and a half hours for the Ethics module).
The ICAA develops up-to-date module material. You are expected to research for workshops and be prepared for discussion on the basis of current legislation and ICAA pronouncements, as well as relevant exposure drafts, parliamentary bills, ATO draft rulings and professional publications.
The research projects are long questions which may combine more than one topic, integrating these into a set of facts that more closely reflect the work situation. These questions prepare you for workshops as well as the examination. You should read widely on the subject matter to ensure full understanding of the topics covered.
As group leaders will select material from this section for discussion in any of the four workshops, you will need to complete this work prior to Workshop 1. Ensure you take your prepared answers for the research projects to all workshops.”
126 In the course of the hearing, reference was made to “extension work” and to “focus sessions” or “focus groups”. Extension work is the work involved in the writing up of “assignments” or “research projects”. Focus sessions are in the nature of “workshops” or face to face tutorial sessions. Mr Topple distinguished between the workshops of the PY Program and the focus sessions of the CA Program as follows:
“In the PY regime students had questions which were issued at the start of the module to which they prepared answers either individually or on a group basis and those were then discussed at the workshops. Under the CA program, in the focus sessions, the students will work in groups of four. Normally a group of 20 students will work in five groups of four. They will be given unseen questions which they have to prepare solutions to and they are then asked - one of the members of the group asked to present that to other members of the group so it’s a move to unseen questions rather than pre-prepared questions.”
127 It was put to Mr Topple that it was easier for MTA to teach for examinations than for extension work or focus sessions. He replied that candidates enrolled in modules of the CA Program “need technical knowledge in order to be able to do assignments or to prepare answers to focus session questions”.
my reasoning
128 The parties agreed on a statement of 24 issues which arise. I do not find it necessary to decide all of them and refer below to those which I decide (with their accompanying numbers in the parties’ list). I need not address, for example, issues about loss.
129 ICAA admitted, for the purpose of this proceeding only, that it is a “corporation” within the meaning of the Act, and that the accounting services market exists.
“In trade or commerce”
130 The parties agreed that the following is an issue for determination by me:
“2. Do the educational and training functions supplied by the ICAA in connection with its CA Program pursuant to its Charter constitute the provision of “services” in trade or commerce?”
131 ICAA submits that the answer to this question is “no”. It submits that its pursuit of its Charter objects of education, training, examination, assessment and certification, falls outside the meaning of the expression “in trade or commerce” as explained by the High Court in Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 (“Concrete Constructions”). ICAA relies on evidence that it does not seek to conduct those activities at a profit and seeks merely to recover its costs.
132 The parties did not define the expression “educational and training functions supplied by the ICAA in connection with its CA Program”. I take the expression to refer at least to the enrolment in CA Program modules, the compilation and selling of the module syllabuses, the writing, production and sale of module support materials, the conduct of “focus sessions” and the provision of “feedback” to the candidates. The expression clearly does not include the admission of persons into membership of ICAA and the certification of persons so admitted as chartered accountants: admission and certification are inherently different from “education and training”, occur as distinct and later events, and require satisfaction of conditions in addition to satisfactory completion of the CA Program.
133 The proper categorisation of the process of assessment of candidates’ attainments is not obvious. Not all courses of education or training conclude with a process of examination. (I use “examination” here to refer to all forms of assessment of attainment.) On the other hand, examination is not part of the stage of admission to membership of ICAA and of certification as a chartered accountant. It is perhaps sui generis. The setting of examination papers and of “extension work” and the awarding of marks or grades to candidates’ examination answers, their completed extension work and their contribution to focus sessions, is for the benefit of ICAA as well as for the benefit of the candidates. It is in both the interests of ICAA to ensure that persons seeking admission to membership have met the condition of satisfactory completion of the CA Program, and the interests of candidates to be able to demonstrate to ICAA that they have done so. I think it appropriate to regard examination as part of ICAA’s education and training function: the devising of the CA Program modules and of the methods of assessment appropriate for them were closely interrelated activities.
134 The expression “in trade or commerce” assumes relevance in different ways in relation to the various causes of action pleaded. In relation to the claim of taking advantage of market power, s 46 refers to “a substantial degree of power in a market” and “eliminating or substantially damaging a competitor of the corporation … in that or any other market” (my emphasis). Subsection 46(4) provides that in s 46 a reference to a “market” is a reference to a “market for… services”. Section 4 defines “services” as, in substance, services that are, or are to be, provided “in trade or commerce”. Accordingly, the question which arises under s 46 is whether ICAA provides services in a market in which services are provided in trade or commerce.
135 In relation to s 47’s prohibition of exclusive dealing, contravention requires that ICAA supplies or offers to supply services to students on a condition described in the section. Again, the effect of the definition of “services” is that services must be, or be going to be, provided in trade or commerce.
136 Section 45’s prohibition of contracts or arrangements substantially lessening competition also invokes the notion of “trade or commerce” by means of its use of the term “market” and, more directly, the use of the word “services”.
137 Finally, s 51AC’s prohibition against engaging in unconscionable conduct invokes directly and expressly the notion of the supply or possible supply of services “in trade or commerce”.
138 Section 4 of the Act provides that “trade or commerce means trade or commerce within Australia or between Australia and places outside Australia”.
139 In my opinion, ICAA supplies the education and training it provides in connection with its CA Program pursuant to its Charter “in trade or commerce”. It seems to me that this conclusion is compelled by the fact that the ICAA sells those services to many students for a very substantial monetary return on a highly organised, systematic and ongoing basis. While it may not be necessary that all of those features be present in order to satisfy the expression “in trade or commerce”, the presence of all of them makes it clear that the expression is satisfied in this case.
140 The Annual Report of ICAA for the year 1995-1996 stated that ICAA had developed PY support material which generated $250,000 in revenue.
141 According to ICAA’s Annual Report, ICAA derived PY revenue of $7,640,000 in 1998, $7,320,000 in 1999 and $7,883,000 in 2000. ICAA sold its PY support materials, and no doubt sells its CA support materials, through its bookshop. Large numbers of individuals were (and are) enrolled at any one time as candidates for the various PY (and CA) modules. They are seeking the commercially valuable cachet of the CA “badge”.
142 More generally, ICAA is a sizeable organisation. According to its Annual Report for 1999, it had 32,429 members, a staff of 203, and for the year ended 30 June 1999 an operating revenue of $41,256,000, an operating surplus of $1,135,000 and membership subscription revenue of $19,364,000. According to ICAA’s Annual Report for 2000, ICAA had 34,090 members, a staff of 207, and for the year ended 30 June 2000 an operating revenue of $47,158,000, an operating surplus of $958,000 and membership subscription revenue of $20,450,000.
143 The High Court considered the significance of the expression “in trade or commerce” in s 52 of the Act in Concrete Constructions. A foreman of a construction company instructed a co-employee to remove certain grates from the entry points of air-conditioning shafts and informed him that each grate was secured by bolts. The employee alleged that the statement was untrue and that acting in reliance on it he was injured. The High Court held that the foreman’s statement was not made in trade or commerce for the purposes of s 52.
144 In a joint judgment, Mason CJ, Deane, Dawson and Gaudron JJ emphasised the word “in” in the expression “in trade or commerce” and distinguished (at 603) between “the central conception” of trade or commerce (cf Bank of NSW v The Commonwealth (1948) 76 CLR 1 at 381) which they thought the expression contemplated, and the “‘immense field of activities’ in which corporations may engage in the course of, or for the purposes of, carrying on some overall trading or commercial business”, which they thought the expression did not contemplate. Their Honours thought the expression in s 52 bore the narrower meaning.
145 In arriving at this conclusion, their Honours were influenced, to some extent, by the place of s 52 within Pt V of the Act. In the present case, ss 45, 46 and 47 are within Pt IV of the Act and s 51AC is within Pt IVA. Accordingly, this aspect of Concrete Constructions is not directly applicable. But the aspect of those sections through which the expression “in trade or commerce” arises for consideration in this case is the provision of services to consumers, that is, the candidates. Therefore, I think the approach to construction taken in Concrete Constructions is applicable. But if a broader construction applies, a fortiori,ICAA provided its PY support services and now supplies its CA support services in trade or commerce.
146 ICAA relies on the terms of its Charter and the fact that in providing the education and training services, it is pursuing its Charter objects. Article 3 of the Supplemental Royal Charter issued on 23 August 2000 states the “Principal Objects” of ICAA as follows:
“3 The principal objects of the Institute shall be:
(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;
(c) to preserve at all times the professional independence of accountants in whatever capacities they may be serving;
(d) to prescribe high standards of practice and professional conduct for, and to maintain the observance of such standards by:
(i) its members;
(ii) non-members who participate with members in practice entities and have agreed to be bound by the standards of practice and professional conduct and by the discipline of the Institute;
(iii) practice entities which have agreed to be bound by the standards of practice and professional conduct and by the discipline of the Institute;
(iv) registered graduates
(e) to prescribe disciplinary procedures and sanctions, to exercise disciplinary powers and to impose sanction for the better observance of the standards of practice and professional conduct of the Institute by members, by the non-members referred to in Article 3(d)(ii), the practice entities referred to in Article 3(d)(iii) and by registered graduates;
(f) to do all such things as may advance the profession of accountancy, whether in relation to the practices of public accountants (including the provision by such practices, in addition to public accountancy services, of other services by persons from other professions) or in relation to industry, commerce, education the public service or otherwise.”
Article 4 states ICAA’s “Ancillary Objects and Powers” and provides, relevantly, as follows:
“4 In furtherance of the principal objects set out above, the Institute shall have the following ancillary objects and powers, namely:
¼
(g) to appoint examiners, to prescribe examinations for persons seeking to become members of the Institute, and to cause such examinations to be held, in each case, whenever in the opinion of the Board it is appropriate to do so, all as may be prescribed from time to time by the By-laws;
...
(l) to publish or distribute books, pamphlets and journals relating to the affairs of the Institute or promoting and furthering the interests, usefulness and efficiency of members and others or of the accountancy profession generally;
... ”
Article 4 concludes:
“PROVIDED ALWAYS that the Institute shall at all times apply its profits (if any) or other income in promoting its objects and that the Institute shall not at any time pay any dividend to its members.”
