FEDERAL COURT OF AUSTRALIA

 

ACCC v Australian Safeway Stores Pty Limited (No 2) [2001] FCA 1861

EVIDENCE – civil standard of proof – allegations of serious misconduct or significant contraventions – reasonable satisfaction is not attained independently of nature and consequences of fact or facts to be proven – application of Briginshaw principle.

 

EVIDENCE – credibility – reliability of witnesses – attack on credibility – evidence given considerable time after events occurred.

 

TRADE PRACTICES – allegations of contraventions of Trade Practices Act 1974 (Cth) – policy – purpose of policy – whether purpose competitive or punitive – whether purpose of policy was to procure competitors to stop discounting products – whether requesting supply at a price comparable to price charged to competitors is competitive and not punitive conduct.

 

TRADE PRACTICES – conduct engaged in on behalf of a body corporate – authority to bind company – actual and apparent authority – contract or arrangement partly oral and partly implied – necessary to identify person or persons who entered into contract or arrangement.

 

TRADE PRACTICES – taking advantage of market power – whether conduct constituted taking advantage of market power – substantial degree of market power – purpose for which market power used – identification of relevant market – wholesale or retail market – economic theories on market power – barriers to entry into market – monopoly and monopsony power – excess capacity – market power determined by ability of corporation to act in manner that it could not if faced with competition – whether respondent would have acted in same manner if it did not possess its market power.

 

TRADE PRACTICES – exclusive dealing – refusal to purchase – whether refusal to purchase from manufacturer unless able to buy at price matching the price offered to competitor constitutes exclusive dealing – whether refusal to purchase because supplier has supplied competitor at a particular price constitutes exclusive dealing – meaning of “except to a limited extent”.

 

TRADE PRACTICES – resale price maintenance – prices charged by competitor – whether induced or attempted to induce manufacturer to take action in relation to supply of product to or the prices charged by competitor – request for same wholesale price as competitor – whether refusal to purchase unless manufacturer offers wholesale price matching the price offered to competitor constitutes resale price maintenance – not necessary for specific price to be identified – sufficient if price specified by reference to standard or formula or range by reference to which price is to be determined – price range must be identifiable – whether fait accompli constitutes inducing resale price maintenance.

 

TRADE PRACTICES – price fixing – whether conduct amounted to agreement to fix prices – necessary to identify persons entering into agreement – authority to bind company – whether conduct amounted to agreement on prices to be charged by manufacturer selling goods in retail market and on particular products to be sold.

 

TRADE PRACTICES – conduct engaged in on behalf of a company – principles – relevant factors in determining whether acts and knowledge of employees are attributable to the company – actual and apparent authority – whether employee part of the directing mind and will of the company – authority to implement contract, arrangement or understanding.

 

CORPORATIONS – liability for actions of employees – authority to act on behalf of corporation – authority to enter into contract or arrangement or reach an understanding – actual and apparent authority – acts and knowledge of employees attributable to corporation.

 

ESTOPPEL – res judicata – consent judgment – defence of consent judgment dismissing proceeding against a co‑respondent – defence may be available where party seeking to bar cause of action is different to beneficiary of first judgment – whether respondent privy of beneficiary of first judgment – cause of action to be barred – different causes of action alleged against beneficiary of consent judgment and party seeking to raise defence – defence requires privity of interest between beneficiary of first judgment and person raising defence.

 

ESTOPPEL – issue estoppel – distinction between res judicata and issue estoppel – consent judgment – consent judgment not bar to defence – whether respondent privy of beneficiary of first judgment – whether defence available where effect of consent judgment was to dismiss proceeding against a co‑respondent – causes of action – different causes of action alleged against beneficiary of consent judgment – necessary to identify issues determined in first judgment – claims against beneficiary of consent judgment involved a number of elements – issues must have been necessarily and conclusively determined by consent judgment – reasons for earlier decision considered – estoppel covers only the actual ground upon which the existence of the right was negatived – consent judgment not based on particular finding of fact or conclusion of law.

 

WORDS AND PHRASES – “except to a limited extent”

 

Trade Practices Act 1974 (Cth)  ss 45(2), 46, 47(4), 47(5), 48, 84(2), 96(3)

Evidence Act 1995 (Cth)  s 59

 

 

Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 75 FCR 238  referred to

Briginshaw v Briginshaw (1938) 60 CLR 336  applied

Watson v Foxman (2000) 49 NSWLR 315  applied

Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449  applied

Pascoe v Commissioner of Taxation (1956) 30 ALJ 402  followed

Jones v Dunkel (1959) 101 CLR 298  applied

Jones v Sutherland Shire Council [1979] 2 NSWLR 206  followed

Trade Practices Commission v Bata Shoe Company of Australia Pty Ltd (No 2) (1980) 44 FLR 149  followed

Trade Practices Commission v Mobil Oil Australia Ltd (1984) 3 FCR 168  followed

Top Performance Motors Pty Ltd v Ira Berk (Queensland) Pty Ltd (1975) 24 FLR 286  followed

Trade Practices Commission v Email Ltd (1980) 43 FLR 383  followed

Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563  followed

Tesco Supermarkets Ltd v Nattrass [1972] AC 153  applied

Hamilton v Whitehead (1988) 166 CLR 121  followed

Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500  distinguished

Trade Practices Commission v Tubemakers of Australia Ltd (1983) 47 ALR 719  applied

Walplan Pty Ltd v Wallace (1985) 8 FCR 27  followed

Director General of Fair Trading v Pioneer Concrete (UK) Ltd [1995] 1 AC 456  distinguished 

News Ltd v Australian Rugby Football League Limited (1996) 64 FCR 410  followed

O’Brien Glass Industries Ltd v Cool & Sons Pty Ltd (1993) 48 ALR 625  followed

Beckwith v The Queen (1976) 135 CLR 569  applied

Trade Practices Commission v Legion Cabs (Trading) Co‑Operative Society Ltd (1978) 35 FLR 372  applied

The Heating Centre Pty Ltd v Trade Practices Commission (1986) 9 FCR 153  followed

Yorke v Lucas (1983) 49 ALR 672  applied

Giorgianni v The Queen (1985) 156 CLR 473  followed

He Kaw Teh v The Queen (1985) 157 CLR 523  referred to

Trade Practices Commission v Penfold Wines Pty Ltd (1991) 104 ALR 601  applied

Re Queensland Co‑Operative Milling Association Ltd (1976) 8 ALR 481  followed

Dowling v Dalgety Australia Ltd (1992) 34 FCR 109  followed

Queensland Wire Industries Pty Ltd v The Broken Hill Proprietary Company Limited (1989) 167 CLR 177  followed

Australian Competition and Consumer Commission v Boral Ltd (2000) 106 FCR 328  followed

Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 178 ALR 253  applied

Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 35 FCR 43  followed

ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (1990) 27 FCR 460  followed

General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164  considered

Re Queensland Independent Wholesalers Ltd (1995) 132 ALR 225  considered

Telecom Corporation of New Zealand Ltd v Clear Communications Ltd [1995] 1 NZLR 385  followed

Jackson v Goldsmith (1950) 81 CLR 446  applied

Blair v Curran (1939) 62 CLR 464  followed

Yorke v Lucas (1985) 158 CLR 661  followed

Trawl Industries of Australia Pty Ltd (in liq) v Effem Foods Pty Ltd (in liq) (1992) 36 FCR 406  followed

In re South American and Mexican Company; Ex parte Bank of England [1895] 1 Ch 37  followed

Isaacs v The Ocean Accident and Guarantee Corporation Ltd & Winslett [1958] SR (NSW) 69  followed

Re Allsop and Joy’s Contract (1889) 61 LT 213 at 215  considered

Cross on Evidence, 6^th Aust ed, 2000 at p 103

Weinberg, The Consequences of Failure to Object to Inadmissible Evidence in Criminal Cases (1978) 1 MULR 408

Annual Proceedings of the Fordham Corporate Law Institute – International Antitrust Law & Policy, 1992 at p 158

Scherer & Ross Industrial Market Structure and Economic Performance 3^rd ed, 1990 at p 479

Spencer Bower, Turner and Handley The Doctrine of Res Judicata 3^rd ed, 1996 at p 2‑3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AUSTRALIAN COMPETITION & CONSUMER COMMISSION v AUSTRALIAN SAFEWAY STORES PTY LIMITED & ORS (No 2)

VG 762 of 1996

 

GOLDBERG J

21 DECEMBER 2001

MELBOURNE

 

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 762 of 1996

 

BETWEEN:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant
AND:	AUSTRALIAN SAFEWAY STORES PTY LIMITED (ACN 004 319 939) First Respondent   GEORGE WESTON FOODS LTD (ACN 008 429 632) Second Respondent   MARK JONES Third Respondent   BERNIE BROOKES Fourth Respondent
JUDGE:	GOLDBERG J
DATE OF ORDER:	21 DECEMBER 2001
WHERE MADE:	MELBOURNE

 

THE COURT ORDERS THAT:

 

1.         The application against the first respondent and the third respondent be dismissed.

 

2.         The issue of costs is reserved for further consideration and determination.

 

3.         The time within which the applicant may file and serve a notice of appeal is extended pursuant to O 52 r 15 of the Federal Court Rules to Monday 18 February 2002.

 

 

 

 

 

 

 

 

 

 

 

 

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

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 762 of 1996

 

BETWEEN:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant
AND:	AUSTRALIAN SAFEWAY STORES PTY LIMITED (ACN 004 319 939) First Respondent   GEORGE WESTON FOODS LTD (ACN 008 429 632) Second Respondent   MARK JONES Third Respondent   BERNIE BROOKES Fourth Respondent

 

JUDGE:	GOLDBERG J
DATE:	21 DECEMBER 2001
PLACE:	MELBOURNE

 

INDEX

Paragraph

number

Introduction and Background.................................................................................................................................. 1

The Parties................................................................................................................................................................................ 4

Safeway................................................................................................................................................................................ 5

Mr Brookes.......................................................................................................................................................................... 7

Mr Jones............................................................................................................................................................................ 10

The Bread Industry........................................................................................................................................................... 14

The Structure of the bread industry.............................................................................................................................. 14

Safeway’s relationship with the plant bakers............................................................................................................... 20

Tip Top............................................................................................................................................................................... 24

Sunicrust............................................................................................................................................................................ 32

Buttercup........................................................................................................................................................................... 35

Terminology used in the bread industry....................................................................................................................... 39

Significance of Bread....................................................................................................................................................... 47

Types of Bread.................................................................................................................................................................. 49

Tip Top bread.................................................................................................................................................................... 50

Buttercup bread................................................................................................................................................................ 51

Sunicrust bread................................................................................................................................................................. 52

Thwaites............................................................................................................................................................................. 54

Home Brand....................................................................................................................................................................... 55

Price sensitivity of bread – brand loyalty and brand equity...................................................................................... 56

Standard of Proof............................................................................................................................................................ 68

Credibility issues................................................................................................................................................................ 73

Safeway’s BREAD policy................................................................................................................................................. 78

Mr Brookes’ Queensland experience prior to 1994...................................................................................................... 86

Mr Brookes introduces the new policy into Victoria.................................................................................................. 94

Communication of the policy to Mr Jones.................................................................................................................. 102

The alteration to the policy........................................................................................................................................... 107

Communication of the policy to the plant bakers.................................................................................. 135

Mr Brookes’ evidence.................................................................................................................................................... 135

The plant bakers’ evidence........................................................................................................................................... 142

Tip Top............................................................................................................................................................................. 143

Sunicrust.......................................................................................................................................................................... 151

Buttercup......................................................................................................................................................................... 153

Communication of THE policy to Safeway store managers AND STAFF....................................... 159

Purpose of the policy..................................................................................................................................................... 173

Same bread different wrapper issue.................................................................................................................. 200

THE Commission’s alternative position on case deals........................................................................... 234

ImplementationofthepolicyinconsistentlywithSafeway’sclaimedpurpose................. 249

Conclusion on the purpose of the policy.......................................................................................................... 273

The role of Mr Jones’ Category Manager’s Assistant............................................................................ 284

Planograms......................................................................................................................................................................... 320

THE TEN INCIDENTS.............................................................................................................................................................. 327

THE FRANKSTON INCIDENT............................................................................................................................................... 329

Background..................................................................................................................................................................... 329

The deletion..................................................................................................................................................................... 349

Did Safeway ask for a case deal before the deletion?............................................................................................... 369

The introduction of a price-fighting bread................................................................................................................. 385

Resumption of supply of Buttercup products to Safeway Karingal....................................................................... 392

The purpose of the deletion.......................................................................................................................................... 396

THE Cheltenham INCIDENT............................................................................................................................................ 405

Background..................................................................................................................................................................... 405

The deletion..................................................................................................................................................................... 414

THE VERMONT/FOREST HILL INCIDENT......................................................................................................................... 440

Background..................................................................................................................................................................... 440

The Tip Top deletion from 23 June 1994 to 11 July 1994.......................................................................................... 452

The deletion of Buttercup bread.................................................................................................................................. 461

the TRARALGON INCIDENT............................................................................................................................................... 509

Background..................................................................................................................................................................... 509

The deletion..................................................................................................................................................................... 540

THE LALOR & THOMASTOWN INCIDENT...................................................................................................................... 578

Background..................................................................................................................................................................... 578

The deletion..................................................................................................................................................................... 593

THE GEELONG INCIDENT...................................................................................................................................................... 638

Background..................................................................................................................................................................... 638

The deletion..................................................................................................................................................................... 659

THE ALBURY May 1995 INCIDENT.................................................................................................................................... 676

Background..................................................................................................................................................................... 676

Mr Jones’ evidence........................................................................................................................................................ 697