ICAA’s By-laws also deal with the setting of examinations and the appointment of a National Education Committee to direct, supervise and determine passes at, those examinations. Ms Cappelletto gave uncontradicted affidavit evidence that:
“The Institute does not seek to conduct its pre-admission education activities at a profit or to have them generate a positive cash flow. Its objective is to recover the costs it incurs with respect to these matters by way of the enrolment fees.”
147 I am not persuaded by ICAA’s submission. The present question is the particular one whether ICAA carries out its educational and training function in trade or commerce. Education and training are activities in which ICAA and the candidates participate. They involve the selling of services by ICAA to the candidates. This aspect of their character is not negated by the fact that ICAA’s constitution and objects may show that ICAA bears another character, such as that of “gatekeeper” or professional disciplinary body.
148 ICAA relies on certain passages from my reasons for judgment and those of Branson J in Plimer v Roberts (1997) 80 FCR 303 (FC) (“Plimer”). That case concerned allegedly misleading or deceptive statements made by Dr Roberts in the course of lectures he gave. He, and later Ark Search Inc, were associated with an unincorporated not for profit association called “Noah’s Ark Research Foundation” (“NARF”). NARF sold door tickets, video tapes and audio cassettes in association with Dr Roberts’ lectures, but Dr Roberts himself derived no financial benefit from the sales or from his lectures. I stated (at 327):
“While there is much to be said in favour of the proposition that NARF’s activity in selling the door tickets, videotapes and audio cassettes was conduct in trade or commerce, I find it unnecessary to decide whether it was. I shall assume that it was. … In my opinion, Dr Roberts’ misrepresentations did not take place “in” that supposed trade or commerce of NARF.
The delivery of the lectures was not inherently a trading or commercial activity. The misrepresentations, made in the course of the giving of them, were not in the nature of a promotion of NARF’s selling of door tickets or videotapes or audio cassettes. The misrepresentations were no different, in the present respect, from misrepresentations made in the course of the giving of lectures or addresses in many familiar factual settings. A professor delivers a lecture to university students; an academic or other person presents a paper at a conference or seminar held for the practitioners of a profession; a public figure addresses a crowd in a hall. Assume that in each case the speaker is not paid but understands that the institution or organisation which has arranged the event is making an admission charge or will sell various recorded forms of the lecture or address, or both. In such cases, what is said in the course of the delivery of the lecture or address will not ordinarily be “in” trade or commerce, even if the charging and selling by the institution or organisation is. Dr Roberts’ misrepresentations were not placed “in trade or commerce” by the fact that, to his knowledge, an admission charge was being imposed and audio and video recordings were being made and were to be sold.
I have used the word ‘ordinarily’ above to allow for the possibility of special cases. In their joint judgment in Concrete Constructions, Mason CJ, Deane, Dawson and Gaudron JJ acknowledged that (at 604):
‘[i]n some areas, the dividing line between what is and what is not conduct “in trade or commerce” may be less clear and may require the identification of what imports a trading or commercial character to an activity which is not, without more, of that character.’
One can imagine features which might impart to the making of a misrepresentation in the course of a lecture or address the quality of being ‘in trade or commerce’. For example, the misrepresentation might properly be characterised as directed to promoting the sale of goods or services. Again, a lecturer might be conducting a business of giving lectures for profit for himself or herself.
Neither of these is the present case. Indeed, it will be recalled that the trial judge found that there was no commercial or trading relationship between Dr Roberts and NARF; that he was not paid to deliver the lectures or to contribute to NARF’s newsletter or brochure; that he had no expectation of remuneration from his activities; that in giving his lectures and contributing to the publications, he was not primarily motivated by the desire to promote any business activities of NARF; and that his objectives were to propound his own views and to assist NARF to raise funds for NARF’s’ objectives.” (my emphasis)
ICAA relies on the final paragraph set out above, but clearly my observations were directed to the conduct of Dr Roberts, not that of NARF. In any event, the dimension and other features of ICAA’s educational and training activity mentioned earlier show that there is a much stronger case for regarding it as providing its educational and training services in trade or commerce than there was for regarding NARF as having been engaged in trade or commerce.
149 ICAA also relies on the following passage from the reasons for judgment of Branson J in Plimer (at 313):
“It is, I consider, appropriate to note that were s 52(1) of the TPA… to have the broader operation contended for by the appellant, [it] would, in my view, provide a significant deterrent to intellectual and religious debate in this country, at least so far as it is carried on through commercial avenues.”
Her Honour’s observations in this passage were directed to debate on intellectual and religious issues of interest to the general public or a section of it – a notion far removed from the selling of educational and training services designed to equip persons to practise a profession for remuneration as members of a particular professional organisation and under a particular designation. Unlike the activity to which her Honour referred, the eduction and training provided by ICAA in connection with its CA Program are commercially valuable services.
150 The fact that ICAA’s educational and training services may be provided without profit to ICAA does not necessarily signify that they are not provided in trade or commerce. Whether they are properly characterised as provided in trade or commerce can scarcely depend on the internal accounting practices of ICAA. There can be debate about whether particular costs are properly to be charged to one or another activity. The answer can scarcely be the determinant of whether an activity does or does not take place in trade or commerce. But even if the proper charging of costs cannot reasonably give rise to dispute in a particular case, the protection offered by the Act to consumers can scarcely be denied merely because, in the year in which the services in question were provided, no profit was made from the activity in question. Why should the rights of consumers and the obligations of corporations under the Act vary from time to time according to either the accounting practices of the corporation or adventitious circumstances going to the question whether a profit is or is not made over a particular period of time?
151 There is a further consideration which suggests a weakness in ICAA’s “not for profit” argument. This is that, as a result of ICAA’s provision of support material in connection with its new CA Program, there may have been a saving of costs to its members or to some of them. The trading or commercial character of educational and training activities carried on by a group of individuals at their cost could scarcely be eliminated by their incorporating a body to conduct them at cost and not for profit to itself.
152 The considerations referred to in the last two paragraphs point to the necessity, recognised in Concrete Constructions, of attending to the particular conduct in question and asking whether that particular conduct took place “in trade or commerce” within the narrow meaning of that expression adopted in that case.
153 In my view, for the above reasons, ICAA’s carrying out of its educational and training function in connection with its CA Program pursuant to its Charter constitutes the provision of services “in trade or commerce”.
Markets
154 The parties agreed that the following issue arises for determination:
“3A. Has [MTA] established the existence of any one or more of the following alleged markets within Australia:
(a) … the certification market;
(b) … the CA certification market;
(c) … the training market;
(d) … the CA support market?”
155 Both parties rely on various passages from the judgment of the High Court in Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) 167 CLR 177 (“Queensland Wire”). ICAA concedes that there is competition between accountants in the accounting services market and that there may be rivalry between ICAA and the Society. But ICAA submits that that competition and that rivalry must be distinguished from:
· competition in the alleged market in which the services of admission to membership of accounting societies and certification are supplied (the certification market); and
· competition in the alleged market in which the services of admission to membership of ICAA and certification of members as chartered accountants are supplied (the CA certification market).
I will turn to the latter market first.
The CA certification market
156 Central to MTA’s case is the alleged existence of the CA certification market. According to the Pleading, the CA certification market is a market in which “the service of the certification and admission to membership of [ICAA] of persons as chartered accountants” is supplied (see [22] earlier). ICAA alone can admit persons to membership of itself, alone can certify that persons have been so admitted, alone can permit persons to use the designation “chartered accountant” or its acronym “CA”, and alone can certify that persons are entitled to use them. If MTA establishes the existence of the alleged CA certification market, the possibility will arise for consideration, as MTA pleads, that ICAA is taking advantage of its power in that market to disturb the competitive process in another alleged market, the CA support market.
157 I will assume, without deciding, that “the certification and admission to membership of [ICAA] of persons as chartered accountants” is a “service” for the purposes of the Act. Therefore, I will assume, without deciding, that admission to membership of ICAA and certification by it of persons as chartered accountants are provided by ICAA in trade or commerce. (At [130] to [153] above I discussed the different issue, whether ICAA’s carrying out of its “educational and training function ...” constitutes the provision of services “in trade or commerce”.)
158 In my opinion, 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.
159 The terms of the Act’s provisions and judicial consideration of its notion of “market” support the existence of the requirement of potential competition and potential substitutability. Part IV of the Act is directed to overcoming, in the interests of the public, particularly the consuming public, of anti-competitive effects on economic activity. That is to say, Part IV assumes that there is a potential for competition. Section 4E’s “definition” of “market” speaks of, relevantly, services that are “substitutable for, or otherwise competitive with”, the services in question. Subsection 46(3) speaks of the constraining effect of the conduct of “competitors, or potential competitors”. Section 47’s definition of “exclusive dealing” invokes the notion of a “competitor”. Section 45 refers, relevantly, to a provision of a contract, arrangement or understanding which has the purpose, or has or is likely to have the effect, of “substantially lessening competition”.
160 Judicial observations about the nature of the Act’s concept of “market” have also acknowledged the necessity of the feature of potential competition and substitutability. In a passage which has been referred to by the courts subsequently, the Trade Practices Tribunal referred to it in Re Queensland Co-operative Milling Association Ltd (1976) 25 FLR 169. That Tribunal stated (at 190):
“We take the concept of a market to be basically a very simple idea. A market is the area of close competition between firms or, putting it a little differently, the field of rivalry between them. (If there is no close competition there is of course a monopolistic market.) Within the bounds of a market there is substitution – substitution between one product and another, and between one source of supply and another, in response to changing prices. So a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive. Let us suppose that the price of one supplier goes up. Then on the demand side buyers may switch their patronage from this firm’s product to another, or from this geographic source of supply to another. As well, on the supply side, sellers can adjust their production plans, substituting one geographic source of supply for another. Whether such substitution is feasible or likely depends ultimately on customer attitudes, technology, distance, and cost and price incentives.
It is the possibilities of such substitution which set the limits upon a firm’s ability to ‘give less and charge more’. Accordingly, in determining the outer boundaries of the market we ask a quite simple but fundamental question: If the firm were to ‘give less and charge more’ would there be, to put the matter colloquially, much of a reaction? And if so, from whom? In the language of economics the question is this: From which products and which activities could we expect a relatively high demand or supply response to price change, i.e. a relatively high cross-elasticity of demand or cross-elasticity of supply?”