Mr Gunton’s evidence................................................................................................................................................... 700

The deletion..................................................................................................................................................................... 710

THE PRESTON MARKET INCIDENT................................................................................................................................... 724

Introduction..................................................................................................................................................................... 724

Background..................................................................................................................................................................... 733

Mr Gunton’s evidence................................................................................................................................................... 737

Mr Jones’ evidence........................................................................................................................................................ 742

Mr Guthridge’s evidence............................................................................................................................................... 747

Mr Brookes’ evidence.................................................................................................................................................... 750

The meetings between Mr Feldgen and Mr Lovett................................................................................................... 758

Is the case pleaded in relation to the Preston Market stall made out?................................................................... 793

THE ALBURY NOVEMBER 1995 INCIDENT....................................................................................................................... 822

Background..................................................................................................................................................................... 822

Mr Maine’s evidence..................................................................................................................................................... 834

Mr Jones’ evidence........................................................................................................................................................ 845

THE FERNTREE GULLY INCIDENT...................................................................................................................................... 864

Background..................................................................................................................................................................... 864

Mr Jones’ evidence........................................................................................................................................................ 874

Mr Maine’s evidence..................................................................................................................................................... 882

The instruction for the deletion.................................................................................................................................... 896

The Tip Top evidence.................................................................................................................................................... 903

Were there contraventions of the Act?...................................................................................................................... 948

The provisions of the Act relied upon by the Commission..................................................................... 950

Section 45 – was there an agreement, arrangement or understanding?.................................. 951

SECTION 47 – DID SAFEWAY ENGAGE IN THE PRACTICE OF EXCLUSIVE DEALING?....................................... 963

SECTION 48 – DID SAFEWAYINDUCEORATTEMPTTOINDUCEResalePriceMaintenance?............. 987

SECTION 46 – DIDSAFEWAYTAKEADVANTAGEOFMARKETPOWERFORAPROSCRIBED PURPOSE?1011

Relevant principles....................................................................................................................................................... 1015

DidSafeway have a substantial degree of market power in the relevant market and did it take advantage of that power?    1036

Did Safeway take advantage of its market power for a purpose proscribed by s 46(1)?................................... 1123

Defence of Res judicata and Issue Estoppel.................................................................................................. 1139

Conclusion......................................................................................................................................................................... 1156

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 762 of 1996

 

BETWEEN:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant
AND:	AUSTRALIAN SAFEWAY STORES PTY LIMITED (ACN 004 319 939) First Respondent   GEORGE WESTON FOODS LTD (ACN 008 429 632) Second Respondent   MARK JONES Third Respondent   BERNIE BROOKES Fourth Respondent

 

JUDGE:	GOLDBERG J
DATE:	21 DECEMBER 2001
PLACE:	MELBOURNE

 

REASONS FOR JUDGMENT

Introduction and Background

1                     In this proceeding the applicant (“the Commission”) has sought pecuniary penalties, declarations and injunctive relief against the first respondent, Australian Safeway Stores Pty Limited (“Safeway”), two of its employees, the third respondent, Mr Mark Jones, the fourth respondent, Mr Bernie Brookes, and the second respondent, George Weston Foods Limited (“George Weston”) in relation to various alleged contraventions of Pt IV of the Trade Practices Act 1974(Cth) (“the Act”).  George Weston made certain admissions in its defence that resulted in it admitting that it contravened the Act in five respects.  Safeway and the third and fourth respondents filed defences that in substance denied the allegations pleaded.  On 30 May 1997 I ordered that George Weston pay certain pecuniary penalties in respect of those contraventions:  Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 75 FCR 238.  The findings contained in those reasons for judgment were based on an agreed statement of facts submitted to the Court by George Weston and the Commission and those facts were not tested by the cross‑examination of any witnesses.

2                     The trial of the proceeding against Safeway and its two employees commenced on 9 February 1999 and concluded on 20 October 1999.  On 17 March 1999 an order was made by consent that the proceeding against Mr Brookes be dismissed and that there be no order as to costs in relation to that dismissal.  It was also noted in the order that the Commission and Mr Brookes had agreed that the dismissal would operate as a bar to any further claim by the Commission against Mr Brookes in respect of the ten incidents relating to Safeway stores (referred to hereafter) alleged to involve contraventions of ss 45, 46, 47 and 48 of the Act.

3                     The statement of claim was amended on several occasions, and its final form is found in a fifth further amended statement of claim (“the statement of claim”) which was filed pursuant to leave granted on 22 June 1999.  It raised allegations of contraventions of various provisions of Pt IV of the Act that were said to arise out of a policy of Safeway in relation to its wholesale purchase of bread for the purpose of retail sale, which Safeway implemented in its dealings with wholesalers who supplied bread to it.  The Commission contended that this policy, as conceived and implemented, contravened s 46 of the Act.  The Commission also contended that in respect of ten separate incidents, involving three different bread manufacturers, Safeway had contravened other provisions of Pt IV of the Act.  It was alleged that Mr Jones was instrumental in bringing these particular contraventions about and that, in general terms, he aided and abetted Safeway in those contraventions.

The Parties

4                     It is necessary to identify at the outset the principal participants in the events that are alleged to have occurred.  Safeway is a wholly‑owned subsidiary of Woolworths Limited (“Woolworths”).  Woolworths’ supermarket business in Victoria at relevant times was carried on through Safeway which in 1994 and 1995 operated over 130 supermarkets in Victoria.  Mr Brookes was at relevant times Safeway’s Victorian Merchandise Manager.  Mr Jones was at relevant times employed by Safeway as a category manager.  George Weston carried on the business, inter alia, of a plant baker under the name or style “Tip Top Bakeries” (“Tip Top”).  Quality Bakers Australia Limited (“Quality Bakers”) (whose ultimate parent was Goodman Fielder Mills Pty Ltd) carried on the business of a plant baker under the name or style “Buttercup Bakeries” (“Buttercup”).  Sunicrust Bakeries Pty Ltd (“Sunicrust”) carried on the business of a plant baker.  In 1994 and 1995 it was owned by Bunge (Australia) Pty Ltd.

Safeway

5                     The administration of Woolworths supermarket business was divided into six divisions representing the six Australian States.  In 1994 and 1995, Safeway Victoria was the second largest Woolworths division in terms of turnover and net profit.  In 1994 Safeway was the largest supermarket chain, and the largest single retailer of bread, in Victoria.  There were over 130 Safeway supermarkets in Victoria and Albury with approximately 18,000 to 20,000 employees, 28,000 product lines and 1,500 suppliers. 

6                     In 1994 the directors of Safeway were Mr Reginald Clairs, Mr Ralph Mead, Mr John Pratt and Mr Paul Simons.  Mr Mead was also the General Manager of Safeway Victoria, the senior Victorian executive position.  He was responsible to the Chief General Manager of Woolworths.  Mr Mel McMillan was the Retail Operations Manager during the period January 1994 to June 1995 and he was responsible for store standards, staff, policies and procedures in the operation of stores and the day to day management of stores.

Mr Brookes

7                     From 1 January 1994 to 30 June 1995 Mr Brookes was Safeway’s Victorian Merchandise Manager.  He was succeeded in July 1995 by Mr Michael Luscombe.  In this position Mr Brookes was responsible for all sales made by Safeway stores in Victoria except meat and produce, the management of the range, pricing, shelf management and promotion of all groceries sold through Safeway supermarkets in Victoria.  His duties as Merchandise Manager included formulating policies and strategies, overall supervision of a team of category managers, dealing with suppliers about matters not resolved with category and account managers, discussing with category managers issues concerning major brands and products that should be carried by Safeway and the associated impact upon customers and operational division, conducting business reviews on a six monthly basis with all major Safeway suppliers, formulating strategic marketing plans to fulfil profit objectives, and implementation of the national policies as designated by the Board.

8                     When the trading terms for products were established by Mr Brookes, the category manager was responsible for purchasing products in accordance with those terms.

9                     In July 1995 Mr Brookes became Safeway’s Retail Operations Manager in Victoria.  He held this position until 1 January 1999 when he became the General Manager of Woolworths, Queensland.  A number of employees reported to Mr Brookes including two senior category managers, Mr John Syme and Mr Luscombe, each of whom was responsible for seven or eight category managers, and the merchandise managers for the delicatessen, bakery, seafood and general merchandise departments.

Mr Jones

10                  Mr Jones commenced employment with Safeway in 1989 as an Inventory Control Manager.  On 3 December 1992 he was appointed a category manager.  From 1 June 1993 to 10 March 1994 he was responsible for buying products in the categories of cleaning, cleansing and pet food.  On 11 March 1994 he took over from Mr James Aylen the responsibility for the proprietary bread category (in addition to fourteen other product categories that are not relevant for the purposes of this proceeding).  In June 1995 and until December 1996, his responsibility expanded to include products sold in Safeway’s in‑store bakeries.  He did not formulate any policies or procedures but rather gave effect to, and implemented, policies and procedures devised by others.

11                  As category manager in 1994 and 1995 Mr Jones was responsible for buying and merchandising the designated products sold by Safeway in Victoria, negotiating promotions, recommending whether new products should be ranged and existing products should be discontinued or deleted, and the marketing issues affecting products in the category such as pricing and shelf management.

12                  Mr Jones reported to Mr Brookes from March 1994 to 30 June 1995 and to Mr Luscombe from July 1995 when Mr Brookes was promoted to the position of Retail Operations Manager.  Mr Jones had an assistant who was given the title “Category Manager’s Assistant”.  I refer to this assistant from time to time as Mr Jones’ “CMA”.  From 5 July 1993 to 30 May 1994, his assistant was Ms Carlene Lewis, later Mrs Carlene Stosic.  From 30 May 1994 to April 1995 his assistant was Ms Felicity Austin.  From the end of April 1995 to November 1995 his assistant was Ms Elissa Miller.

13                  The Category Manager’s Assistant carried out a number of administrative tasks. In March 1994 Mr Brookes carried out a policy review of all categories within the grocery department.  Part of that review contemplated an intention to expand the role of category manager’s assistants into activities involved in category management, buying administration and new technologies and relieving category managers.  This expanded role did not ultimately eventuate. 

The Bread Industry

The Structure of the bread industry

14                  The facts and circumstances that are referred to in these reasons are as they existed in Victoria in and around 1994 and 1995 except where otherwise stated.  In 1994 and 1995 there were a number of wholesale bread bakers in Victoria.  Some bread bakers operated on a small scale and supplied local areas.  The three largest bread bakers were Tip Top, Buttercup and Sunicrust.  They supplied large supermarket chains, small supermarket chains and independent retailers such as small supermarkets, convenience stores and milk bars.  The major supermarket chains were Coles, Safeway, Franklins, Davids and Composite Buyers.  Bread was also baked and sold in hot bread shops which were either part of chains such as “Bakers Delight” and “Brumbys” or were independent.

15                  Tip Top, Buttercup and Sunicrust were known and described as “plant bakers”.  Each of them operated a number of bread baking plants.  Tip Top had a number of depots to which bread was transported and from which it was distributed.

16                  Each of the three plant bakers distributed their bread products statewide and together were the source of approximately 75% to 80% of all plant–baked bread sold in Victoria.  Subject to one exception, a stall operated by Tip Top at the Preston Market (to which I shall refer to in more detail later in these reasons), the three plant bakers’ entire production was sold by wholesale.

17                  Some statistics are relevant to the issues in the proceeding, particularly in relation to the extent to which the plant bakers sold their production to the large supermarket chains.  The statistics used in these reasons have been compiled from a number of sources and are necessarily approximate.  However they are an adequate guide to the relative position in the market generally of each of the three largest plant bakers.  Tip Top sold approximately 19.2% of its production of bread products to Safeway in Victoria.  Sunicrust supplied approximately 50% of its Melbourne metropolitan production of bread products to Safeway and 33% of its Victorian production to Safeway.  Buttercup sold approximately 17% of its production of bread products to Safeway in Victoria.  Approximately 27% of Buttercup’s sales of bread and rolls to the major supermarket chains were made to Safeway, 30% were made to Coles, 19.7% to Davids and 12.1% to Composite Buyers.

18                  Tip Top, Sunicrust and Buttercup baked approximately 75%‑80% of the proprietary bread products baked in Victoria.  Safeway acquired approximately 21.5% of the aggregate of the bread production of Tip Top, Sunicrust and Buttercup and was their largest retail customer.

19                  In 1994 and 1995 there was substantial over‑capacity in the bread baking industry.  In 1994 Buttercup was under‑utilising its production facilities by approximately 20%‑40%. 

Safeway’s relationship with the plant bakers

20                  Mr Brookes was responsible for the terms on which Safeway bought products from suppliers (“trading terms”).  The wholesale price at which Safeway bought bread from the plant bakers was affected by a number of factors such as discounts, settlement discounts, “one‑off” discounts negotiated on an ad hoc basis, bonus or free stock, promotional allowances and competitive rebates.  An expression commonly used by plant bakers for the wholesale price after all trading term allowances and rebates were calculated was “net net price”.

21                  Safeway had written trading terms with the plant bakers, which were negotiated by Mr Brookes.  Once trading terms were established, the category manager was responsible for purchasing products in accordance with those terms.  The terms included a term that Safeway would always buy at the best price which the plant baker offered any customer as well as other terms relating to discounts and allowances from the plant baker’s list price or invoice price.  Mr Brookes said this encouraged bakers to give it the same case deal (explained in par 43 post) as a competitor was given to ensure that it was not disadvantaged.  In determining whether Safeway was buying at the best price Mr Brookes said that he would look to the “net net price”, that is to say the price that was quoted after all relevant allowances had been taken into account.

22                  Safeway purchased premium proprietary branded bread on terms that included various allowances.  Special allowances or deals were also given from time to time for particular promotions.  Home Brand bread and price‑fighting bread such as Captain Cutless was purchased by Safeway from Sunicrust on a net net price.

23                  In order to understand what was the effective cost to Safeway of premium proprietary branded bread, it is necessary to take into account co‑operative allowances which Safeway required suppliers to pay as part of its trading terms.  This allowance was generally 5% of total sales and was a contribution to the cost of Safeway advertising the products for promotions in Safeway stores.  The co‑operative allowance was significant for Safeway as it was an important contributor to the gross profit that Safeway sought to achieve from its sales.  The level of Safeway’s gross profit was given in confidential session and its quantum is not relevant for present purposes.  What is relevant is that, according to Mr Brookes, Safeway’s gross profit rates were generated by a combination of the bill‑out gross profit made on the buy and sell price of products and the amount generated from the co‑operative allowances paid by manufacturers.  The ability to secure funds from manufacturers was a very important element of Safeway’s business.  In the context of the bread category co‑operative allowances were only paid to Safeway in respect of premium branded bread, not in respect of Home Brand or price‑fighting bread.

Tip Top

24                  Mr Christopher Gunton, Mr William Guthridge, Mr Timothy Maine and Mr David Kadir, were at relevant times executive employees of Tip Top.  From November 1994 to October 1995 Mr Guthridge was the General Manager of the Victorian Operations of Tip Top and was responsible for all operations of Tip Top in Victoria.  From February 1995, Mr Guthridge’s subordinate was Mr Gunton who took over from Mr Gary Ward as Tip Top’s Victorian State Sales Manager.  Mr Gunton had previously been employed by Tip Top (from September 1994) as its Metropolitan Operations Manager.  As Metropolitan Sales Manager he was responsible for the management of the sales and operations employees such as vendor‑drivers and area managers and for arranging promotional activities with customers.  In his role as Victorian State Sales Manager, Mr Gunton was involved in the negotiation of promotional activities for Tip Top’s major customers such as Safeway, Coles and Franklins.

25                  Safeway was Tip Top’s largest customer.  It purchased only branded bread from Tip Top.  According to Mr Gunton, Safeway was, in comparison to other retailers, very demanding, particularly in relation to stock weight and deliveries to the stores.  He said that Tip Top had to go to “a lot of extremes to ensure that they had the stock” in the Safeway stores and made more frequent deliveries to ensure this.  There were some Safeway stores to which Tip Top made four or five deliveries a day.  As well as delivering bread to the stores, Tip Top staff placed the bread on the shelves or racks and monitored when stock was running low.  The cost of the extra services that Tip Top provided to Safeway was borne by Tip Top.  Mr Gunton said that it did this because Safeway was a very good retailer in the grocery industry – it had good traffic flow through its stores and it was therefore important to Tip Top to have stock availability in Safeway stores.

26                  Each day the Safeway store managers would complete a form or stock list of the products out of stock at certain times of the day.  Mr Gunton said that when he first started at Tip Top Mr Ward would tell him from time to time that Tip Top bread had been deleted from a particular Safeway store because it could not keep its stock levels right.  Mr Gunton said that this usually occurred without any prior discussion and that he would then have to come back to Safeway with a plan of how Tip Top was going to rectify the problem.  However when he became State Sales Manager either Mr Jones or one of the area managers would contact him and tell him of out of stock situations.  Mr Gunton said that by March or April 1995 a relationship had developed between Safeway and Tip Top so that Mr Jones adopted a practice of contacting Mr Gunton and advising him of the out of stock problem prior to deleting its products.

27                  During 1994 Tip Top was operating its bakery business at a loss, and when Mr Guthridge commenced employment with Tip Top he was told by Mr Ward that Tip Top had embarked on a policy of increasing support for Tip Top’s branded products and was prepared to do so at the expense of unbranded products.  Mr Guthridge, as State manager for Tip Top, negotiated the trading terms between Tip Top and Safeway at a state level.  Mr Kadir, George Weston’s marketing director, negotiated the trading terms on a national level.  Mr Guthridge met approximately once a month with senior management of Safeway, Coles or Franklins to discuss issues such as promotional strategies, the level of service provided by Tip Top to the supermarkets and the rebate price available to supermarkets on promotional lines.  He usually met with Mr Jones, and less frequently with Mr Brookes, as the representatives from Safeway as well as meeting with the in‑store bakery manager and other promotional staff.

28                  Tip Top’s trading terms fell into three main categories – promotional allowances, rebates and varying discounts.  Safeway charged Tip Top for promotional rights which charge in Victoria in 1995 was higher than in other States.  This high promotional charge meant that it was sometimes not commercially viable for Tip Top to participate in a promotion and this was one of the reasons why the business was losing money.  The decision by Tip Top to participate in promotions was based on a number of factors.  First, to protect the brand and its penetration in the market on a regular basis and secondly, to protect the volume of flour that the company would sell so that another flour bakery did not take up the opportunity.

29                  Mr Guthridge said that a national rebate was paid to the national office of the parent company of Safeway and that Tip Top also received a settlement discount – a condition of which was that Tip Top pay its invoices within an agreed time frame. 

30                  There was also what was known in the trade as a “co‑operative allowance” which was an amount set aside by Tip Top and expended upon purchasing certain types of promotional activity from Safeway, such as the location of products in the store, in‑store advertising and promotions.

31                  Mr Guthridge said that Safeway’s trading terms were very different from those of an independent retailer and while the price offered to an independent retailer might be perceived to be cheaper, quite often it was not because there were other rebates and allowances that were given to Safeway that were not given to an independent retailer.  Both Mr Guthridge and Mr Gunton were aware that Safeway wanted the best price possible from its suppliers.

Sunicrust

32                  In 1994 and 1995 the relevant managerial staff of Sunicrust who dealt with Mr Jones and Mr Brookes about trading terms were Mr Simon McDowall, the Victorian Divisional Sales Manager and his subordinate Mr Charles McLeish, the Metropolitan Sales Manager/Account Manager.  Mr McDowall and Mr McLeish had regular meetings with Mr Brookes and Mr Jones on issues such as service and delivery problems, product launches and out of stock issues.

33                  In 1994 and 1995 Sunicrust had seven bakeries in Victoria and one in New South Wales.  Sunicrust provided bread for different retailers and although it had one wholesale price list in Victoria it had different trading terms depending upon the identity of its customers.  Sunicrust sold proprietary branded and generic bread.  It supplied Safeway with its “Home Brand” bread.  Safeway was Sunicrust’s largest customer.  Sunicrust supplied bread to Safeway on the best terms available.  Safeway received a statement discount, a settlement discount, a co‑operative spend discount and a State rebate.  Safeway was also given from time to time, particular discounts for specified periods. 

34                  In 1994 and 1995 some Safeway stores were experiencing out of stock occurrences of proprietary bread in the late afternoon or early evening.  Safeway asked Sunicrust to resolve the problem and as a result Sunicrust introduced a twice daily delivery so that an afternoon delivery was made to certain Safeway stores.  In mid‑1994 the twice daily delivery was extended to the majority of Safeway stores.

Buttercup

35                  Mr Ronald Linton, General Manager of Quality Bakers Victoria and Mr Ray Cooper, Buttercup’s Victorian Sales Manager, were the Buttercup staff with whom Mr Jones and Mr Brookes negotiated trading terms.  Mr Linton’s position involved responsibility for profit including local sales, local marketing, operations and finance while Mr Cooper had the day to day dealings with the customers.

36                  Safeway was Buttercup’s largest proprietary bread customer although it was not its largest customer.  Buttercup had a standard wholesale price list but it also offered a number of volume discounts depending on the size of the business of the purchaser.  Safeway’s trading terms included a volume discount, a co‑operative rebate, a State rebate and a national rebate. 

37                  According to Mr Cooper, Mr Jones was someone who was always “after as much as he could possibly get” because he was always anxious that Safeway appear to be as competitive as possible in the retail area and particularly the bread area.  Mr Cooper regularly had discussions with Mr Jones about prices and discounts in relation to bread supplied by Sunicrust to Safeway.

38                  Like the other plant bakers there were a number of instances in 1994 when Buttercup products were deleted from Safeway stores because of problems with service or supply.  Such deletions occurred less frequently after the early part of 1994 because, according to Mr Cooper, Buttercup endeavoured to do a better job servicing the Safeway stores.  There were occasions when Buttercup products were permanently deleted but these were in relation to products that Safeway was not successful in selling such as crumpets and muffins.

Terminology used in the bread industry

39                  There are a number of expressions commonly used in the bread industry that were used in the proceeding which require explanation.  They did not necessarily bear the same meaning for all witnesses.  In particular the terms “branded” bread and “proprietary” bread were often used interchangeably by witnesses.  Proprietary bread is bread contained in a wrapper which displays a brand name owned and promoted by the bread manufacturer.  Proprietary premium bread or premium branded bread was regarded by almost all witnesses as the premium or top of the range bread that was sold.  It attracted the highest price and consumers were perceived to associate a higher value with it.  It attracted the most advertising.  It also attracted co‑operative advertising and marketing financial support from the manufacturer when advertised by retailers.  Premium bread was available for sale to retailers every day of the week throughout the State.  Sometimes witnesses referred to proprietary branded bread as branded bread but such a description has the potential to be misleading as there was also reference to secondary brands, generic brands and price‑fighting brands. 

40                  A secondary brand of bread was bread contained in a wrapper that bore a brand name owned by the brand manufacturer but that did not have the advertising or promotion exposure of a premium brand.  A generic brand was bread contained in a wrapper that bore a brand name that was owned by the retailer and which usually was a brand used by a retailer across a wide range of products.  It carried the perception of being a cheaper product rather than a premium branded product.  Examples were Safeway’s “Home Brand” brand and David’s “Black & Gold” brand.  Each of these brands was associated with a retailer rather than a manufacturer.  A price‑fighting brand was contained in a wrapper which bore a brand name owned by the manufacturer and which was usually not the subject of significant advertising.  It was not available for sale to retailers every day of the week and was rather available for particular promotions or on particular occasions.  Secondary, generic and price‑fighting bread did not attract advertising or financial support from the plant bakers.

41                  Notwithstanding the different brands produced by a bread manufacturer the bread constituting the different brands was produced on the same production line, that is (with minor exceptions in some cases) with the same ingredients.  Thus a white 680g premium brand loaf was the same bread as a white 680g secondary brand when made by the same manufacturer although the secondary brand might be produced earlier in the day than the premium brand and would therefore be some hours older when delivered to the retailer.  The only difference between them was the cost price of the product and the manner in which each was marketed. 

42                  Bread was categorised by reference to a designation of a particular code.  For example, the most popular loaf of bread sold at relevant times was a Code C 680g white sandwich loaf.  A Code D loaf was a more expensive loaf and was usually a 900g loaf. 

43                  A common expression used was “case deal”.  When a Safeway buyer was looking to a supplier for a discount or rebate, the buyer tried to negotiate a “case deal”.  This referred to the manner in which a retailer would seek a discount, rebate or special deal from a manufacturer.  The expression “case deal” means no more than a deal or arrangement involving a discount.  Although bread was not sold in cases the expression was used as a hangover from those situations where products could be purchased by the case or the carton.  The expression finds its origin in the grocery industry where almost all products are sold by the case, such as Coca Cola.  In that context a case deal can be translated into a particular discount for each unit in the case or carton.  In the case of bread a case deal, stated as such, meant a discount per loaf or unit of bread.

44                  The term “deletion” featured prominently in documents and oral evidence.  Bread was “deleted” from a supermarket when Safeway withdrew the bread from display on its shelves, asked the relevant plant baker to take the bread away and said that it would not stock that bread until further notice.  Thus Safeway’s deletion policy was a policy relating to its decision not to stock, display and sell particular bread.

45                  In‑store bakeries were segregated areas within a supermarket store which had ovens to bake or partly bake various ranges of bread and cakes.  There were three types of in‑store bakeries:

·                   “full production facilities” where the raw material was brought into the in‑store bakery and mixed and baked on the premises;

 

·                   “warm spots” where half-baked bread manufactured by a baker was delivered into the store and the cooking process was completed in the store;

 

·                   “cold spots” where the bakery delivered fully prepared, wrapped bread ready to be placed in the store. 

 

In 1994 and 1995 most of the in‑store bakeries were cold spots.

46                  Hot bread shops were retail premises in which generally the bread sold was made on the premises by the retailer.  There were two classes – franchises such as “Brumby’s” and “Bakers Delight” and single stores.  In 1993 hot bread shops provided about 33% of the bread consumed in Victoria and in 1994 that share increased to 40% and continued to increase.

Significance of Bread

47                  Bread has a significance for a supermarket that goes beyond its character as a staple food to be purchased for consumption.  It is a “communicable” product, that is to say it is a product that has a significant profile with consumers and in a consumer’s mind is indicative of a retailer’s general price competitiveness.  Communicable products are products such as bread, tea, eggs, margarine, sugar, coffee, bacon, dog food and milk.  They are products that are purchased frequently and in high volume.  The significance of communicable products is that consumers tend to remember their prices and use the products to evaluate the comparative prices of different retailers.  Accordingly, it is important for a retailer to give consumers the impression that the retailer is quite competitive with respect to communicable products.  Put shortly, the price of a communicable product sends a signal into the marketplace as to the general level of pricing in a supermarket and as to its competitiveness.

48                  For example, Mr Hollan Morrell, the proprietor of Bob’s IGA supermarket in Albury in 1995, said that bread was a very important product in a supermarket because a competitive, keenly priced loaf of bread could mean the difference between success and failure in the supermarket business.  If priced competitively, it could change people’s shopping habits.