161 In the leading authority on the Act’s notion of “market”, Queensland Wire (the notion of “market” was referred to by the members of the Full Court of this Court in Australian Competition & Consumer Commission v Boral Ltd (2001) ATPR 41-803, decided on 27 February 2001, and by members of the High Court in Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (t/as Auto Fashions Australia) (2001) 178 ALR 253 (“Melway”), decided on 15 March 2001, but in respects not of immediate relevance), Mason CJ and Wilson J stated (at 188):
“Section 4E directs that a market is to be described to include not just the defendant’s product but also those which are ‘substitutable for, or otherwise competitive with’, the defendant’s product. This process of defining a market by substitution involves both including products which compete with the defendant’s and excluding those which because of differentiating characteristics do not compete. In Hoffmann-La Roche v Commission (‘Roche’) [[1979] 1 ECR 461; 3 CMLR 211] the Court of Justice of the European Communities said [[1979] 1 ECR, at p 516; 3 CMLR, at p 272]:
‘The concept of the relevant market … implies that there can be effective competition between the products which form part of it and this presupposes that there is a sufficient degree of interchangeability between all the products forming part of the same market in so far as a specific use of such products is concerned.’
Conversely, in determining in United Brands v Commission (‘United Brands’) [[1978] 1 ECR 207; 1 CMLR 429] whether other fruits should be excluded from the market which bananas served, the European Court said [[1978] 1 ECR, at p 227; 1 CMLR, at pp 482-483]:
‘For the banana to be regarded as forming a market which is sufficiently differentiated from other fruit markets it must be possible for it to be singled out by such special features distinguishing it from other fruits that it is only to a limited extent interchangeable with them and is only exposed to their competition in a way that is hardly perceptible.’
See also Re Queensland Co-operative Milling Association Ltd [(1976) 25 FLR 169, at pp 190-191; 8 ALR 481, at p 517] (explaining that the defining feature of a market is substitution).”
162 At 191, their Honours said:
“… the object of s 46 is to protect the interests of consumers, the operation of the section being predicated on the assumption that competition is a means to that end.”
163 Deane J stated (at 194):
“The starting point … is the fact that the essential notions with which s 46 is concerned and the objective which the section is designed to achieve are economic and not moral ones. The notions are those of markets, market power, competitors in a market and competition. The objective is the protection and advancement of a competitive environment and competitive conduct by precluding advantage being taken of ‘a substantial degree of power in a market’ for any of the proscribed purposes.”
164 Importantly, his Honour said (at 195):
“Section 4E confines ‘market’ for the purposes of the Act to ‘a market in Australia’ and provides that, when the word ‘market’ is used in relation to any goods or services, it ‘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’. Section 46(4) provides that a reference in s 46 to a market is a reference to a market for goods or services. The Act does not otherwise seek to define what is meant by the word ‘market’. That is not surprising since the word is not susceptible of precise comprehensive definition when used as an abstract noun in an economic context. The most that can be said is that ‘market’ should, in the context of the Act, be understood in the sense of an area of potential close competition in particular goods and/or services and their substitutes (cf Re G & M Stephens Cartage Contractors Pty Ltd [[1977] ATPR 17, 445, at p 17, 460]).”
165 In the passage from Re G & M Stephens Cartage Contractors Pty Ltd (1977) ATPR 40-042 referred to by Deane J, the Trade Practices Tribunal had stated as follows (at 17, 460):
“The identification of relevant markets must be the essential first step in the assessment both of present competition in existing circumstances and likely competition in postulated future circumstances. Competition is an active process rather than a passive situation. Nevertheless, the existence and extent of competition or likely competition between those competing within a market will depend, to a large extent, upon the distinctive, albeit evolving, structure of that market (see, generally, Re Queensland Co-Operative Milling Association Limited (1976) ATPR 40-012).”
166 Deane J again emphasised the necessity of a “potential for close competition” in the following passage (at 196):
“While actual competition must exist and be assessed in the context of a market, a market can exist if there be the potential for close competition even though none in fact exists. A market will continue to exist even though dealings in it be temporarily dormant or suspended. Indeed for the purposes of the Act, a market may exist for particular existing goods at a particular level if there exists a demand for (and the potential for competition between traders in) such goods at that level, notwithstanding that there is no supplier of, nor trade in, those goods at a given time – because, for example, one party is unwilling to enter any transaction at the price or on the conditions set by the other. It is, however, unnecessary to pursue that question for the purposes of the present appeal.”
167 Dawson J agreed generally with Deane J and added certain observations, including the following (at 199):
“Cross-elasticities of supply and demand reveal the degree to which one product may be substituted for another, an important consideration in any definition of a market. This is reflected in s 4E of the Trade Practices Act …”
168 Toohey J referred (at 210) to the fact that s 4E was introduced following a recommendation by the Trade Practices Act Review Committee (the “Swanson Committee”) that the definition of “market” be extended so as to:
“require that, in the determination of a ‘market’ for particular purposes, regard shall be had to substitute products, being products which have a reasonable interchangeability of use and which have high cross-elasticity of demand, i.e. where a small decrease in the price of a particular product would cause a significant quantum of demand for a similar product to switch to the product in question.” (Report to the Minister for Business and Consumer Affairs (1976), p 17, par 4.22.)
169 There is simply no “potential close competition” in respect of “the certification and admission to membership of [ICAA] of persons as chartered accountants”. In the supposed CA certification market there is no “substitute” or “similar” product: the one and only product is “the certification and admission to membership of [ICAA] of persons as chartered accountants”. Nor is there any possibility for any substitutable product or for any competitor to enter the supposed CA certification market. There may be substitute or similar products in the form of, for example, “the certification and admission to membership of [the Society] of persons as certified public accountants”, but that is a different and broader market – the “certification market” discussed below.
170 Because “the certification and admission to membership of [ICAA] of persons as chartered accountants” is uniquely ICAA’s to grant, MTA has not established the existence of the CA certification market.
The certification market
171 MTA also pleads that ICAA has taken advantage of a substantial degree of power in the supposed “certification market” for the same anti-competitive purpose in connection with the CA support market. The “certification market” is broader than the “CA certification market”: the former relates to admission to, and certification of, membership of learned societies of accountants generally, whereas the latter relates to admission to, and certification of, membership of ICAA alone. The Pleading defines the certification market as “a market for the provision of the services comprising examination, and certification or admission into membership of learned societies of persons wishing to provide accounting services as members of and using the name and style of the learned societies, …”. MTA did not make submissions in support of this pleaded use of market power in the broader certification market. No doubt the reason was that, having regard to the comparative extents of participation in the supposed certification market of ICAA and the Society, MTA accepted that ICAA did not have a substantial degree of power in that market. In written submissions, MTA stated:
“It may or may not be the case that ICAA has market power in the general certification market. However, it is not necessary to further consider that issue for the purposes of these proceedings.”
172 Assuming, without deciding, that “examination, and certification or admission into membership of learned societies [of practising accountants]” constitutes “services” for the purposes of the Act, I think MTA has established the existence of the certification market because there is a potential for close competition between, at least, ICAA and the Society, in respect of:
“the provision of the services comprising examination, and certification or admission into membership of learned societies of persons wishing to provide accounting services as members of and using the name and style of the learned societies, including the style sanctioned or authorised for use by [ICAA]”.
173 At the time of testifying on 15 March 2001, Ms Cappelletto said that ICAA had approximately 35,000 members and the Society over 100,000, but that the latter figure included the Society’s “student population”. According to its Annual Report for 1999, the Society had more than 90,000 members “together with an 8,000 strong student base”. Its revenue for the year from members’ subscriptions was $29,760,000, from its “Education and CPA Program” was $14,308,000, from its “Professional Development” activity was $13,759,000 and from its “Other” activities was $7,047,000 – a total revenue of $64,874,000. The Society permits the use by its members of the designation “Certified Practising Accountant” and the acronym “CPA”. In 2000 the Society, a company limited by guarantee, changed its name from “Australian Society of Certified Practising Accountants” to “CPA Australia”. The change was promoted with a view to giving the certified practising accountants a “competitive edge” in terms of recognition, over chartered accountants. It is clear from a reading of the documents of both ICAA and the Society, that each promotes:
· itself as the superior professional organisation: and
· its certification as the superior professional qualification for practice.
Evidence that ICAA regards itself as being in competition with the Society in these respects is found in PY Review Task Force Report of December 1995, the relevant parts of which were noted at [79] above.
174 In cross examination Ms Cappelletto agreed that the object of ICAA was “to maintain itself as the premier accounting qualification and post graduate accounting qualification in Australia”. She also agreed that ICAA desired to attract members and to persuade individuals that they should choose “the more rigorous course of being a chartered accountant, compared to, for example, the CPA course”. Finally, Ms Cappelletto accepted that ICAA was concerned to maintain over time a strong and large membership; that from its members ICAA derived membership fees; that ICAA sought to foster in the commercial community and internationally the desirability of using the services of chartered accountants; and that after leaving university, individuals became members of ICAA as part of their career development “in order to enhance their economic capability”.
175 There is a potential for close competition and for substitutability, as between admission to membership of the Society and of ICAA and the respective certifications granted by them. Therefore, there is a certification market in which at least those two professional associations participate as competitors.
The training market
176 The “training market” is defined in par 14 of the Pleading, noted earlier at [24] as:
“a market for the education and training of accountants in general and candidates for admission to membership of learned societies and [ICAA] in particular.”
The parties did not address submissions to the question of the existence of the training market, as distinct from its sub-market, the CA support market, and I will not address that question either.
The CA support market
177 The “CA support market” is defined in par 27 of the Pleading, which was noted at [28] earlier, as a sub-market of the training market and as being:
“a market for providing support services to candidates undertaking studies to become certified as a chartered accountant.”