Types of Bread

49                  The most popular loaf of bread sold in 1994 and 1995, and the largest seller, was the white 680g sandwich loaf, given the designation “Code C”.  All plant bakers produced a wide range of bread, in differing wrappers, styles, ingredients and weights.  Their flagship products were white bread, brown bread and rye bread.  There were 450g loaves, 680g loaves and 900g loaves.

Tip Top bread

50                  Tip Top’s premium or flagship brand was “Sunblest”.  An example of a secondary brand or a price‑fighting brand was “Eureka”.  It was a brand owned by a Tip Top company but it did not bear the Tip Top logo.  The product was a standard 680g sliced white, wholemeal or multigrain loaf of bread.  It was a brand that had been promoted to some extent in country areas.  Eureka bread was not baked by Tip Top every day.  When it was baked depended on the competitive activity in the area.  It was baked to match any competitive activity that was happening in the Victorian market.

Buttercup bread

51                  Buttercup’s premium or flagship brand was “Wonder White”.  An example of a generic brand was the “Black & Gold” brand manufactured by Buttercup.  It was associated with the Davids banner group and was advertised both statewide and locally on this basis.  In 1994‑1995 a joint venture of Australian Amalgamated Wholesalers was established by Davids, Composite Buyers, Foodland and QIW which created the Black & Gold label as a common house brand for all their banner stores.  A store had to be a customer of the Davids warehouse to be able to purchase the Black & Gold generic products.

Sunicrust bread

52                  Sunicrust’s premium or flagship brand was “Suni”.  The “Captain Cutless” brand was owned by Sunicrust and had been sold to Safeway since about 1994.  It originated in Albury‑Wodonga in the early 1990s as a cut price product to be sold in fruit markets and independent stores in Northern Victoria.  It was later taken off the market and not manufactured again until 1994 as a “price‑fighting” bread for Safeway.  From the time it re‑commenced supplying Captain Cutless bread to Safeway, Sunicrust ceased supplying Captain Cutless to other customers.

53                  Mr Brookes called Captain Cutless a “value brand” or a “price‑fighting bread” which was not on regular sale in Safeway stores.  Rather it was brought in when it was needed for price‑fighting purposes at whatever price was sufficient to meet the competitive action in the area, even if this resulted in a loss.  It had no brand value to Safeway or to Sunicrust because it did not have a recognisable name that was frequently seen.

Thwaites

54                  In the 1990s Sunicrust acquired Thwaites bakery in Colac.  The bread produced from this bakery was packaged as a branded product in the local Colac area, because the Thwaites bakery had been a local town bakery for many years and therefore the brand had premium value.  However it was sold as a generic product in the Geelong market because it had not been previously sold there.

Home Brand

55                  In 1994 and 1995 Sunicrust manufactured a generic bread exclusively for Safeway under the name “Home Brand”.  There was no reference on the bag to Sunicrust being the manufacturer of the bread.  Mr Brookes said that one of the things that made it a generic brand was its basic packaging.  In 1994 and 1995 it was available in seven varieties and its price was established by looking at the price of Jewel’s “No Frills” product and Coles “Savings” brand.  It was initially introduced to compete with Franklins “No Frills” and was part of a whole range of Home Brand products.  In 1994 and 1995 the main form of advertising of Home Brand products was in‑store posters, banners and shelf tickets.  As part of Safeway’s sales plan the Home Brand range of products was advertised at least once a quarter.

Price sensitivity of bread – brand loyalty and brand equity

56                  A substantial issue in the proceeding was the extent to which there was brand equity in proprietary or premium branded bread and brand loyalty among consumers of bread.  Associated with these issues was the extent to which bread was price sensitive as between different brands and different types of bread.  A substantial body of evidence was led to demonstrate what happened to the sales of particular brands when another brand of bread was sold at a discounted price.

57                  Although the extent of brand equity in proprietary or premium branded bread was in issue, there was no dispute as to the concept of brand equity.  Professor Widing, an expert in the field of marketing (called by the Commission), said that brand equity: 

“is the value that is added to the product by the brand.  In short, it can be thought of as the additional value added by the brand, for both seller and consumer, over and above the same product if it were not branded.  This can take the form of more favourable consumer response and less sensitivity to price increases …  The effect of brand equity for the seller can be defined as the added sales volume and/or higher price that can be achieved by virtue of the brand alone”.

 

Mr McGregor, a market research expert (called by Safeway), said that the major premium bread brands had little or weak brand equity.  He said that the Tip Top, Sunicrust and Buttercup brands had been substantially devalued because of the selling of the premium brands at regularly significantly discounted prices.  In this respect it is important to note that in 1994 and 1995, 86%‑87% of the major branded bread of the three plant bakers sold in the eighteen Safeway supermarkets, where the deletions in issue occurred, was sold on promotion, that is at discounted prices.  These promotions occurred on a three weekly cycle, with one of the three plant bakers’ premium brands being discounted each week.

 

58                  However, Mr McGregor agreed that each of the three plant bakers’ premium brands had more brand equity than the price‑fighting breads Captain Cutless (Sunicrust) and Budget Family Fresh (Buttercup).  He also agreed that advertising was a factor that assisted in creating brand equity and that other factors that contributed towards brand equity were consistency of quality, consistency of availability and the familiarity that consumers have with a product.  These factors applied to the plant bakers’ premium brands.  However the price‑fighting brands were not advertised, they did not have consistency of availability and they were products with which consumers were not familiar.

59                  It was apparent that when the premium brand of one of the plant bakers was discounted, its sales went up and the sales of the premium brand of the other two plant bakers went down.  Similar situations also occurred when price‑fighting or generic brands were offered for sale at substantial discounts.  There was a corresponding decrease in sales of premium brands.

60                  The movements in quantities sold relative to prices could be determined quite easily by reference to scan data which was reproduced on sheets that recorded each day the quantities of each product sold by the supermarket and the price at which it was sold.  The scan data only showed one price each day, so that it would not record different prices if the price was varied during the day, but rather showed the average price for the day.  Nevertheless, overall, the scan data provided a relatively accurate record of prices each day.

61                  There was always a core of brand loyalty sales of premium brands that did not alter when either a particular manufacturer’s premium brand, or a secondary generic brand, was discounted or a price‑fighting brand was introduced.  Nevertheless significant price variations caused significant movements in sales between premium brands of different manufacturers and between premium brands and generic, secondary or price‑fighting brands.

62                  The movement away from premium brands to generic or non‑proprietary brands was a matter of concern to the plant bakers as it rendered the advertising and promotion of premium brands less effective and reduced profits because the margin on the non‑proprietary brands was less.  Numerous witnesses agreed that the significant discounting of secondary or generic brands resulted in a significant movement by consumers from premium brands to the secondary or generic brands.  A number of witnesses said that there was limited brand loyalty in relation to premium branded bread and that, overall, bread was price sensitive and consumers were influenced in their purchases of bread by price.

63                  For example, Mr Maine from Tip Top said that it was possible to sell plain wrap bread without affecting the sales of branded products because there was a core user group that would always buy a recognised brand such as Sunblest and who would never change.  He said there was another broad group of consumers who were more interested in price rather than brand and another group of consumers in the middle who could be swayed either way if the price was correct.  Mr Brookes gave similar evidence.

64                  Although the factors which dictated what type of consumer would purchase any particular type of bread at a given price was complex, it was still possible to identify particular groups of consumers.  Mr Kennedy, a market researcher experienced in the retail and supermarket areas (called by Safeway), identified five groups of consumers in the following terms: 

“There is one group of consumers who will buy Tip Top bread at $1.99 irrespective of the price at which other 680gm Code C bread is being sold.  There is a second group which will immediately switch to the lowest priced product irrespective of the brand of the product or the manufacturer.  A third will switch between branded products to whichever branded product is on promotion; but not purchase a product such as Captain Cutless.  A fourth group is loyal to a particular brand but knows that every third week the brand to which the consumer is loyal will be promoted.  For example, a consumer may be loyal to Tip Top Sunblest but buys that product every third week, in quantities which may be frozen.  A fifth (but small) group is a consumer who is loyal to Tip Top who knows that, if the Tip Top product is not on promotion in a Safeway store, then it will be on promotion in either Coles or Franklins.”

 

Mr Kennedy did not agree that there was little brand loyalty by retail consumers of bread and said that the difficult question was to determine the extent of the brand loyalty that did exist.  He said it depended on the type of consumer and the extent of any price discount.

 

65                  In 1994 and 1995 consumers were extremely price sensitive in relation to bread products and many consumers showed little loyalty to any particular brand.  Where the price of one plant baker’s bread was priced as a special below the price of a similar bread manufactured by another plant baker consumers would purchase the brand of bread on promotion. 

66                  Mr Guthridge from Tip Top said that the brand loyalty in proprietary brands had been eroded over a period of ten years since the introduction of house brands.  As a result, by 1994 and 1995 there were a number of methods used to promote the proprietary branded breads.  Special promotions were undertaken, usually for no more than one week, where the price was reduced to $1.50‑$1.59 per loaf.  Sometimes for store openings, store refurbishments, birthdays or anniversaries, proprietary bread was reduced to as low as 99c per loaf.  Another method of increasing sales was adding value to the product such as offering cards with pictures of footballers.

67                  This analysis of the evidence shows that in 1994 and 1995 the sale of bread, whether premium brand, secondary brand or generic, was price sensitive and that there was a significant amount of substitutability in that consumers would change their purchasing habits depending on the extent of the price discounting offered.

Standard of Proof

68                  Before turning to the controversial evidence it is appropriate to address the issue of the applicable standard of proof.

69                  In considering and evaluating the evidence led in the proceeding, in particular the evidence in relation to conversations that were said to have occurred some years before the trial commenced, it is important to bear in mind the standard of proof applicable to the issues before the Court.  The Commission sought the imposition of civil penalties for contraventions of the Act.  Accordingly, the applicable standard of proof requires findings to be made on the balance of probabilities.  But that is not the end of the matter.  The allegations made were allegations of serious misconduct and significant contraventions of the Act and, if established, warranted the imposition of substantial pecuniary penalties.

70                  I consider that I should not make findings against Safeway or Mr Jones, particularly in relation to conversations that are disputed, unless I have reached the degree of satisfaction, identified by Dixon J in Briginshaw v Briginshaw (1938) 60 CLR 336.  His Honour said at 362:

“But reasonable satisfaction is not a state of mind that is attained or established independently of the nature and consequence of the fact or facts to be proved.  The seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding are considerations which must affect the answer to the question whether the issue has been proved to the reasonable satisfaction of the tribunal.  In such matters ‘reasonable satisfaction’ should not be produced by inexact proofs, indefinite testimony, or indirect inferences.”

 

I also adopt the approach taken by McLelland CJ in Eq in Watson v Foxman (2000) 49 NSWLR 315.  His Honour said at 319:

 

“Each element of the cause of action must be proved to the reasonable satisfaction of the court, which means that the court ‘must feel an actual persuasion of its occurrence or existence’.  Such satisfaction is ‘not … attained or established independently of the nature and consequence of the fact or facts to be proved’ including the ‘seriousness of an allegation made, the inherent unlikelihood of an occurrence of a given description, or the gravity of the consequences flowing from a particular finding’:  Helton v Allen (1940) 63 CLR 691 at 712.”

 

Approaching making findings and drawing conclusions this way is not to adopt a standard of proof other than a standard on the balance of probabilities.  I bear in mind the approach of the majority of the High Court (Mason CJ, Brennan, Deane and Gaudron JJ) in Neat Holdings Pty Ltd v Karajan Holdings Pty Ltd (1992) 110 ALR 449 at 450:

 

“… the strength of the evidence necessary to establish a fact or facts on the balance of probabilities may vary according to the nature of what it is sought to prove.”

 

I have paid particular regard to the Briginshaw principle in making findings as to which version or account of disputed conversations I should accept and as to whether I should accept versions or accounts of conversations that occurred some years prior to their being recalled by the witnesses.

 

71                  As I have observed earlier, many of the conversations that at trial became critical to the issues raised and, indeed, were an integral part of the contraventions alleged, occurred at a time, and in a context, when there was no need for any documentary record of them to be made and when there was no circumstance that warranted the need to store up in the mind a recollection of the conversation.  I therefore approach the evidence of conversations by witnesses with caution bearing in mind that the nature of memory is such that, more often than not, evidence of conversations long since past is by way of reconstruction (albeit unwittingly) rather than by way of independent recollection.

72                  This view of the evidence raises a further difficulty in relation to the conversations the subject of evidence in this proceeding.  That is, that particular words used may have different meanings depending on the nature and ebb and flow of the conversation.  This difficulty calls to mind an observation made in relation to evidence of conversations said to constitute misleading and deceptive conduct.  In Watson v Foxman (supra) McLelland CJ in Eq said at 318:

“Where the conduct is the speaking of words in the course of a conversation, it is necessary that the words spoken be proved with a degree of precision sufficient to enable the court to be reasonably satisfied that they were in fact misleading in the proved circumstances.  In many cases (but not all) the question whether spoken words were misleading may depend upon what, if examined at the time, may have been seen to be relatively subtle nuances flowing from the use of one word, phrase or grammatical construction rather than another, or the presence or absence of some qualifying word or phrase, or condition.  Furthermore, human memory of what was said in a conversation is fallible for a variety of reasons, and ordinarily the degree of fallibility increases with the passage of time, particularly where disputes or litigation intervene, and the processes of memory are overlaid, often subconsciously, by perceptions or self‑interest as well as conscious consideration of what should have been said or could have been said.  All too often what is actually remembered is little more than an impression from which plausible details are then, again often subconsciously, constructed.  All this is a matter of ordinary human experience.”

 

That observation is apposite to many of the conversations I have to consider in this proceeding.

 

Credibility issues

73                  The Commission made a substantial attack on the credit of Mr Brookes and Mr Jones and the reliability of their evidence.  It submitted that their evidence should not be accepted on critical issues.  I am satisfied that both Mr Brookes and Mr Jones did not deliberately give untruthful evidence although in a number of respects each of them gave evidence which is more appropriately described as reconstruction rather than recollection. 

74                  There were a number of respects in which Mr Jones’ evidence was not credible or was demonstrably wrong.  I refer by way of example to the following matters:

·                   Mr Jones prepared notes for a presentation of the policy to Safeway managers in May 1994.  The notes (par 163 post) referred to core lines including flagship brands. However he said that in 1994 and 1995 he did not know what the expression “flagship brands” meant.  His explanation as to what he regarded as flagship brands was unconvincing.  Although Mr Timothy Bray may have prepared part of the notes, Mr Jones approved of them and Mr Bray said that he discussed core products and flagship brands with Mr Jones at the time the notes were prepared.  I find it very difficult to accept that a person occupying Mr Jones’ position in 1994 and 1995 and undertaking the work he did could not know what the expression “flagship brands” meant.  His evidence in this respect was not credible.

 

·                   A telephone conversation Mr Jones claimed to have had with Mr Raynor Feldgen, the manger of Safeway Preston, which must have occurred around July 1995 on Mr Jones’ version.  For the reasons set out in pars 787‑789, I reject Mr Jones’ evidence that when he referred to Buttercup bread he was referring to 680g bread.  It was not credible.

 

·                   Mr Jones’ evidence as to when and how he received a fax message from Mr McDowall of Sunicrust.  For the reasons set out in pars 691‑695, I reject Mr Jones’ evidence that he received the fax through the post.  It was not credible.

 

·                   Mr Jones’ evidence that in November 1995 he had a telephone conversation with Mr Maine from Tip Top about 9 Grains bread.  Mr Jones persisted in maintaining that this conversation occurred until he was confronted with scan data which demonstrated that he must have been mistaken.  Only then did he accept that he was mistaken (see pars 846‑849).

 

·                   Mr Jones’ evidence as to the preparation and contents of a memorandum to Mr Luscombe in relation to the Ferntree Gully incident dated 6 December 1995 which he signed (par 919).  According to his witness statement, he prepared it but in evidence he said he was in error and that Mr Luscombe prepared it in its final form.  Mr Jones sought to disassociate himself with some of the statements in the memorandum and said it contained errors.  His evidence in relation to the contents of and errors in the memorandum was not credible.

 

75                  An example of Mr Brookes giving incorrect or reconstructed evidence is found in par 134(c) of his witness statement in which he says that the packaging of “West End” bread showed Sunicrust’s name.  Exhibit A35, which was a photocopy of a West End bread bag shown to Mr Brookes before signing his witness statement, does not have a Sunicrust name on it.  Mr Brookes acknowledged his error.

76                  In a number of other respects, to which I shall refer, I am not satisfied that the evidence of Mr Brookes and Mr Jones should be accepted or that it was reliable.  The difficulty facing Mr Brookes and Mr Jones and, indeed, which faced other witnesses, was that they were being asked to recall and recount conversations which had occurred between three and five years earlier in respect of which there was no contemporaneous documentation and which, at the time, were not necessarily seen as having any long‑term significance, or as having an importance, which made it necessary to remember them with any degree of particularity.  It is inevitable in such situations that there will be elements of reconstruction, albeit unwittingly or in good faith.  The finding of Fullagar J in Pascoe v Commissioner of Taxation (1956) 30 ALJ 402 is apposite in the present context.  His Honour said at 405:

“I do not think that the appellant and his partners have set out deliberately to mislead me in the evidence which they have given.  I am prepared to accept a large part of that evidence, but on some vital matters it does not altogether satisfy me.  It is given some years after the material time, and I am disposed to think that, as often happens, it represents at some points reconstruction rather than recollection.”

 

77                  Notwithstanding the particular respects in which I have found Mr Jones’ evidence to be demonstrably wrong or not credible, I have not reached the conclusion that the whole of his evidence is unreliable.  In a number of respects to which I refer, his evidence was corroborated and confirmed by the evidence of other persons, in particular plant baker witnesses, and in such instances I am satisfied that his evidence should be accepted.

Safeway’s BREAD policy

78                  At the core of the issues in the proceeding lay a policy developed by Safeway in 1994, and implemented thereafter, in relation to its stocking and sale of bread manufactured by particular bread manufacturers.  The Commission contended that the policy and its implementation constituted a contravention of s 46 of the Act whereas Safeway contended that the policy had no anti‑competitive purpose or overtones but was rather a competitive response to market conditions.  The Commission said further that on particular occasions when the policy was implemented and carried into effect, Safeway also contravened, or attempted to contravene, ss 45, 47 and 48 of the Act.

79                  The policy, as submitted by the Commission, involved Safeway deleting a manufacturer’s bread from a Safeway store in the vicinity of an independent retailer of bread (not Coles or Franklins) where the retailer was discounting bread supplied to it by that manufacturer to a level below the price at which Safeway was offering for sale comparable bread of that manufacturer.  The Commission’s case was that the policy was punitive in the sense that it was created to punish the bread manufacturers if they gave other retailers wholesale prices which allowed them to undercut Safeway’s retail prices.  It was said that the purpose of the policy was to cause the manufacturers to take steps to ensure that the independent retailer stopped selling bread at discounted prices.

80                  In par 6D(h) of the statement of claim the Commission alleged that: 

“Safeway had a policy that if bread products of a manufacturer were being specialled by another retailer other than Coles or Franklins in the vicinity of a Safeway store at a price which was under the price being charged by Safeway at such store, then all that manufacturer’s bread product would be delisted from that Safeway store and other Safeway stores in the vicinity while that manufacturer’s bread products were being specialled by that other retailer.”

 

81                  The Commission contended that Safeway implemented that policy from time to time and that as a consequence, in each of the nine incidents involving independent retailers, Safeway either induced or attempted to induce the plant baker to induce, or attempt to induce, the retailer to stop discounting.  In the alternative, the Commission contended that by the implementation of the policy the bread manufacturer was discouraged from supplying bread products to the retailer at prices which enabled the retailer to discount the bread products, or was discouraged from supplying bread products to retailers who were likely to retail the bread at prices cheaper than Safeway’s prices.  These allegations were denied by Safeway and Mr Jones.  Their case was that the policy, created in terms different to those alleged by the Commission, was intended to be competitive in the sense that it was designed to enable it to meet the prices of its competitors and was not intended to be punitive.

82                  The change that occurred in Safeway’s bread marketing strategy in 1994, and brought about the policy that lies at the core of this proceeding, must be looked at in the context of Woolworths’ overall marketing strategy.  In the mid to late 1980s Woolworths’ profitability was declining.  This was seen to be caused by Woolworths (in Victoria “Safeway”) not being competitive on price with other supermarkets, both the independents and the large chains.  Before 1987 Woolworths did not have a consistent pricing policy.  When Mr Simons rejoined Woolworths as chairman in 1987 he established a uniform competitive pricing policy that required Woolworths to be competitive with Coles, Franklins and independent supermarkets.  The effect of the policy was that Woolworths would not be undersold by Coles and its prices would be within 1% of Franklins’ prices.

83                  On 5 August 1994 the policy was confirmed by the Board of Woolworths as a “new pricing policy” to be “applied as a minimum level in all states”.  In a memorandum dated 10 August 1994 from Mr John Brunton, the General Manager of Woolworths, the policy was set out as:

“Homebrand

All Homebrand products will be priced cent for cent with the low cost operators nominated as competition in each state.

 

Grocery and Perishables

1% above the nominated low cost operator with a maximum of 2c on any product.

 

Fresh Foods

We will be competitive with all major sellers of Fresh Foods.  Each State will nominate their competition.  We will however, not be undersold on the top 10 major lines.

 

Coles Supermarkets

Despite the rules set out above we will at no time be undersold by Coles Supermarkets.” 

 

84                  Prior to 1994, the retail bread market was volatile in the sense that discounting was prevalent.  Retail prices for a Code C 680g loaf fluctuated from 89c to $2.15.  Competition between supermarkets was vigorous in relation to bread.  This situation carried through into 1994 and 1995.  Woolworths held the view that being competitive on all prices was imperative to its long‑term viability.

85                  Each Safeway store had a list of “nominated competitors” to which the competitive pricing policy applied.  Each Safeway store nominated the stores that the store manager considered as the major competitors in relation to particular product categories.  A local competitor’s pricing handbook was prepared and given to each Safeway store.  It specified Safeway’s major aim as “To be competitive”, and it required the store manager to identify his store’s nominated competitors in a number of categories such as cigarettes, fresh eggs, milk, bread (described as proprietary bakery) and in‑store baking.

Mr Brookes’ Queensland experience prior to 1994

86                  Mr Brookes was influenced in the way in which he changed Safeway’s policy in relation to the merchandising of bread as a result of his experience in Queensland.  He was Woolworths’ Queensland Merchandise Manager from 1989 to 1993.  Mr Brookes’ experience in Queensland was that proprietary bread was frequently offered for retail sale at discounted prices, down to levels between 69c to 99c a loaf when the normal retail price of premium proprietary branded bread was between $1.39 and $1.69.  He said that there were many occasions when the following situation occurred:

·                    a plant baker sold bread to a competitor of Woolworths enabling it to sell the bread at a discounted price;

 

·                    Woolworths approached the plant baker and obtained the same cost price for bread supplied to it.

 

Mr Brookes produced a folder of documents and invoices that recorded instances when a case deal was obtained from a plant baker to match a competitor’s retail price.

 

87                  Mr Brookes used his Queensland experience to justify his explanation for the policy that he conceived and implemented in Victoria.  However, his evidence in this respect and his supporting documentation must be considered with caution.  To compare his Queensland experience with the policy he said he conceived and implemented is not necessarily to compare like with like.  The policy implemented in Victoria, according to Mr Brookes, related to seeking to obtain discounts from manufacturers, or case deals, that enabled Woolworths to match discounted prices offered by competitors who had been given a discount by the bread manufacturers.  The policy did not include seeking discounts so as to match discounted prices offered on store openings, store anniversaries or short‑term specials.

88                  A number of the Queensland examples produced by Mr Brookes did not fit the terms of the policy for Victoria as explained by Mr Brookes.  Some of them related to store openings, some of them could not be related to specific situations of discounts offered by competitors and some of them related to bread that was not appropriately described as proprietary branded bread.  Further, of the eighty‑seven or thereabouts documented examples produced by Mr Brookes, about thirty of them occurred after he left Queensland, and he acknowledged that they were irrelevant to the experience that he brought to Victoria and upon which he based his Victorian policy.  Further, only eight of the examples involved Woolworths getting a deal from the same baker who was supplying Woolworths’ competitor.

89                  The Commission challenged Mr Brookes’ evidence as to his reliance on his Queensland experience and submitted that I should reject it.  I am not prepared to do so.  It may well be that the circumstances of his Queensland experience were not replicated in Victoria because of the nature of the brands marketed and the occasions on which case deals were obtained.  But that is not to say that Mr Brookes did not believe that his Queensland experience did not have some relevance to the Victorian scene.  The Commission submitted that Mr Brookes knew and conceded that his Queensland experience was irrelevant and that he agreed that there was nothing in that experience which enabled him to conclude that in Queensland plant bakers would give competitive deals on their premium brands to enable Woolworths to compete with a competitor selling the same baker’s secondary brands at everyday low prices.  I do not accept this submission.  Mr Brookes did not agree to this proposition in these terms.  He did not concede or agree that his Queensland experience was irrelevant.  He did agree that his Queensland experience did not indicate that plant bakers would sell premium bread at the same price as their secondary brands.  The reason for that was because in the examples he gave of his Queensland experience the plant baker did not market a primary and a secondary brand.  The Queensland plant bakers had offered case deals on their premium brands to enable Woolworths to compete with sales of another baker’s bread. 

90                  In short, Mr Brookes’ Queensland experience, as the Commission submitted, was not an exact fit for the Victorian market.  But although the Victorian situation of a plant baker manufacturing premium and secondary brands had not occurred in the course of Mr Brookes’ Queensland experience, that did not mean that Mr Brookes was not entitled to take it into account in devising his policy, which is what he did.  As Mr Brookes put it: 

“My Queensland experience told me that firstly the manufacturers would provide case deals for us to be competitive and good sizeable case deals so that we can maintain our margin or not lose money and [the documents relating to the Queensland transaction] evidenced the large number of case deals.”

 

91                  Mr Brookes’ Queensland experience entitled him to conclude that bread manufacturers were prepared to provide case deals to enable Safeway to be competitive but not in the circumstances that faced Safeway in Victoria.  However even if I reject Mr Brookes’ Queensland experience as a valid justification for the policy he created for Victoria, it does not follow that I should reject his other evidence as to the terms of his Victorian policy or the purpose for which it was created.  Although the rejection of the relevance of his Queensland experience removes one explanation or justification for the terms and purposes of the Victorian policy for which Mr Brookes contended, there is other evidence to which I shall refer that supports Mr Brookes’ evidence as to the policy which he conceived, put into place and sought to have implemented.

92                  During his time in Queensland Mr Brookes introduced policies based on Woolworths’ competitive pricing policy.  These policies were never reduced to writing.  One of the policies introduced was that the decision whether bread was to be discounted in response to competitors’ prices was to be made by head office rather than by store managers.  Mr Brookes also introduced a planogram technique (to which I shall refer) for the location of proprietary bread in each Safeway store. 