The Pleading uses the expression “CA support market” to refer to a single market for the provision of support services to candidates undertaking modules in both the former PY Program and the new CA Program. This elision conforms to MTA’s case but it pre-empts an important question: that of the similarities and differences between the former PY Program and the new CA Program and the support services appropriate for them respectively. I will have occasion later to discuss this matter, but it will assist if I state now that I accept the thrust of the following oral submission by senior counsel for ICAA:
“In short, if the Institute had from scratch decided contrary to its best perceptions of proper educational philosophy that it should supply lots of support material, then to that extent it may be that there would have been less of and perhaps no market for support material at all. The point is that the market for support material at any stage of the Institute’s educational program, past or present, really depends on the extent to which the Institute itself abstains from supplying courses which encourage the need or the perception of the need, more accurately, for that material, so that in a sense the participants in the support market are, I suppose in plant biology terms, in effect endophytes in the system rather than stand alone or independently sourced operators.
In our respectful submission there is no particular reason why the Institute must structure its affairs at any particular point in time to encourage what at best is a derivative or dependent market. Probably the best conclusion is that the PY support market came to an end with the PY and whether there does or will evolve a CA Program market involving the supply of course material depends on the perceptions in the area where that market could be expected to arise, which will involve student perceptions and involve the perceptions of the other participants, many of whom may have been in the PY support market for so long as [it] existed.”
178 I find that there was a PY support market which came to an end with the PY. Although it is “early days”, it seems that there has arisen a new CA support market (strictly so called) since Mr Topple’s own testimony in cross examination shows this to be the case. That cross examination included the following:
“In any event, it is apparent, isn’t it that you have been adapting your own business to meet the demands and challenges of the Institute’s new CA Program? – Yes.
From what I understood you to tell Mr Cotman a few minutes ago, you have been gearing up with the preparation yourself of materials for that purpose – Yes.
As you understand it, there is another organisation which I think may be PLS [Professional Learning Systems Pty Ltd]. Is that right? – That’s right.
As I understood your evidence, it is your understanding that PLS also is gearing up to meet the challenges of the new course? – Yes.
They are, of course, competitors of yours, aren’t they? – Yes.”
179 The cross examination of Mr Topple also included the following:
“Amongst the activities which your company is currently pursuing, is it correct to say this, that you have been producing a kit bag of tools which will enable candidates to make the best use of their time and to prepare for all elements of the CA Program? – Yes.
Is that a truthful description of the activities the company has been undertaking? – I think so.
And is the next assertion a correct one, namely that:
We have achieved this by totally re-engineering our support system? – Yes.
What do you mean by that? – We have redesigned the way in which we put the material together.
You go on to say that there is a new CA support kit. Is that a description of the package which you are presently marketing? – Yes.
And that is said to be a multi media package designed to make the most appropriate use of technology to suit different learning styles. And again, is that an accurate description of the CA support kit? – Yes.
And does that take on board your understanding of the general educational objectives of the Institute, specifically in wishing to encourage the greater utilisation of modern technological resources? – I think that is a means of delivery.
And amongst other things, you claim also to offer what is described as on line support, is that right? – Yes.
On the basis of the activities which you’ve described in the website and which you’ve confirmed as a correct description, I take it you would continue to maintain that your firm remains the CA specialists so far as the examinations of the Institute of Chartered Accountants in Australia is concerned? – We specialise in CA, yes.”
Later Mr Topple said that MTA had prepared materials for the Capstone module in response to the introduction of the “focus groups” in the CA Program.
180 Senior counsel for MTA submitted that the potential for the provision of support by external entities is much less than what it was under the replaced PY Program. I am content to assume that it is. Nonetheless, as Mr Topple’s own testimony set out above shows, some kind of CA support market (strictly so called) has come into being.
181 I would resolve the present issue by finding that there was a PY support market and that there is now a CA support market (strictly so called), even if, apparently, a more limited one than the former PY support market.
Market power – s 46
182 The parties have agreed that the following issue arises for decision:
“4. Does ICAA have a substantial degree of power in the ... certification market and CA certification market?”
183 ICAA submits, relying in particular on Melway,that if I conclude, contrary to its submission, that there is a certification market or a CA certification market, nonetheless MTA has not proved that ICAA has a substantial degree of power in either of those markets.
184 The concepts of “power in a market”, “taking advantage of” power in a market, and the unacceptable purposes identified in subs 46(1) are interrelated.
185 The relevant provisions of s 46 were set out earlier in [52]. Subsection 46(1) speaks of “power in a market” and par 46(4)(a) tells us that in s 46 “a reference to power is a reference to market power”. Accordingly the first few words of subs 46(1) can be read as follows:
“A corporation that has a substantial degree of [market power] in a market shall not take advantage of that [market power] for the purpose of: ... .”
186 It is not every kind of power which a corporation may be in a position to exercise in a market at which s 46 strikes: it strikes only at market power.
187 In Top Performance Motors Pty Ltd v Ira Berk (Queensland) Pty Ltd (1975) 24 FLR 286, the exercise of a contractual right to terminate a car franchise or dealership was distinguished from taking advantage of market power, even though the termination might lead to a reduction in competition (see espat 290). In Warman International Ltd v Envirotech Australia Pty Ltd (1986) 11 FCR 478, Wilcox J stated (at 502):
“... there is not in the Australian Act – as there is in the Sherman Act – a general prohibition upon monopolisation. Section 46 strikes only at the conduct it defines and that conduct is limited to the taking advantage of the market power of the relevant corporation. To exercise in good faith an extraneous legal right, though the effect may be to lessen, or even eliminate, competition, is to take advantage of that right, not of market power: ...”
(my emphasis)
In Melway the High Court distinguished from taking advantage of market power, the conduct of a publisher of Melbourne street directories in exercising its contractual right to terminate an exclusive distributorship and refusing to supply a substantial order for directories which the former distributor placed with the publisher.
188 Subsection 46(3) provides, in its application to this case, that in determining for the purposes of s 46 the degree of market power that ICAA has in a market, the Court is to have regard to the extent to which ICAA’s conduct in that market is constrained by the conduct of a competitor in that market. I have previously concluded, while assuming, without deciding, that “examination and certification or admission into membership of learned societies [of practising accountants]” constitutes “services” for the purposes of the Act, that the certification market exists, and that at least ICAA and the Society are competitors in it.
189 As noted earlier ICAA has only some 35,000 members as against the Society’s some 90,000-100,000. As appears from the figures given in [173] above, financially also, the Society is by far the larger organisation. I referred earlier to evidence of competition by both ICAA and the Society in the quest for members and for more favoured repute.
190 I am satisfied that ICAA is constrained by competition from the Society in the certification market and I am not satisfied that it enjoys a substantial degree of market power in that market. The degree of market power possessed by ICAA in that market is simply that of a competitor which serves approximately one quarter of all persons seeking membership and certification (I take into account only ICAA and the Society). “It only requires a sufficient level of competition to deny a substantial degree of power to any competitor in [a] market”: Melway at [52] per Gleeson CJ, Gummow, Hayne and Callinan JJ. The essential feature of a substantial degree of market power is that the possessor of it is able “to behave independently of competition and of competitive forces in a relevant market”: Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 35 FCR 43 (FC) (“Eastern Express”) at 62 per Lockhart and Gummow JJ. ICAA did not possess such power in the certification market. I note in passing that in Kadkhudayan v W D & H O Wills (Australia) Limited [2001] FCA 645, Lee J (at [63]-[65]) was not satisfied on the evidence that a corporation which admitted it had approximately 28 per cent of the “retail cigarette market” in South Australia met the criterion described.
191 I turn now to the CA certification market. It is difficult to address the question whether ICAA has market power in the CA certification market, if I am wrong in my earlier conclusion that the CA certification market does not exist. Since it is clear beyond question that there is no potential for competition in respect of the admission of persons to membership of ICAA or the certification that persons are “chartered accountants”, I would have to assume that I had applied the wrong test of the existence of a market. I will assume, contrary to my view, that it suffices for the existence of a market that admission to membership and certification are commercially valuable benefits that are granted to eligible persons upon payment by them of a fee. On this assumption, the CA certification market would exist.
192 But still ICAA’s total dominance of the CA certification market would be attributable to something other than market power. That “something” would be its legal right, by reason of its Charter, alone to determine who shall be admitted to membership of itself and therefore be permitted to use the designation “chartered accountant” or the letters “CA”. That right includes the right to identify those persons as persons who, inter alia, have satisfactorily completed a prescribed course of education and training and have bought materials issued by ICAA in connection with such a course.
193 ICAA’s right is akin to an intellectual property right, such as a patent or copyright. The patentee or the copyright owner alone is entitled to exploit the patent or copyright or to permit others to do so. Although there would, in my opinion, be no “market” for the granting of rights defined so narrowly that only the patentee or copyright owner could ever grant them (because there would be no potential for competition or substitutability), if this were wrong, nonetheless, the patentee’s or copyright owner’s total dominance of the supposed market would be attributable to its intellectual property, not to its market power.
“Take advantage of” – s 46
194 The parties’ statement of agreed issues poses the following issues:
“5. Has ICAA taken advantage of (or is it likely to continue to take advantage of) its alleged market power in [the certification market or the CA certification market] by reason of:
(a) publishing one or more of the following statements (‘the published statements’):
‘(d) The fee for the first capstone module would be higher than for the other modules as the study materials would be supplied at no extra cost and would be much more comprehensive and would make unnecessary any separate support material.
¼
(f) The compulsory fee for each module in the new CA programme would include a comprehensive package of support materials.
(g) The materials included in the fee charges for each module in the new CA programme would reduce the need for additional materials other than the normal reference materials.’; or
(b) implementing the actions foreshadowed in the published statements …?
6. Has ICAA taken advantage of such alleged market power by pricing the services supplied by ICAA (to the extent that it is shown to be a pricing described in terms of the alleged publishing statements) in a predatory way; that is priced at a level designed to eliminate a competitor or keep a potential competitor from the market?”
195 MTA’s case under s 46 is that ICAA has taken advantage of substantial market power in the CA certification market or the certification market for one or more anti-competitive purposes in the CA support market. The expression “take advantage of” bears the neutral meaning of “use”, not necessarily “misuse”: Queensland Wire; Melway.
196 I have held above that the CA certification market does not exist and that ICAA does not have substantial market power in the certification market.
197 What I have said above in relation to “market” and “market power” goes a long way towards resolving the present issues. In my opinion, ICAA has not taken advantage of market power. Rather, it has exercised its exclusive legal right under its Charter to determine who shall be admitted to membership of it (including the right to determine (and to vary from time to time) the qualifications for admission to membership) and to certify that persons are entitled to provide accounting services as “chartered accountants” and to use the acronym “CA”.
Purpose – s 46 (also ss 47 and 45)
198 According to the parties’ statement of agreed issues, the following question arises for decision:
“7. If it is found that the ICAA engaged in the relevant conduct, and thereby took advantage of its alleged market power, did ICAA do so for one or both of the following purposes:
· to eliminate or substantially damage competitors of ICAA in the CA support market;
· to deter or prevent persons from engaging in competitive conduct in the CA support market.”
199 “Purpose” in s 46 refers to subjective purpose – the motive or reason for the corporation’s conduct: Eastern Express at 66 per Lockhart and Gummow JJ; ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (1990) 27 FCR 460 (FC) (“ASX Operations”) at 474-477.
200 According to the Pleading, a substantial purpose of ICAA was “to eliminate or substantially damage competitors [of ICAA] in the CA support market and/or to deter or prevent persons from engaging in competitive conduct in the CA support market”. In my opinion, however, neither of these was a substantial purpose of ICAA. I find that in adopting the CA Program in place of the PY Program, ICAA’s purpose was to have an educational program which was, as ICAA saw it, in accord with society’s expectations of a chartered accountant.
201 In the chronological account earlier, I referred to the extensive deliberations and consultations which preceded the change from the PY Program to the CA Program. No doubt, to the extent it thought about the matter, ICAA 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. Moreover, it is true that in her report dated 30 March 1995, Ms Cappelletto referred to her fear at that time that in the longer term MTA would achieve a monopoly. But in my view it is clear that her concern was an educational one: she said she feared that a monopoly by MTA would bring the Australian situation “closer to the current situation in the UK with training colleges” (see [66] earlier) – a result which, apparently, she understood was to be avoided in Australia. ICAA simply gave little thought to the effect 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 cost. It was not ICAA’s purpose in providing comprehensive CA support materials to make a profit.
202 It is not the object of s 46 to protect the private commercial interests of a competitor, perhaps, a fortiori, one whose business is parasitic (I do not use the word in a pejorative sense) on the activities of a professional association. It was put to Ms Cappelletto, by reference to KPMG’s letter of 4 June 1998 (see [104] above) that what was being proposed in ICAA’s Discussion Paper would deprive candidates of free choice. She 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.”
203 Ms Cappelletto’s view may or may not be unrealistic. I accept that she held it. As noted at [117] 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 régime, 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 + $120 + $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 ICAA’s and MTA’s materials. On the other hand, a candidate who was impressed by the quality of the ICAA CA support materials might think it superfluous to outlay anything more than the $730 module enrolment fee.
204 Senior counsel for MTA submitted that the subjective purpose of ICAA is to be distinguished from the purpose of Ms Cappelletto and is, in the absence of testimony from her superiors, to be inferred. Ms Cappelletto’s “superiors” were Stephen Harrison, who was the Executive Director of ICAA, the NEC, the Executive Committee and the National Council. Subsection 84(1) of the Act provides that where, in a proceeding under Pt VI of the Act (the present proceeding is under Pt VI) in respect of conduct of a body corporate to which, inter alia, s 46 applies, it is necessary to establish the state of mind of the body corporate, it is sufficient to show that a director, servant or agent by whom the conduct was engaged in within the scope of the person’s actual or apparent authority, had that state of mind. This provision is designed to assist a person placed as MTA is in establishing the purpose of a body corporate placed as ICAA is, and is not inconsistent with senior counsel’s submission. In any event, Ms Cappelletto was not the person who engaged in the conduct on which MTA relies: the National Council did so. I accept MTA’s submission.
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 subs 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 educational program in the interests of candidates, present and future members of ICAA and their present and future clients.
206 ICAA did not terminate the PY Program and replace it with the CA Program for any of the purposes specified in subs 46(1).
An analogy, then Melway
207 An analogy may assist in explaining why, in my opinion, MTA’s claim under s 46 fails. Periodically, a machine needs to be serviced and to have parts replaced. A competitive “service market” develops. The manufacturer of the machine may or may not have facilitated this development, for example, by supplying information about its product to the participants in the service market, that is, those who have made a business out of manufacturing and supplying the spare parts and servicing the machine.
208 The manufacturer decides to cease production of the machine and to start manufacturing another. Existing stocks of spare parts are inappropriate for the new machine, and the employees of the participants in the service market are not trained to service the new machine, although no doubt with time and money, those companies could adapt to it.
209 But the manufacturer has decided to establish a network of service centres equipped with spare parts supplied by the machine manufacturer itself. Worse still for the service industry, the manufacturer has decided, for a small increase in price, to include in the price of the machine all servicing and spare parts it will ever need. The manufacturer has taken the view that this arrangement benefits both itself and its customers.
210 While it remains possible for participants in the service market to continue in business (customer loyalty and geographical convenience may still favour them to some extent), they predict that the effect of the manufacturer’s change of course on their businesses will be disastrous.
211 In my opinion, the manufacturer has not contravened s 46. It has not taken advantage of substantial market power in the service market for the purpose of preventing competition with it in that market. Rather, it has lawfully exercised its rights as manufacturer. Inherent in its position as manufacturer is the right to abandon one product and to manufacture a new one in its place and to provide servicing and spare parts for it and to sell them and the new product for a single undifferentiated price, even if this forecloses any possibility of the development of a second service market.
212 (The present case is stronger than that just described by reason of the not for profit character of ICAA’s status and educational and training activities.)
213 Melway and this case are not on all fours because ICAA could not prevent MTA or anyone else from providing support materials to its candidates, whereas Melway Publishing Pty Ltd (Melway) could prevent a former distributor from selling its street directories (by not supplying them to it).
214 Nonetheless, much of what was said in Melway is applicable. In that case Gleeson CJ, Gummow, Hayne and Callinan JJ stated as follows (at [19]):
“There was no legal obligation upon Melway to have any wholesale distributors at all. If it had chosen to do so, it could have supplied retailers directly itself, or it could have supplied the retail market through a single wholesale distributor. Distributorship arrangements may restrict intrabrand competition but promote interbrand competition.”
215 Similarly, in the present case, there was no obligation on ICAA to make it possible for a PY support market or a CA support market to exist at all (ICAA had never appointed MTA or anyone else to produce PY or CA support materials, whereas Melway had appointed Robert Hicks Pty Ltd and others as wholesale distributors of its street directories, although it lawfully terminated the appointment of Robert Hicks Pty Ltd). It was always open to ICAA itself to supply support materials to candidates or to appoint a single entity, such as Hall Chadwick or QUT, to do so, and, in that event, to assist the sole appointed provider while denying assistance to its competitors.
216 The course of action which ICAA has followed may have had the effect of eliminating or restricting “intrabrand competition”, but it may have promoted “interbrand competition”. That is, although it may have had the effect of eliminating competition in the former PY support market (and creating a new, more constrained, CA support market), it may have increased competition in the certification market by making ICAA membership and CA certification more appealing in their competition with membership of the Society and CPA certification.
217 At [30] in the joint judgment in Melway their Honours stated:
“In the present case, there was no suggestion of a purpose of preventing the respondent from becoming a wholesaler of street directories. It was never suggested that Melway had any concern, for example, to prevent the respondent from distributing the products of one of its competitors. What Melway intended to do, and did, was to terminate the respondent’s Melway distributorship, with the necessary consequence that it would cease to be a wholesaler of Melway street directories. Melway was not the only possible source of supply of Melbourne street directories. It was the only possible source of Melway street directories, but that would have been the case if it only had 10% of the market, or if it had no substantial degree of market power. Its ability to stop the respondent becoming a wholesaler of Melway directories resulted from the fact that it was Melway, and could appoint, or not appoint, distributors as it saw fit in its commercial interests.”
Similarly, here, ICAA does not seek to prevent MTA from selling support in the training market: MTA is at liberty to sell support to candidates enrolled in the Society’s program, for example. But just as Melway was the only supplier of Melway street directories, ICAA is the only supplier of membership of itself and of CA certification. Its ability to do what it has done, damaging as this may be to MTA’s commercial interests, is due to the fact that it is ICAA.
“Bundling” and predatory pricing
218 In the course of the hearing, senior counsel for MTA stated as follows:
“... on a number of occasions my learned friend remarked that ... there were various professional, commercial or other imperatives that drove aspects of the migration from PY to CA and the migration from exam-based assessment to combinations of exam and other forms of assessment and matters of that sort.
With all of that we have absolutely no issue and we don’t suggest for one moment that there is in effect some corrupting malaise that hangs over this entire process. We accept that part of the Institute’s function and part of the Institute’s legitimate aspirations are in relation to determining what skills set it looks for in its members, determining how it is going to examine them to find out whether they possess those skills set and so forth, these are all matters which are commonplace in the functions of the Association, they are embedded in the charter as matters appropriate for it to do.
The matter about which we complain and the only matter about which we complain is in the methodology of seeking to achieve those perfectly proper objectives. There has been inserted, we say almost by a sleight of hand, the secondary objective to monopolise or to substantially damage the alternative suppliers of education to candidates for examination and by, in this case, the very particular technique of bundling up the materials that had been hitherto supplied in competition with my client and others and bundling those and selling them for an all-inclusive price.
That is the matter of complaint, not the aspiration to prepare a more rounded and commercially-adept and nimble-footed accountant for the future. Those are all matters which are perfectly laudable and … our client would no doubt enthusiastically subscribe to the view that were those ambitions articulated [and if the] curriculum articulated as to how this is to be achieved those are matters that could be then grappled with by all those involved in the preparation of materials. That might assist people achieve those sorts of objectives when they present themselves for examination.
It is the means, not the ends and only an aspect of the means, with which my client makes complaint and your Honour will not hear anything from us at the end of the day to suggest that any of the material that my friend has been most recently reading from the 1997 through to 1999 period is somehow inappropriate or improper or offends in any degree any aspect of the Trade Practices Act. We say precisely the opposite. It is a very particular matter about which we complain and our complaint will be limited to that.”