93                  The policy created by Mr Brookes for the Queensland stores was that Woolworths was to seek a competitive deal from a baker who was supplying what Woolworths perceived to be cheap bread to its rival and that the baker would be asked to provide Woolworths with the same deal as it was providing the competitor.  Mr Brookes said he did not very often have to ask for the same deal because as a matter of course he would receive a call from an alternate bread manufacturer offering him a very good case deal to enable Woolworths to match the price.  He could not recall any instance where he asked for a deal and was not given one.  Mr Brookes said that deletion of products was initially an aspect of the Queensland policy but that it never got to the stage where it was necessary to take the bread off the shelf because the store was uncompetitive or because it did not have space.  Mr Brookes said that the plant bakers were aware that Safeway could not afford to hold on the shelf a product that was uncompetitive and that as manager he made the three bread manufacturers aware that Safeway’s objective was to be competitive in the marketplace during the weekly or fortnightly appointments that he had with each of the three bread manufacturers (Tip Top, Defiance & Buttercup).  It is important to note however that Mr Brookes could not remember if he specifically told the manufacturers that if Safeway was not competitive it would delete products from its stores.

Mr Brookes introduces the new policy into Victoria

94                  When Mr Brookes took over the position of Merchandise Manager for Victoria he was facing a situation where the retail prices of bread were volatile.  The most popular bread product, and the largest seller, was a 680g white sandwich loaf, which was given the designation “Code C”.  Its retail price fluctuated from 89c to $2.15.  Safeway’s prices were regularly undercut by its competitors and it was losing market share.  Prior to Mr Brookes taking over his position, Safeway’s policy had been to authorise each store manager to exercise discretion where appropriate to reduce the price of Safeway’s “Home Brand” bread to match discounts offered by competitors.  In early 1994 a Code C 680g Home Brand loaf sold for a retail price up to $1.52.  The practice had also developed of plant bakers negotiating particular deals with individual store managers.  At this stage there was no specific planogram established to identify how and where particular bread products were to be placed on each rack.  When Mr Brookes arrived in Victoria there was a concern that there was a lack of uniformity of the price of Home Brand bread across all Safeway stores and that customers were feeling “ripped off”.  In 1994 and 1995 the standard price for Home Brand 680g bread was $1.50‑$1.52. 

95                  Mr Brookes’ stated basis for the policy he introduced was the subject of substantial attack and criticism by the Commission.  It is necessary to analyse this criticism in some detail, but before doing so it is desirable to set out Mr Brookes’ evidence as to why he conceived the policy and how he came to implement it.

96                  After he commenced as Merchandise Manager, Mr Brookes undertook a review of Safeway’s policies and business practices in relation to all categories within the Grocery Department.  This included the proprietary bread category.  The review disclosed that Safeway was uncompetitive and was losing market share in relation to the sale of proprietary bread.  In February 1994 he decided that a number of changes should be made to the proprietary bread category.  This category was important for Safeway, not only because bread was a communicable product but also because proprietary bread contributed over 80% of Safeway’s grocery bread sales, Home Brand bread sales comprising 10%‑20% of bread sales.  Further a greater proportion of the profit from the bread category was contributed to by proprietary bread than Home Brand bread.  The review contemplated a number of policy changes, a significant change for present purposes being that all deals with manufacturers at store level would be phased out by 1 July 1994. 

97                  Suppliers, including the plant bakers, were informed of these policy changes by letter on or about 27 April 1994.  The letter stated, inter alia:

This communication serves as a second reminder that dealings at store level will cease from the 1st of July 1994.  As part of a policy change we are now able to facilitate any promotions on a micro‑merchandising level through our Category Manager.  If you wish to organise a deal, promotion or theme in any individual or group or total stores then the Category Manager can provide an opportunity to facilitate this.  Could you please ensure all your representative staff are aware of this change from the 1st of July.

 

As part of this change we will also no longer be utilising turn‑in orders as a method of securing stock quantities.  If quantities of stocks are available in the form of bonus packs, job lines, one‑off lines, promotional lines, or standard merchandise that you wish to push through in an increased quantity, then all this can be facilitated by the Category Manager.  Our Category Managers have the ability to make a decision on the stock quantity on the spot and facilitate a distribution to store.  We do not see the need to place a burden on suppliers or stores by asking you to move from store to store to secure a total quantity.”

 

98                  Mr Brookes decided to introduce the new bread policy which included the following provisions:

·                    Home Brand bread should not be used to match discounted prices offered by competitors as that strategy had not been successful.  At times it had been sold below cost and there had been customer complaints about different prices in different Safeway stores.  Although Safeway was making a good margin from Home Brand bread Mr Brookes was also concerned not to have too great a dependency on Home Brand sales which may have had a better profit margin than proprietary bread, because if a generic price war occurred, margins would be significantly reduced.  He regarded it as a low‑risk strategy to keep Home Brand at an everyday low price.  He wanted to establish an everyday low price of around $1.50‑$1.52.

 

·                    The planogram system, which was used for other products, should be brought in for bread.  This system was based on a computer program and was designed to ensure maximum efficient use of shelf space.

 

·                    Plant bakers should be offered weekly promotions of proprietary bread divided equally between Tip Top, Sunicrust and Buttercup.  Once a calendar for promotions had been agreed for three or six months in advance the category manager and the plant bakers would negotiate case deals and discounts for the particular promotions that had been booked.

 

·                    Safeway expected to buy bread at the plant baker’s best price and if a plant baker was selling to a Safeway competitor at a cost price lower than the cost price offered to Safeway, Safeway was entitled to the same cost price.

 

·                    As the decision whether to respond to discounted bread prices was to be made by head office it was necessary to establish a procedure whereby store managers reported discounted prices to head office so that the category manager could determine whether a competitor was receiving a cost price more favourable than Safeway was receiving.

 

·                    “Out of stock” problems had to be avoided.

Mr Brookes wanted a policy that enabled Safeway to be competitive.  His aim or ambition was for Safeway to be the price leader in the bread market in the sense that if customers asked who had the most competitive bread prices consistently, the answer would be Safeway or Woolworths.

 

99                  The entire policy as conceived and introduced by Mr Brookes was never put in writing.  There are a number of documents, to which I shall refer, that support or corroborate Mr Brookes’ explanation of the policy.  Mr Brookes was the creator of the policy but the implementation of it lay with Mr Jones and his assistants.

100               Mr Brookes was concerned to maintain a level of profitability in the bread category and his preferred option was to sell branded products which made up 80% of bread sales.  It was on these products that the significant co‑operative allowances were payable.  After the new policy was implemented around May 1994 Safeway undertook a regular three weekly cycle of offering special or discounted prices on premium proprietary bread.  One of the three plant bakers’ Code C 680g white sandwich premium proprietary bread was offered for sale at a special discounted price of the order of $1.59 to $1.69.  This was called a “Red Spot” special.  During that week the similar Code C bread of the other two plant bakers would be offered for sale at higher prices.  During this period Home Brand was typically offered for sale at around $1.50 to $1.52.

101               Safeway also had particular promotions or one‑off sales from time to time when special discounts would be offered.  Once a year there was a “Big Bang” promotion and a “Best Buy” promotion.  During the year there would be four or five major “King Hit” promotions when a plant baker’s Code C brand would be sold for between $1.39 to $1.49.

Communication of the policy to Mr Jones

102               Mr Brookes’ evidence as to the instructions he gave Mr Jones in relation to the bread policy was in the following terms:

“(a)     We need to be competitive in the Proprietary Bread category.

 

 (b)      Safeway would commence selling gondola ends on bread to enhance our co‑operative advertising funds.  (A gondola end is a display at the end of an aisle and is regarded as a premium display site for the sale of merchandise).

 

 (c)       We cannot be undersold on proprietary bread.  As such, a system would be introduced under which Store Managers reported to Mark Jones, any discounted bread price offered by any competitor.  If the Store Manager regarded the size and prominence of the discount as significant in undercutting Safeway’s competitive position on bread, he was to report it to Mark’s office.

 

 (d)      We need to get more aggressive to ensure that we are purchasing product at the best cost price. 

 

 (e)       If any proprietary bread regardless of its label or brand was reported by a Store Manager as being sold by a competitor, and Safeway was not competitive with that bread, the plant baker of the bread should be approached and asked to supply the proprietary bread which the plant baker supplies to Safeway, at a cost price equivalent to the price at which bread was sold to the competitor.

 

 (f)       If Mark Jones was satisfied that the plant baker manufacturing the bread was offering a weekly special low price or discount to our competitor, (as distinct from an ‘everyday price’) and that Safeway would receive the same weekly special in a following week or had already received the same weekly special, no further action was to be taken …

 

 (g)      If Safeway was not successful in obtaining the same cost price and if the competitor price was unusually low, or otherwise more significant than a typical weekly special, a decision would be made by me or Mark Jones as to the competitive response to be taken by Safeway.

 

 (h)      As part of the overall policy, we should introduce planograms for proprietary bread and Tim Bray should be used to develop them.

 

 (i)       We need to address the ongoing problems of out‑of‑stocks.  If a plant baker cannot keep supply up to the store, we should consider deletion of the plant bakers’ product.”

 

103               Mr Jones did not recall these instructions in precisely the same terms as stated by Mr Brookes but, overall and in general terms, Mr Jones’ evidence as to what Mr Brookes told him about the bread policy did not differ from Mr Brookes’ evidence.

104               Mr Brookes told Mr Jones that as part of the policy he should make sure that when store managers reported back to him he obtained from them the location of the bread, who made it and whether it was a serious concern.  He also told Mr Jones to look at all the factors that made up marketing such as the price, the label, the advertising, the position, the size of the display in the store and the amount that was being sold to see whether there was a real risk that consumers would know that a secondary brand was in fact made by one of the major plant bakers supplying Safeway with the premium brand.

105               Mr Brookes regarded it as an important part of the policy that the store managers obtained all the facts relating to the sales activity of the competitor with which the store manager was concerned.  It was also an important part of the policy that the competitor’s sales were having an impact on Safeway’s sales.  Mr Brookes put the matter this way: 

“The policy  was that the store manager would have to recognise and alert Mark or Mark’s team that it was impacting their sales and customer pull through or potentially could and that the customers could identify who was manufacturing the bread.  That included part of that criteria whether in fact it was billboard postered, brochured, advertised in any way.”

 

106               Although this policy was expressed in general terms as to Safeway’s competitors, Mr Brookes agreed that his main concern in implementing the policy was the conduct of the independent retailers, that is to say, retailers other than the major chains such as Coles and Franklins.

The alteration to the policy

107               This early formulation of the policy which did not include a provision for deletion of a plant baker’s product, changed after Mr Jones approached the plant bakers for particular case deals.  This aspect of the evidence of Mr Jones and Mr Brookes is not entirely clear but I am satisfied that prior to fine‑tuning or updating the policy, Mr Jones had made some approach to plant bakers for particular case deals on proprietary branded bread but had not been offered the level of discount he sought.

108               After he became category manager for the proprietary bread category Mr Jones began to familiarise himself with the bread category.  In April 1994 Mr Jones, in conjunction with his assistant, carried out a review of the proprietary bread category.  He discovered there were issues in relation to the different prices of Home Brand bread at different Safeway stores and in relation to stores being out of stock in the late afternoon.  He also discovered that allowing store managers to negotiate deals directly with suppliers was interfering with promotions arranged by head office.

109               Mr Jones was told by his assistant that store managers were saying that they were uncompetitive on proprietary bread, mainly in relation to independent stores who were selling bread in a wrapper different to the wrapper on the proprietary bread Safeway was selling, but which was bread supplied by the same manufacturer.  In short, according to Mr Jones, the store managers were saying that the bread was the same but it was enclosed in a different wrapper.

110               During April 1994 Mr Jones spoke to the sales managers from Tip Top, Sunicrust and Buttercup about the cost price at which they were selling bread to Safeway.  He spoke to Mr Cooper from Buttercup, Mr McLeish or Mr McDowall from Sunicrust and he thought Mr Ward from Tip Top.

111               Although Mr Jones’ evidence was not consistent in relation to the substance of these conversations, I am satisfied that in or about April 1994 he had a conversation with a representative of each of the plant bakers, the substance of which was that he asked for a deal so as to be able to buy proprietary bread at the same cost price as the bread supplied to a competitor.  The difference between Mr Jones’ evidence‑in‑chief and cross‑examination on issues such as whether he said he was concerned about bread in different wrappers is not such as to cause me to disbelieve Mr Jones’ evidence that a conversation along these lines occurred with each plant baker.

112               It did not appear from Mr Jones’ evidence‑in‑chief that a deal was sought in respect of a particular store.  Rather he suggested that he made a general enquiry.  Mr Jones’ evidence‑in‑chief was as follows:

“Taking the discussion you had with Mr McLeish first, what did you say to Mr McLeish?---Well, I’d asked Charlie and all the other guys was Safeway buying bread at the same cost price as our competitors and that Safeway wanted a deal to make sure that we were able to buy at the same cost price to be competitive with them.

 

Did Mr McLeish reply to your inquiry?---They all said that they would look into it and come back to us.  They invariably understood our request, that we were after – that we were uncompetitive on their brands.

 

The conversation that you had with Mr Cooper, was that in similar terms?---Yes, it was.

 

In relation to the conversation you had with the Tip Top representative, what did you say to that person?---Same.”

 

(Although Mr Jones referred in this passage to Mr McLeish he said later that he was not sure whether he spoke to Mr McLeish or Mr McDowall).