Senior counsel for MTA sometimes referred to the “very particular matter” about which MTA complained as “bundling”. “Bundling” may refer to different things but it will suffice to think of it as the selling together of all ICAA-supplied materials, including support materials, for the mandatory module enrolment fee. An important feature of MTA’s “bundling” case is its submission that the CA support materials in large part repeated PY support materials which ICAA had previously offered for sale separately from enrolment and which the candidate had the option of rejecting, in favour, perhaps, of buying competing PY support materials from MTA.
219 Many times in both her affidavit and oral testimony, Ms Cappelletto was at pains to emphasise that the nature and purpose of the Capstone module in the PY Program and all modules in the new CA Program are in various respects fundamentally different from those of all the other modules in the PY Program. Paragraphs 58-61 of her affidavit were as follows:
“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;
· collaborative;
· communicative;
· forward thinking;
· innovative;
· service oriented;
· professional;
· ethical; and
· reflective.
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 dynamically changing 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 (ie completion of activities) rather than learning by passive participation (for example by reading). For example, with the CA Foundations module, Candidates receive the following resources which assist them to develop the competencies needed for the focus sessions, assessment in the module and success in their careers:
· a Candidate Learning Pack which includes print resources and seven interactive CD-ROMs; and
· access to three web-based products – myCA, myCAportfolio, and SPI (strategic process improvement);
Candidates are required to work through these 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 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.”
220 Ms Cappelletto was unsuccessfully pressed to agree that the CA Program repeated material in the PY Program. MTA’s submissions proceeded along the following lines:
· Prior to the change, the fee to enrol in a PY module was $720 and candidates could buy ICAA’s Technical Guide for the module for $120;
· After the change, a candidate was required to pay $730 to enrol in the Capstone module and in any CA Program module, but this included ICAA’s support material for the Capstone or CA module, and the sum of $730 was not apportioned as between enrolment and materials;
· ICAA’s CA support material repeated to a substantial extent material which could be found in the Technical Guides of the former PY modules;
· As a result, ICAA has, in substance, obliged the candidate to buy the material covered by the former Technical Guides (and made it very unlikely that he or she or his or her employer will wish to buy CA support material from any other provider);
· ICAA is supplying the CA Program module material at a low cost and perhaps below cost.
221 In my view, MTA’s case, so put, is fallacious. First, even if all the elements identified above were accepted, they would not establish contravention of s 46. The reason is that ICAA is at liberty, in the exercise of its Charter rights, to make it a condition of membership of ICAA and of certification as a chartered accountant, that a person buy materials from it at whatever price it nominates. Its conditions and the burden they impose will no doubt be taken into account by graduates when they are faced with the choice between becoming chartered accountants and certified practising accountants, but that is another matter.
222 Secondly, it is not in fact established that the CA module support materials replicate the former PY Technical Guides. That support includes much more than written materials. It includes, for example, the opportunity to participate in focus groups and to receive “feedback”. But even in relation to written materials alone, MTA’s submission encounters difficulty. MTA’s submission analysed Financial Reporting and Assurance, the first of the three technical modules in the CA Program to be offered. The “Candidate Learning Package” for that module contains an introduction and substantive material. MTA’s comparison of the introduction with the relevant introduction in the former PY material does not establish that that of the Candidate Learning Package for Financial Reporting and Assurance substantially repeats the earlier introduction.
223 MTA compared the substantive content of the Candidate Learning Package for Financial Reporting and Assurance with the Technical Guides for the former Accounting 1 and Accounting 2 modules of the PY Program. According to MTA’s submission, 10 of the 15 chapter topics in the former Accounting 1 syllabus and virtually the whole (chapters 1 to 12) of the syllabus of the “Auditing/Assurance” element of the former Accounting 2 are to be found in the Candidate Learning Package for Financial Reporting and Assurance. But, as well, according to the submission itself, 15 new sections appear in that Candidate Learning Package.
224 Ms Cappelletto said that there was very little in the new CA Foundations module which had any correspondence with anything in the now displaced PY Program. She insisted that in the PY Program, ICAA is trying to develop a much broader set of skills than those sought to be developed in the PY Program, even though “the technical underpinning” is the same. Ms Cappelletto conceded that some material from the Technical Guides of modules in the PY Program was “brought forward” into ICAA’s support materials for the CA Program. But she emphasised that much is new and that even the parts that have been carried forward are now used for a different purpose. She said of the latter:
“The technical material is used as a way of developing the skills. It is not used to get a grasp of the technical material on its own. Today’s technical knowledge is really not valuable to anybody tomorrow.”
225 I take Ms Cappelletto’s testimony to be that even as to written material that has been carried forward, the use made of it by ICAA in the setting of “extension work” and in “focus groups”, on both of which a candidate receives feedback, is directed to the development of skills, and the CA module enrolment fee covers the feedback on the completed extension work and on participation in the focus groups, as well as the supply of the written materials themselves.
226 MTA submits that the following tables accurately “source” the content of all the sections in Financial Reporting and Assurance (the 15 new sections referred to above can be identified in the table):
| “Section | Title | Previously in TG | Approximate split of sources (pages) | |
|
| FINANCIAL ACCOUNTING |
| New | TG |
| 2.1 | The Regulatory Framework | Yes | 14 | 5 |
| 2.2 | The Reporting Entity Concept | No | 8 |
|
| 2.3 | Accounting Policies | No | 15 |
|
| 2.4 | Statement of Financial Performance | No | 17 |
|
| 2.5 | Statement of Financial Position | No | 11 |
|
| 2.6 | Key Disclosures | No | 8 |
|
| 2.7 | Statement of Cash Flows | Yes | 3 | 42 |
| 2.8 | Related Parties | Yes | 7 | 23 |
| 2.9 | Events Occurring after Reporting Date | No | 10 |
|
| 2.10 | Consolidation Accounting | Yes | 5 | 35 |
| 2.11 | Foreign Currency | Yes | 9 | 16 |
| 2.12 | Employee Entitlements | No | 23 |
|
| 2.13 | Joint Ventures | No | 16 |
|
| 2.14 | Investments in Associates | Yes | 17 | 3 |
| 2.15 | Financial Instruments | Yes | 10 | 8 |
| 2.16 | Extinguishment of Debt | No | 8 |
|
| 2.17 | Earnings per Share | Yes | 3 | 17 |
| 2.18 | Financial Reporting by Segment | No | 12 |
|
| 2.19 | Interim Reporting | No | 16 |
|
|
| TOTAL |
| 212 | 149 |
|
|
|
|
|
|
|
| New sections |
| 144 |
|
|
| Existing sections |
| 68 | 149 |
|
|
|
| 212 | 149 |
| Section | Title | Previously in TG | Approximate split of sources (pages) | |
|
| Assurance |
| New | TG |
| 3.1 | Legal & Professional Requirements | Yes | 11 | 9 |
| 3.2 | Introduction to Auditing Standards | No | 4 |
|
| 3.3 | Responsibilities | No | 13 | 1 |
| 3.4 | Planning | Yes | 13 | 5 |
| 3.5 | Internal Control | Yes | 6 | 14 |
| 3.6 | Audit Evidence | Yes | 3 | 17 |
| 3.7 | Using the Work of Others | Yes | 4 | 4 |
| 3.8 | Audit Conclusions and Reporting | Yes | 4 | 15 |
| 3.9 | Specialised Areas | Yes | 11 | 2 |
| 3.10 | Related Services | No | 6 |
|
| 3.11 | Auditing Guidance Statements | No | 16 | 2 |
|
| TOTAL |
| 91 | 69 |
|
|
|
|
|
|
|
| New sections |
| 39 | 3 |
|
| Existing sections |
| 52 | 66 |
|
|
|
| 91 | 69 |
|
|
|
|
|
|
|
| Total new sections |
| 183 | 3 |
|
| Total existing sections |
| 120 | 215 |
|
| TOTAL |
| 303 | 218 |
Notes:
(i) The column ‘Previously in TG’ indicates if there was previously a relevant chapter in the TG [Technical Guide].
(ii) The number of pages excludes the Section Summary page at the beginning of each section and the Activities Summary page at the end of each section.
(iii) The page count ignores content (in the form of answers to Activities) which must now be accessed via the web.”
227 MTA submits that its summary (above) shows that approximately 42 per cent (218/521) of the content of Financial Reporting and Assurance is derived directly from the former Technical Guides, but that where there was a “comparable chapter” in those Technical Guides “64% (215/335) of the content is derived directly from the [Technical Guides]”.
228 Even on MTA’s analysis, Financial Reporting and Assurance is substantially new. Moreover, my own comparison of the actual Candidate Learning Package for Financial Reporting and Assurance and the Technical Guides of the former PY Program modules shows that there is not an exact duplication or repetition, that is, a “scissor and paste” exercise, but a re-writing and a different approach.
229 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.
230 Thirdly, and finally, as noted previously, ICAA is a non-profit association: its Charter requires it to apply its profits (if any) or other income in promoting its objects and prohibits it from paying any dividend to its members. It is consistent with its Charter that its pricing policy should be directed only to covering costs. Ms Cappelletto stated in her affidavit as follows:
“66. The Institute does not seek to conduct its pre-admission education activities at a profit or to have them generate a positive cash flow. Its objective is to recover the costs it incurs with respect to these matters by way of the enrolment fees. The Institute looks at pre-admission education costs as a whole. It does not separate costs by reference to components of modules.
67. The fees to be charged by the Institute for enrolment in its pre-admission educational activities are fixed by its Board.
68. I, as the Institute’s Divisional General Manager, Professional Education, am required to make recommendations with respect to enrolment fees. In my experience, in the 13 years that I have been responsible for pre-admission education budgets, my recommended enrolment fees have substantially been adopted (although sometimes after minor changes).
69. When developing recommendations for enrolment fees, my practice is to estimate the Institute’s total costs of providing pre-admission education (including allocated overheads) and the total number of Candidates likely to enrol in all modules. Based on this information, I determine the level of enrolment fees which will be needed in order for the total pre-admission education revenue (that is enrolment fee per module multiplied by the number of enrolled Candidates) to cover the estimated total costs.”
MTA, on the other hand, could not continue in business if it followed such a policy. It is not “predatory pricing” for ICAA, in implementation of its Charter objects, to sell its materials to candidates at cost, even though the effect of its doing so may be to limit, or even to prevent, the development of a CA Program support market.
Relief –s 46 (also ss 47, 45 and 51ac)
231 By its application MTA seeks the following relief:
“1. An injunction restraining the respondent, whether by itself its directors, servants, agents or otherwise howsoever from engaging in conduct:-
(i) whereby the respondent includes module course study materials within the core course outline and other explanatory materials provided by the respondent to candidates enrolling in the Capstone module of its PY Program;
(ii) whereby the respondent includes module course study materials within the core course outline and explanatory materials provided by the respondent to candidates enrolling in any module of its CA Program;
(iii) whereby the fee charged by the respondent to candidates enrolling in the Capstone module of its PY Program is such that support services, including module course study materials, are included within the module fee;
(iv) whereby the fee charged by the respondent to candidates enrolling in any module in its CA Program is such that support services, including module course study materials, are included within the module fee; or
(v) in contravention of sections 45, 46, 47 and/or 51AC of the Act, and/or sections 45, 46 and/or 47 of the Competition Code in the manner alleged in the Statement of Claim, or in any similar manner.
2. An injunction requiring the respondent to take all necessary steps not to make, or give effect to, any contracts arrangements or understandings whereby: [there follow subparagraphs (i) to (iv) which are identical to subparagraphs (i) to (iv) of para (1) above, save for the omission of the first word “whereby”, and the use of “as a part of” in place of “within” in subparagraphs (i) and (ii)].
3. An injunction requiring the respondent to take all necessary steps:
(i) to determine and separately charge candidates a commercial price for its support services, including module course study materials, in relation to the Capstone module of its PY Program; and
(ii) to determine and separately charge candidates a commercial price for its support services, including module course study materials, in relation to each module of its CA Program.”
(As well, the application seeks a declaration of contravention, damages and interest.)
232 The relief sought in subpar (1)(v) is obviously inappropriate and I put it to one side. There are several problems associated with the relief MTA seeks. Subparagraphs (i) to (iv) seek “unbundling”. They seek a severing out of the entire “module course study materials”. But MTA itself does not, or could not reasonably, contend that ICAA was not entitled to require a candidate, upon enrolment in the Capstone module of the PY Program or any module of the CA Program, to buy newly created materials. Its attack is on the alleged replication of material which was contained in the ICAA’s former PY support materials. Accordingly, on its own case, MTA is not entitled to the remedy as formulated in its application.
233 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.
234 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.
235 Finally, the relief sought does not constrain ICAA as to the price at which it is to be at liberty to sell the unbundled materials. In the absence of such a constraint, ICAA could continue to charge a module enrolment fee of $730 and supply the materials to the enrolling candidate free of charge, or it could reduce the enrolment fee a little and offer the materials to the candidate at a price equal to the amount of the reduction. There is no reason why ICAA should be compelled to price its materials at a level which is inconsistent with its non-profit making character. It seems that any unbundling remedy consistent with that character will not achieve MTA’s purpose. The problem for MTA is that ICAA is at liberty to supply comprehensive materials to candidates without seeking to make a profit from doing so. I presume that candidates would choose to buy materials produced by ICAA on that basis in any event, whether or not some would also choose to buy supplementary materials from an external provider.
Exclusive dealing – s 47
236 As a result of ICAA’s answering issues 11 and 12 “yes”, it is common ground that ICAA supplies a service of “examination and assessment for a fee to persons seeking certification as a chartered accountant” and that the services ICAA supplies include:
“... enrolling, providing learning resources and learning activities, assessing candidates and determining whether applicants for membership have satisfied the criteria for membership in pursuance of ICAA’s objective under its Charter?”
237 According to the statement of issues, the following questions require resolution by me:
“13. Has ICAA, if it supplies the “services of examination and assessment” in the CA certification market, required that candidates must acquire support services from ICAA as a condition of supplying the services of examination and assessment in the CA support market?
14. Is it a condition of the acquisition of support services by a candidate that such candidate will not, or will not except to a limited extent, acquire support services from other suppliers of support materials, by reason of:
· there being no separate cost to the candidates of ICAA’s support services; or
· the published statements?
15. If so, is the supply by ICAA of its support services
· for the purpose; or
· likely to have the effect
of substantially lessening competition in the CA support market?”
238 Assuming, contrary to my conclusion reached earlier, that there is a CA certification market, I would answer these questions as follows:
13. Yes
14. No
15. Does not arise.
239 Just as the parties, in respect of the claim under s 47, relied on their submissions in respect of the claim under s 46, so I rely on the reasons which I gave in relation to that claim, for deciding:
· that there is no CA certification market;
· that the PY support market came to an end with the PY and a new CA support market has come into being;
· that ICAA did not act for any of the anti- competitive purposes mentioned; and
· that relief should not be granted.
240 In submissions, MTA relied on subs 47(3) as well as subs 47(2) of the Act but clearly this was a slip: the Pleading does not allege, and the evidence does not suggest, an actual refusal by ICAA to supply CA support services for the reason that the intending acquirer has acquired, or has not agreed not to acquire, such services from a competitor of ICAA.
241 In their submissions, both parties appear to have treated the “purpose” referred to in subs 47(10) as subjective. It is questionable whether they were correct to do so: cf Dandy Power Equipment Pty Ltd v Mercury Marine Pty Ltd (1982) 64 FLR 238 at 276-277. Either way, my answers to the questions are the same.
242 In relation to subs 47(2), it is plainly not a condition of the contract between ICAA and candidates enrolling for a module in the CA Program that a candidate will not acquire CA support services other than those supplied by ICAA itself as part of the consideration for which the enrolment fee is paid. Notwithstanding the broad definition of “condition” in para 47(13)(a) of the Act, noted at [56] earlier, the form of exclusive dealing referred to in subs 47(2) is not established merely by the circumstance that a likely consequence of a corporation’s supply of services is that the acquirer will not acquire substitutable services from its competitors.
243 It is noteworthy that s 47 does not catch a supply on condition that the acquirer acquire other goods or services from the same supplier. Accordingly, it is not within the section that ICAA insists, as a condition of its supplying the service of examination and assessment, that the candidate acquire CA support services from ICAA. In any event, if it be an appropriate description of the enrolment process to say that ICAA supplies and offers to supply the services of examination and assessment in modules in the CA Program on condition that the candidate acquire CA support materials from ICAA, its doing so is not for the purpose, and is not likely to have the effect, of substantially lessening competition in the CA support market (strictly so called). 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 former PY support market (KPMG, a competitor in the former PY support market, has not entered the new CA support market and Mr Topple said that MTA’s sales were down two thirds on what they had been at the same time the previous year in the former PY support market).
Contract or arrangements substantially lessening competition – s 45
244 The parties’ statement of agreed issues includes the following:
“17. Is it 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 fee as properly relates to the supply of those services?
18. If each such contract does contain such a term, does that contract (alone or together with any other contracts entered into by candidates enrolling in that module) have the purpose, or be likely to have the effect, of substantially lessening competition in the CA support market?”
245 I answer these questions:
17. Yes
18. No.
246 The “purpose” referred to in s 45 is subjective: ASX Operations at 474-477.
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.
Unconscionable dealing
248 According to the parties’ statement of agreed issues, the following questions arise:
“20. Has ICAA supplied support services to candidates in return for the enrolment fee and represented to candidates that no other support services are required or are desirable in connection with the:
· the Capstone Module;
· the CA Program?
21. Was the purpose or effect of the supply of the relevant services the destruction of the business of the applicant and any other participants in the CA support market?
22. Did the supply of the support services by ICAA have the purpose or effect (to the knowledge of ICAA) of the appropriation to ICAA of the whole or substantial part of the business of the applicant without purchase or compensation and without any discussion with the applicant?
23. Did any (and what) conduct of ICAA in or about 1994 or thereafter provide inducements to the applicant to continue to provide support services to candidates?
24. If the answers to all or any of paragraphs 20, 21, 22 [and] 23 … is in the affirmative, is the conduct of ICAA in all the circumstances unconscionable for the purposes of s 51AC of the Act?”
249 I answer these questions as follows:
20. (as to both the Capstone module and the CA Program)
As to “required”, ICAA has represented to candidates that it does not require them to acquire other support services and that it is not necessary for them to do so in order to complete a module satisfactorily.
As to “desirable” – No.
21. As to “purpose” – No.
As to “effect” – No.
22. No.
23. MTA assessed the then market in Australia for its services and took into account what ICAA was and was not doing and proposing to do and not to do. But ICAA did not “provide inducements to” MTA in the sense of “seek to persuade” MTA.
24. No.
250 ICAA submits that s 51AC has no application to a case such as the present one in which there is no relevant transaction between the respondent corporation and a person:
· against whom its allegedly unconscionable conduct is directed; and
· who does not suffer from any “special disadvantage” or “special disability” for the purposes of the general law concept of unconscionable dealing (cf Blomley v Ryan (1956) 99 CLR 362 at 385-386 per McTiernan J, 405 per Fullagar J, 428-430 per Kitto J; Commercial Bank of Australia Ltd v Amadio (1983) 151 CLR 447 at 459 per Gibbs CJ, 461-462 per Mason J, 474-475 per Deane J).
251 Whether there is scope for the section to apply depends on whether the corporation’s supposedly unconscionable conduct directed to the third party is engaged in “in connection with” the supply or possible supply of the goods or services to a person to which par 51AC(1)(a) refers (for convenience, I will not refer, in the following discussion, to the acquisition of goods or services by a corporation from a person to whom par 51AC(1)(b) refers, or to the supply or acquisition of goods or services by a person to or from a corporation to which subs 51AC(2) refers, although the discussion is relevant to those provisions also).
252 Such expressions “in connection with”, “in relation to”, “relating to” and “in respect of”, while potentially broad, bear a meaning dictated by legislative context, purpose or object: cf Hatfield v Health Insurance Commission (1987) 15 FCR 487 (Davies J) at 491; Our Town FM Pty Ltd v Australian Broadcasting Tribunal (1987) 16 FCR 465 (Wilcox J) at 479-480; Burswood Management Ltd v Attorney-General (Cth) (1990) 23 FCR 144 (FC) at 146 per Lockhart, Wilcox and Hill JJ; Claremont Petroleum NL v Cummings (1992) 110 ALR 239 (FCA/Wilcox J) at 280; Minister for Immigration & Multicultural Affairs v Mohammad (2000) 101 FCR 434 (FC) at 443-444 per Burchett J.