 

113               In cross‑examination Mr Jones said in March 1994 he had asked each of the three plant bakers for a particular deal for a particular store although he could not remember the particular store.  His evidence was as follows:

“In March?---In March.  When I originally phoned them up, your Honour, I gave them a location, for example.  After we’d done the survey and we got the surveys back where we were uncompetitive on, say for example, a Sunicrust bread in a different wrapper, I phoned them up and said we were uncompetitive, say for example Stawell – we haven’t got a store in Stawell but I use that as an example.  ‘We’re uncompetitive in Stawell.  Our competitor is selling Sunicrust bread.  Can we buy the bread at the same cost price or competitive price as what our competitor is buying it at’ – and I did actually say that earlier, your Honour.”

 

In re‑examination Mr Jones, in substance, reiterated the evidence he had given in cross‑examination.

 

114               Mr Jones said that each of the persons to whom he spoke said he could not give an answer at that time and he would come back to him.  Each of them subsequently came back to Mr Jones and told him they could not offer the deal he had sought.

115               The response Mr Jones received from the plant bakers was significant because it set the scene for what became critical additions to Mr Brookes’ bread policy – the creation of the price‑fighting bread and the deletion at particular stores of bread from the range of bread Safeway offered for sale.  In late March or early April 1994 Mr Jones told Mr Brookes he had not been successful in obtaining case deals whereby Safeway obtained proprietary bread at a cost price equivalent to the price at which bread was being sold to its competitor.

116               Mr Brookes was surprised that the plant bakers in Victoria would not offer Safeway the same case deals as were offered to the independent retailers.  It was for this reason that he developed the deletion policy and the proposal to bring in a price‑fighting bread.  He did not want to use Home Brand bread as a substantially discounted product, that is as a “price‑fighting” bread, because he wanted to preserve the brand equity in the “Home Brand” brand.  The price‑fighting bread was to be a white 680g loaf that could be offered for sale at a retail price of 99c.  Although the main object of the policy as conceived was for Safeway not to be undersold, as it turned out the main area where it came to be implemented was in a situation where Safeway, in order to be competitive, was looking to sell a 680g white loaf for below $1.00.

117               Mr Brookes’ reaction to the response of the plant bakers to Mr Jones’ requests for case deals is controversial because it bears upon the alternative formulation of the policy alleged by the Commission.  The Commission’s primary case was that it was no part of the policy to ask for a case deal before a deletion occurred.  It also alleged an alternative case – if case deals were asked for, Safeway knew that the plant bakers would not agree because sale of the premium brand at the same price as the other bread sold by the competitor would damage or destroy the goodwill or value attached to the premium brand.

118               Mr Brookes thought that the reason why the plant bakers were reluctant to give case deals on their premium brands was because in Victoria the plant bakers sold, at a discount, bread under other brands and labels different from the brands and labels sold by Safeway.  Mr Brookes said his Queensland experience led him to believe that the plant bakers would give case deals on their premium brands and that he did not know that the plant bakers refused to give case deals on premium brands to protect their brand value. 

119               I do not accept that Mr Brookes and Mr Jones knew that the plant bakers would not agree to a case deal on premium bread because it would damage or destroy the goodwill or value attached to the premium brand.  The Commission submitted that I should not accept Mr Brookes’ evidence that he did not know that the plant bakers refused the case deals to protect the brand value in their premium brand bread because he had said that the main reason why he decided not to use Home Brand bread for price‑fighting purposes was to preserve its brand equity.  However he also said he did intend to use proprietary branded bread for price‑fighting purposes.  Although there is an element of inconsistency in these two positions I do not disbelieve Mr Brookes when he said that he did not know that the plant bakers refused the case deals to protect the brand values in their premium branded bread.  The evidence of the plant bakers does not support the proposition that they would not offer case deals on premium branded bread because they wished to protect the brand values in that bread.

120               Mr McLeish from Sunicrust said that it was Sunicrust’s policy not to offer Safeway a case deal on premium proprietary bread to enable Safeway to compete with a competitor but that on occasions if Sunicrust thought it worked into its sales or marketing strategies it would do so.  He said it was a strategic planning process, and that if such a case deal was not going to have a downward effect on the total market Sunicrust would agree to such a case deal.  Sunicrust’s policy of not heavily discounting premium proprietary bread applied to discounting across the State but did not apply in circumstances where heavy discounts were sought for particular stores.  Mr McLeish never told Mr Jones that Sunicrust was not prepared to discount heavily bread on particular occasions for particular stores.  Although he told Mr Jones on occasions, when Mr Jones was seeking a particular case deal to meet competition from a competitor selling a generic bread, that it was Sunicrust’s policy not to discount heavily proprietary bread because it would bring the whole market down and put a huge hole in Sunicrust’s profitability, that evidence was inconsistent with his earlier evidence to which I have referred.  I am satisfied that Sunicrust was prepared to discount heavily premium proprietary bread if the decision to do so fitted in with its strategic planning and so long as the discount was not sought statewide.

121               Mr Gunton from Tip Top gave similar evidence: 

“I want to suggest to you further that on frequent occasions you were involved in discounting, and when I say you, Tip Top, was involved in discounting which led to prices as low as 99 cents being offered in relation to proprietary breads?---Only major events, new store openings with Safeway and other clients.

 

But whether or not they were major events, they were very frequent events, were they not?---In answer to your question, yes, they were frequent events.  However, they were only in one individual store in one location, not the whole 130‑odd Safeway stores or Coles stores or whatever.

 

Because if you did it in relation to the whole 130 stores, particularly if it was done over any period of time, you would, to use your expression, have cut the guts out of the price in the market?---That’s correct.

 

In those circumstances, so far at least as you were concerned, you weren’t prepared to engage in very large‑scale, low‑level discounting down to the 99 cents on a statewide basis?---Yes, that’s correct.

 

Whereas if there were particular reasons in relation to individual stores for limited periods of time you were prepared to do that?---As we evaluated each situation, yes.”

 

Mr Guthridge from Tip Top gave evidence to the same effect. 

122               The thrust of this evidence from these plant bakers was that although they would not consider statewide case deals at discounted prices because of its effect on the brand, they were prepared to consider case deals at discounted prices for particular stores albeit for particular occasions.

123               There was also the situation where the plant bakers were prepared to discount premium proprietary bread on a three weekly cycle.  Each week Safeway (as did Coles) promoted one of the three plant bakers’ products at a discounted price.  Thus each plant bakers’ products were promoted once every three weeks and the plant bakers gave Safeway a discount on the cost price to enable such promotion to occur.

124               Although Mr Brookes knew at the time he was developing the policy that a request to a plant baker to supply premium branded bread to a particular Safeway store for price‑fighting purposes was a “tough ask” he did not regard it as unacceptable.  Mr Brookes recognised the difference between asking for a significant case deal statewide, which was not feasible, and asking for a case deal on a store by store basis which was feasible, albeit, depending on the case deal sought, difficult.  The evidence of the plant bakers to which I have referred bears him out.

125               In late March or early April 1994 Mr Jones told Mr Brookes he had not been able to get case deals from the plant bakers for proprietary bread at the same cost price as the bread the plant bakers supplied to its competitors.  Mr Brookes was concerned to ensure that Safeway was seen to be competitive in bread and if Safeway could not get a comparable case deal from the plant baker he intended to introduce a price‑fighting bread into the relevant store.  Mr Brookes instructed Mr Jones to ask Tip Top, Sunicrust and Buttercup to submit tenders for the supply on a “no returns” basis of a cheap bread that could be sold as a branded bread and that could be provided to Safeway on less than 24 hours notice so as to enable it to compete with competitors’ cheap proprietary bread.  This bread was described as fighting bread or price‑fighting bread.  Mr Jones sent a letter to Tip Top, Sunicrust and Buttercup requesting them to submit such tenders.  The letters could not be located.

126               The plant bakers were not told that they were being asked to quote for a price‑fighting brand that Safeway could range if their premium brands were deleted by Safeway.  The significance of the “no returns” basis was that proprietary or branded bread was sold by plant bakers on a returns basis so that any bread not sold by Safeway at the end of the day was taken back by the plant bakers and the cost of the bread taken back was credited to Safeway.  The effect of a returns basis was to make the cost of the units of bread sold higher than if there were no returns. 

127               Tip Top did not submit a tender but Sunicrust and Buttercup did.  Sunicrust offered to supply a bread branded “Captain Cutless” in white 680g Code C and 900g Code D sizes.  Buttercup offered to supply the unnamed “lesser quality” price‑fighting bread for a net net price of 90.6c if there were to be returns and 86c if there were to be no returns.  Mr Jones could not recall discussing the request for tenders with any of the plant bakers but it is apparent from a letter from Mr Cooper of Buttercup to Mr Jones dated 11 April 1994 that they had a discussion on 8 April 1994 about the supply of a then unnamed lesser quality price‑fighting bread. 

128               Mr Brookes sought the supply of the price‑fighting bread as he had doubts whether Safeway would be able to obtain a case deal when Safeway needed to match discounted prices offered by its competitors.  Although the availability and use of price‑fighting bread became an important part of the new bread policy, an important aspect of the use of price‑fighting bread was not considered or determined by Mr Brookes.  Mr Brookes did not give Mr Jones any direction as to which price‑fighting bread was to be introduced. 

129               The Commission submitted that it was part of Safeway’s policy or strategy of punishing the plant bakers that it would bring in a price‑fighting bread supplied by a baker other than the baker whose bread was deleted.  Mr Brookes and Mr Jones denied that this was part of the policy but the difficulty that arises is that in most cases Safeway used Sunicrust’s price‑fighting bread, Captain Cutless, as its price‑fighting bread except where it was Sunicrust’s bread that was to be deleted.  On those occasions it was Buttercup’s price‑fighting bread, Budget Family Fresh that was introduced. 

130               One of the issues that concerned Mr Brookes was that he believed that some customers were able to identify a generic or secondary branded bread sold at a discounted price by a competitor as being manufactured by one of the three plant bakers and therefore would realise that Safeway’s brand of that plant baker’s bread was uncompetitive.  As Mr Brookes’ concern was that he wanted Safeway to be, and be seen to be, competitive on bread, it might have been expected that it would be Safeway’s policy to introduce the price‑fighting bread of the plant baker whose bread was deleted to demonstrate that Safeway was competitive in respect of that plant baker’s bread.  However that was never part of Safeway’s policy.  Indeed, in none of the incidents was the price‑fighting bread manufactured by the plant bakers, whose products were deleted, introduced.  I will return to this issue when drawing conclusions as to the nature and purpose of Safeway’s policy as the Commission contended that it was part of Safeway’s punishment strategy to use the price‑fighting bread of a plant baker other than the plant baker whose bread had been deleted.

131               After Mr Jones told Mr Brookes he had not been able to get the case deals he had sought from the plant bakers, Mr Brookes decided to introduce a deletion aspect to the policy.  Mr Brookes told Mr Jones that in some cases a plant baker’s bread would be withdrawn from the relevant store because he did not want Safeway to be seen as uncompetitive.  This was the controversial aspect of the policy.  The manufacturer’s product in respect of which Safeway was not competitive was to be withdrawn from the store if Safeway might be perceived to be uncompetitive.  I will return to Mr Brookes’ justification for the deletion policy.

132               It appeared to be suggested at some stages of the hearing that the deletion policy was necessary because there needed to be shelf space available to range or place the price‑fighting bread brought in to provide a competitive discounted bread.  It was said that when the planogram technique was introduced to the bread category it did not allow for the ranging of a price‑fighting bread.  However there was evidence that in a number of cases the price‑fighting bread, Captain Cutless, was brought into a store, on occasions for a lengthy period of time such as at Vermont where it was offered for sale for around twelve months.  Mr Brookes did not suggest that the reason for the deletion of proprietary bread was the need to make space for the price‑fighting bread.  Rather he said that the deletion produced a “convenient result” and that the “main reason” for the withdrawal:

“was to ensure that consumers would not conclude that Safeway was uncompetitive.”

 

133               The Commission challenged Safeway’s evidence as to the purpose of the policy and submitted that Safeway’s explanation of the purpose for the deletion policy based on competitive and non‑punitive reasons should not be accepted.  For the reasons to which I shall refer, I reject that submission.

134               The entire policy created by Mr Brookes and as finally introduced into Victoria, was not reduced to writing.  However there were a number of Safeway documents tendered in evidence which recorded various parts of the policy. 

Communication of the policy to the plant bakers

Mr Brookes’ evidence

135               As well as communicating the policy to Mr Jones Mr Brookes also advised the plant bakers of its introduction.  On 27 April 1994 letters were sent to suppliers including plant bakers outlining some of the changes initiated by Mr Brookes since he became Merchandise Manager.  So far as it related to the changes in the bread category the letter said:

“Store level dealing

This communication serves as a second reminder that dealings at store level will cease from the 1^st of July 1994.  As part of a policy change we are now able to facilitate any promotions on a micro-merchandising level through our Category Manager.  If you wish to organise a deal, promotion or theme in any individual group or total stores then the Category Manager can provide an opportunity to facilitate this. 

…”

This letter did not contain any reference to the deletion policy.

136               During May and June 1994, Mr Brookes held a series of separate meetings with representatives of each of Sunicrust, Tip Top and Buttercup to explain the policy.  He held these meetings because he had been “feeding the policy” to Mr Jones during March, he had become “the faceless person behind the policy” and he thought he owed it to the plant bakers to discuss with them personally what the policy was – the purpose of it and what Safeway was trying to achieve.  The main purpose was to give them one communication that enveloped the policy in its entirety to assist them in understanding and communicating it to their teams but also so that they understood where Safeway was going and what it was trying to do and to get their co‑operation in obtaining case deals on premium brands to enable Safeway to remain competitive with the independent retailers who were causing the competitive problems. 