253 In my opinion, several considerations establish that s 51AC has no potential application in the circumstances of the present case.
254 First, subs 51AC(3) contemplates that the only parties to be considered are a “supplier” and a “business consumer” and that the matters to which the Court may have regard for the purpose of determining whether the supplier has engaged in unconscionable conduct in connection with the supply will all be matters operating as between it and a business consumer. The admittedly non-exhaustive list of such matters in that subsection is as follows:
“(a) the relative strengths of the bargaining positions of the supplier and the business consumer; and
(b) whether, as a result of conduct engaged in by the supplier, the business consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and
(c) whether the business consumer was able to understand any documents relating to the supply or possible supply of the goods or services; and
(d) whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the business consumer or a person acting on behalf of the business consumer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services; and
(e) the amount for which, and the circumstances under which, the business consumer could have acquired identical or equivalent goods or services from a person other than the supplier; and
(f) the extent to which the supplier’s conduct towards the business consumer was consistent with the supplier’s conduct in similar transactions between the supplier and other like business consumers; and
(g) the requirements of any applicable industry code; and
(h) the requirements of any other industry code, if the business consumer acted on the reasonable belief that the supplier would comply with that code; and
(i) the extent to which the supplier unreasonably failed to disclose to the business consumer:
(i) any intended conduct of the supplier that might affect the interests of the business consumer; and
(ii) any risks to the business consumer arising from the supplier’s intended conduct (being risks that the supplier should have foreseen would not be apparent to the business consumer); and
(j) the extent to which the supplier was willing to negotiate the terms and conditions of any contract for supply of the goods or services with the business consumer; and
(k) the extent to which the supplier and the business consumer acted in good faith.”
While the opening words of subs 51AC(3) make it clear that the list is not intended to be exhaustive, effect can be given to this disclaimer by the Court’s having regard to other matters which similarly have an effect as between the supplier and the business consumer.
255 Secondly, the “purpose or object underlying” the provision is to protect the “business consumer” (or “small business supplier” in the case of pars 51AC(1)(b) or (2)(b)), and the words “in connection with” must be given a construction that would promote that purpose or object (cf Acts Interpretation Act 1901 (Cth) s 15AA). That the purpose of s 51AC is as stated is clear from the terms of s 51AC itself and from its legislative background. That background is recounted by French J in Australian Competition and Consumer Commission v C G Berbatis Holdings Pty Ltd (No 2) (2000) 96 FCR 491 (“Berbatis”) at 494-496 and by Philip Tucker in “Too Much Concern Too Soon? Rationalising the Elements of Section 51AC of the Trade Practices Act” (2001) 17 JCL 120. The following are aspects of it of present relevance.
256 A prohibition of unconscionable conduct first appeared in the Act in the form of s 52A which was introduced by the Trade Practices Revision Act 1986 (Cth) (No 17 of 1986). The section prohibited corporations from engaging in unconscionable conduct in trade or commerce, in connection with the supply or possible supply of goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption. The notion of “unconscionable” conduct was not defined, but, like the present s 51AC, the section included a non-exhaustive list of matters to which the Court was authorised to have regard for the purpose of determining whether a corporation had contravened the provision. The section called the acquirer of the goods or services a “consumer” and the non-exhaustive list of matters to which the section authorised the Court to have regard was a list of matters pertinent only to the relationship and dealings as between the corporation and the consumer. Similarly, the Explanatory Memorandum which accompanied the Bill for the Act stated (at par 79) that the section was intended to implement a recommendation in the Report of the Trade Practices Act Review Committee (the “Swanson Committee”) of August 1976 that unconscionable conduct be prohibited “to give the Act a greater ability to deal with the general disparity of bargaining power between buyers and sellers”. The Explanatory Memorandum noted, however, that at that stage the prohibition was being “limited to unconscionable conduct in relation to consumer-type transactions” (also at par 79). In the Second Reading Speech on the Bill, the then Attorney-General, the Hon Lionel Bowen MP, stated of the proposed s 52A:
“The section is directed at conduct which, while it may not be misleading or deceptive, is nevertheless clearly unfair or unreasonable. For example, a corporation which attempted to take advantage of a buyer’s obvious lack of understanding of a transaction might fall foul of this section. The new provisions will supplement existing provisions of Part V and strengthen the protection afforded to consumers against unscrupulous trading practices.”
(Parl Debs, HR, 19 March 1986, at 1627)
In sum, s 52A was intended to protect consumers in their dealings with corporations.
257 In 1992, Part IVA, comprising ss 51AA and 51AB, was introduced by the Trade Practices Legislation Amendment Act 1992 (Cth) (No 222 of 1992). Section 52A became s 51AB and a new subsection not of present relevance was added to it. The new s 51AA prohibited a corporation from, in trade or commerce, engaging in conduct that was unconscionable within the meaning of the unwritten law, from time to time, of the States and Territories. The section was not limited by reference to a connection with a supply of goods or services to a consumer or in any other respect. There is not, and could not be, any suggestion in the present case that MTA is in a position to rely on s 51AA.
258 In 1998, Pt IVA was amended by the introduction of s 51AC on which MTA relies. The amending Act was the Trade Practices Amendment (Fair Trading) Act 1998 (Cth) (No 36 of 1998).
259 The nature of s 51AC has been described earlier. It was enacted in response to a report entitled “Finding a Balance – Towards Fair Trading in Australia” of the House of Representatives Standing Committee on Industry, Science and Technology, to which the Government had responded by a document entitled “New Deal: Fair Deal – Giving Small Business a Fair Go”. In the Second Reading Speech on the Bill for the amending Act, the Hon Peter Reith MP, Minister for Workplace Relations and Small Business, stated as follows:
“This bill will provide a new substantive legal remedy for small business against unconscionable conduct in the Trade Practices Act. The government has accepted the principle that small business people are entitled to a legal protection against unconscionable conduct which is comparable to that accorded to consumers. This is an approach which has been recommended by a parliamentary committee to previous governments, but not acted upon.
Accordingly, the government will mirror for small business consumers, in a new section of the Trade Practices Act, the legal rights available to consumers in section 51AB, and incorporate a range of additional matters, set out in recommendation 6.1 of the committee’s report, in order to ensure that the new provision achieves its purpose of protecting small businesses. Existing consumer protections will not be affected by the new provision.
Business conduct which is unconscionable, having regard to the enumerated factors, will be prohibited by the act and give rise to a broad range of remedies under the act. This new provision will extend the common law doctrine of unconscionability expressed in the existing section 51AA of the act.
The bill uses the expression ‘unconscionable conduct’ in order to build on the existing body of case law which has worked well in relation to consumer protection provisions of the act and which will provide greater certainty to small businesses in assessing their legal rights and remedies. As this is a new provision targeted to small business, the new provision will be limited to transactions which do not exceed $1 million. Publicly listed companies cannot instigate action under this new provision.” (Parl Debs, HR, 30 September 1997, at 8800-8801.)
Clearly, the purpose or object of s 51AC was to protect small businesses in their dealings with “big business”.
260 Both the context internal to s 51AC and the legislative history to which I have referred, teach that the expression “in connection with” in s 51AC requires that the conduct impugned “accompany”, “go with” or “be involved in” the supply of the goods or services, and that it is not sufficient that, as alleged in the present case, such a supply be the occasion of unconscionable conduct of the supplier directed to an unrelated third party with which the supplier has no dealings at all. (MTA would have been no better placed in the present respect if it had relied on s 51AB – perhaps the more obvious choice, in that the services supplied by ICAA to candidates were of a kind ordinarily acquired for “personal … use or consumption”.)
261 Against the possibility that I am wrong in this conclusion, I will consider the position on the assumption that s 51AC does have a potential application in the circumstances of this case.
262 The Act does not define “unconscionability” for the purposes of s 51AC. It has been accepted that s 51AC, unlike s 51AA, invokes a notion of unconscionability which is not limited by reference to the general law doctrine: Berbatis at 503; Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Pty Ltd (2000) 104 FCR 253 (Sundberg J) at [31]-[37]. The broader scope of the concept in s 51AC does not, of course, detract from the conclusion I reached in [260] above.
263 It has been said that “serious misconduct, something clearly unfair or unreasonable, must be demonstrated” (Cameron v Qantas Airways Ltd (1995) 55 FCR 147 at 179 per Beaumont J) and on appeal in the same case, that the conduct in question must satisfy the Shorter Oxford English Dictionary definition, “[s]howing no regard for conscience; irreconcilable with what is right or reasonable” (Qantas Airways Ltd v Cameron (1996) 66 FCR 246 at 262 per Davies J) and that the notion imports “a pejorative moral judgment” (ibid at 283-284 per Lindgren J, with whom Lehane J agreed). These passages were recently cited with approval by a Full Court of this Court differently constituted in Hurley v McDonald’s Australia Ltd (2000) ATPR 41-741 at [22].
264 ICAA has changed the training requirements which persons seeking admission to membership of it must satisfy. It has done so for the purpose of maintaining or raising the standards of its members and of the associated designation “chartered accountant” or “CA”. The changes may have had the effect of disappointing the expectations of those who had developed businesses of selling PY support services but this falls short of unconscionable conduct. MTA does not submit that ICAA engaged in unconscionable conduct vis-a-vis candidates (or their employers). I accept that ICAA acted in what it perceived to be an amalgam of their interests and the interests of the existing and future members of ICAA and their present and future clients. ICAA may have been misguided, but it has not engaged in unconscionable conduct.
conclusion
265 For the above reasons, the application will be dismissed with costs.
| I certify that the preceding two hundred and sixty-five (265) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren. |
Associate:
Dated: 6 August 2001
| Counsel for the Applicant: | Mr N Cotman SC and Mr P Renehan |
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| Solicitors for the Applicant: | Larbalestier & Co |
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| Counsel for the Respondent: | Mr B Coles QC and Mr P Walsh |
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| Solicitors for the Respondent: | Church & Grace |
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| Dates of Hearing: | 12, 13, 15, 16 March, 11 April 2001 |
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| Date of Judgment: | 6 August 2001 |