137               In evidence‑in‑chief Mr Brookes gave the following answer as the substance of what he told the Tip Top representatives about the policy:

“I told them that we were uncompetitive on bread, particularly in regard to independent retailers and that we were losing market share in proprietary bread, and as such we needed to secure case deals to ensure that we were competitive in the marketplace.  I also advised him that we would be commencing a series of weekly specials on proprietary‑brand bread and that we would not be undersold, or that we would ensure that we were competitive on proprietary‑branded bread.  That competitiveness meant that we would be looking to secure case deals on their products to be competitive in the marketplace.  If they were unable to supply those case deals then we would in fact look at ranging an alternative or value brand of bread that we could use to compete.  Because of the space restrictions that we had in store, that may well mean that we end up withdrawing or deleting their brand of product to permit space to put this alternative product in, and also, and more importantly, because of the fact that we wanted to be seen to be competitive by our customers, it was important that we had our value brand and didn’t have their product to demonstrate how uncompetitive we were.  I also spoke to them about the introduction of a shelf management system on bread.”

 

Mr Brookes did not nominate in evidence‑in‑chief who was the Tip Top representative with whom he discussed the policy.  Certainly he was less clear about the discussion with Tip Top than he was with Sunicrust and Buttercup.  In cross‑examination he said he had appointments with Mr May, Tip Top’s Victorian State Sales Manager until February 1995, but had a poor recollection of explaining the policy.  Mr Brookes said he ran through the same policy with Mr McDowall of Sunicrust. 

 

138               Mr Brookes had a similar recollection of his conversation with Mr Cooper and Mr Linton of Buttercup.  It was in the following terms:

“What was it that you said to Mr Cooper and Mr Linton as you recall it?---I said to Mr Linton and Cooper that again we were uncompetitive in the marketplace, particularly against independent retailers.  I also said to them that we were losing market share on proprietary bread and as such we would be looking to secure a case deal on that bread to ensure that we were competitive; that we would commence a program of weekly specials; that our objective was to make sure that we weren’t undersold and that we were competitive on their proprietary brand of bread.  That would mean that we would also be, if securing case deals and if we couldn’t get case deal on their proprietary brand of bread we would introduce a Value brand of bread.  Due to the restrictions that we had in shelf space that may well mean that when the Value brand of bread came onto the shelves we may in fact have to delete or remove their proprietary bread of which the Value bread would take the place.  I also said to them to make sure that we were very competitive and were seen to be competitive in the eyes of our customers, that we would also not stock their proprietary brand of bread when we were uncompetitive on it in store, and replace it with the Value brand of bread.  I also explained to Linton and Cooper regarding our shelf management program.”

 

139               Mr Brookes’ version of these conversations was attacked in cross‑examination.  Notwithstanding the criticisms of his evidence, I am satisfied that Mr Brookes had the conversations generally in the terms he said and that he raised the issue of the deletion of a plant baker’s bread if Safeway could not get a matching case deal.  (This was acknowledged by some of the plant bakers, to whose evidence I shall refer).  What is clear is that in the course of these discussions Mr Brookes said that Safeway’s concern was that it was uncompetitive and that its primary concern was the independent retailers.  At that time the only incidents which had occurred which were relevant to the application of the policy thereafter were actions by independent stores.  In cross‑examination Mr Brookes could not remember the specific details of the conversations but did not give evidence that was, in substance, different from his evidence‑in‑chief, although he made a number of qualifications to that evidence and added to it in some respects.  For example, he made it clear to the plant bakers that the risk of deletion they faced was a risk of deletion from particular Safeway stores affected by competition and not deletion from the whole of the Safeway chain in Victoria.  He did not remember any of the plant bakers complaining about the policy. 

140               I do not regard it as a reflection on Mr Brookes’ credit that he does not have a clear recollection of the details of these conversations other than “spelling out the policy” to the plant bakers.  The conversations occurred at a time when there was no particular reason to regard them as significant for future reference or recollection.  As Mr Brookes explained:

“I had up to 30 appointments a week and all of them were with fairly large companies discussing issues that were very important to them and I guess I can’t excuse the fact that I just can’t remember what it was that was discussed at each of those particular appointments.”

 

It must also be remembered that bread was just one of the many categories albeit an important category, that fell under Mr Brookes’ responsibility.  According to Mr Brookes there were 111 categories and he never tried to document what he and his staff were trying to do in each category.

 

141               The purpose of the policy was a critical issue.  Was it punitive, as the Commission contended; or was it to enable Safeway to be competitive as Safeway contended?  Mr Brookes was clear in his evidence:

“The principal purpose was to buy competitively yes; in other words, to get the case deal … on a premium brand so that we didn’t have to go and bring in another brand and make the change in the planogram”. 

 

The plant bakers’ evidence

142               A number of officers of the plant bakers in their evidence‑in‑chief gave evidence that, in general terms, supported the version of the policy for which the Commission contended.  However, in the course of cross‑examination they recalled aspects of the policy as communicated to them by Mr Brookes or Mr Jones that supported Safeway’s version of the policy, in particular in relation to it seeking case deals at the same cost price as was being offered to a competitor.  It is therefore necessary to consider that evidence in some detail in relation to each witness.

Tip Top

143               Mr Brookes’ recollection was that he outlined the new policy to Mr May, Tip Top’s Victorian State Sales Manager until February 1995, although he could not recollect the details of what was discussed.  Mr May did not give evidence so there is no evidence from Tip Top as to how the policy was first explained to it.  Nevertheless Tip Top officers gave evidence as to their understanding of the policy and what they had been told about the policy on other occasions.

144               Mr Guthridge, then Tip Top’s General Manager of Victorian Operations, said in evidence‑in‑chief, that he attended a meeting with Mr Jones at Safeway’s office about a week after a meeting with Mr Brookes on 19 April 1995.  Mr Guthridge raised the issue of a deletion of Tip Top products at the Preston supermarket with Mr Jones and what was Safeway’s policy in relation to the matter of deletions.  He said that Mr Jones replied as follows:

“He told me that a product that was being specialled in an independent retailer near a Safeway store had a price that was lower than the best price offered by Safeway in that store would result in the deletion of that branded product range from their stores until the price returned to normal.  He also mentioned that they would special the bread against that product.  He also told me that it related to independent grocers rather than Coles or Franklins.  It was aimed at independent supermarkets or independent traders in general.”

 

He told Mr Jones that he felt the policy was inappropriate and that he was going to discuss it with Mr Brookes.  He met with Mr Brookes on or about 30 June 1995 and told him he thought the policy was in breach of the Trade Practices Act.  Mr Brookes told him that he had advice from his legal department and felt that he was totally within the law.  The Commission placed great weight on Mr Guthridge’s evidence‑in‑chief but it must be considered in the context of the whole of Mr Guthridge’s evidence, particularly his evidence in cross‑examination.

 

145               In cross‑examination Mr Guthridge expanded on what Mr Jones had told him.  He recalled Mr Jones telling him that if Tip Top could not meet a request for a deal to match a competitor’s price, Safeway would put a bread into the store, such as Captain Cutless, to compete.

146               Although Mr Guthridge was incorrect as to whether the deletion at the Preston store occurred before a sales meeting at Tip Top’s Dandenong premises on 6 December 1994 (to which I refer later), I am satisfied that Mr Guthridge was generally a reliable and credible witness.

147               Mr Guthridge also recalled in cross‑examination further aspects of the policy stated by Mr Jones at their April 1995 meeting as the following evidence disclosed:

“I want to suggest to you that at that meeting you asked, ‘What is Safeway’s policy regarding bread pricing?’  Do you agree with that?---I don’t agree or disagree.  I don’t recall it.

 

Jones said to you, ‘Our policy is always to buy at the best price.  If another retailer is getting a better cost price, we want the same.  If not, we are forced to reduce our margins or sell at a loss and we may need to stop purchasing your bread.’  Do you remember Jones saying words to that effect?---To that effect, yes.

 

Jones went on to say, ‘Safeway will always be competitive.  However, Safeway reserves the right to withdraw product from sale if selling the brand at a competitive price results in a loss or if we’re not being supplied bread at the same costs as our competitors.’  Do you remember Jones telling you that?‑--I can’t remember exactly but I remember that was the context of his conversation.

 

That’s a fair summation of what he said, even if not the exact words?---No, I think that’s fair enough.

 

You then asked, ‘Why haven’t you deleted product against Coles and Franklins?’  Do you remember asking that?---Not specifically but it would have been a reasonable assumption that I would have asked that, yes.

 

Quite possible that you did?---Absolutely.

 

Jones said, ‘We’re competitive against Coles and Franklins,’ and you responded, ‘I want to discuss this further with Brookes.’  Jones says, ‘You can make an appointment to see Bernie if you wish?---I certainly recall that conversation taking place.”

 

On the following day of the hearing Mr Guthridge gave similar evidence in the following terms:

“What I want to suggest to you is that your understanding of the policy was this:  namely, that Safeway required Tip Top to supply them at the same cost as equivalent brands of bread were being supplied to competing retailers.  Do you agree with that?---I believe that’s a Safeway policy, yes.

 

If the bread was not supplied at that cost and as a result Safeway was not able to compete, the category of bread would be deleted?---The range of our price [sic] would be deleted, yes.

 

That was because of, firstly, shelf space to put in Captain Cutless to fight the discount?---That was one of the reasons.

 

And secondly, because of the view that was taken by Safeway management and conveyed to you that if those steps weren’t taken, Safeway may proceed to be uncompetitive in Tip Top products?---Yes, that’s roughly the policy as explained to me, yes”.

 

The significance of Mr Guthridge’s evidence is that he was confirming that the policy as he understood it, and as told to him by Mr Jones, involved Safeway asking for a case deal at the same cost as given to a competitor to enable it to compete with that competitor and a rejection of that request before a deletion occurred.

 

148               Mr Gunton accepted that asking for a case deal was part of the procedure Safeway followed when seeking to match discounted selling prices of a competitor.  This emerged when Mr Gunton was being questioned about the incident involving Goldy’s Tuckerbag supermarkets in Lalor and Thomastown.  Mr Gunton had complained to Mr Jones that Sunicrust was selling bread at discounted prices to Goldy’s Tuckerbag and Safeway had done nothing about it.  The following exchange occurred:

“You said that, ‘Goldy’s Tuckerbag and Lalor and Thomastown is being supplied by Sunicrust at a cheaper cost than what they are supplying to Safeway.’  Do you agree you said that?---In those words, no, but it could have been around that.

 

Was that the substance?---Yes, the substance.

 

Then you went on to say, ‘If Tip Top had been involved in selling bread at this cost price, then Safeway would have called Tip Top and asked for the same price, but it doesn’t seem that Safeway is concerned about what Sunicrust is up to.’  Do you agree you said that?---Yes, the substance, yes.”

 

149               A number of witnesses who came from the three plant bakers gave evidence that at particular times, and on particular occasions, Mr Jones asked for case deals to enable Safeway to compete with a particular competitor.  I will return to this evidence when considering the particular incidents relied on by the Commission, but I refer to it in this context as it shows how the policy was implemented on some occasions.  Such evidence supports the finding that a request for a case deal was part of the Safeway policy even though in some incidents, to which I shall refer, the policy was not implemented in this way.

150               Mr Maine became Tip Top’s Victorian State Sales Manager in September 1995.  He was told by someone at Tip Top that Safeway’s policy in relation to bread included the element that if Safeway was undersold by a competitor on a Tip Top product, Safeway would seek a deal to match the competitor’s price.

Sunicrust

151               Mr McDowall could not recall a meeting with Mr Brookes in March 1994 at which Mr Brookes had outlined the new policy to him but he did not deny that such a meeting occurred.

152               Mr McLeish said that he learned from Mr Jones in early 1994 that Safeway had introduced a plan for the bread category.  Mr Jones told him that Safeway’s position was that it wanted to secure the same competitive deals as its competitors had been getting from Sunicrust.  According to Mr McLeish, Mr Jones told him that Safeway had introduced a plan for the bread category that involved Safeway having one of the plant bakers’ bread on special each week.  Mr Jones told him that Safeway’s position was that it would always be competitive on bread prices.  Mr Jones said that the plan involved as an element the proposition that if Safeway was being undersold by a designated competitor on any Sunicrust product then Safeway would seek a deal from Sunicrust to match the competitor’s price.  Mr McLeish also learned, after meeting with Mr Jones, that the policy involved the proposition that if Safeway was being undersold by a competitor and it had approached Sunicrust to match the competitor’s price and Sunicrust had declined to offer a case deal to enable Safeway to match the competitor’s price, Safeway would introduce a price‑fighting brand to compete against the competitor’s bread.  Mr Jones also told Mr McLeish that in those circumstances it may occur that Safeway would choose not to stock Sunicrust products on its shelves because by doing so Safeway may look uncompetitive on its shelf products. 

Buttercup

153               Mr Cooper gave evidence of a conversation with Mr Jones in March or April 1994 about Safeway’s bread policy, which did not involve Safeway asking for a case deal before a deletion occurred.  Mr Cooper said:

“Mark mentioned that his home brand margins were being eroded quite severely from competitive pricing and that as a result of that they had looked at a strategy to try and reinstate that margin and the strategy would be to – where they identified a manufacturer had a product in a small retail or an independent store a Safeway and it was being sold or the product was being sold at between 99 cents and $1.09, they would exercise the right to take that manufacturer’s proprietary brands out and replace it with a brand that they could compete and maintain a higher margin.”

 

When asked whether Mr Jones had said anything in addition to the strategy to which he had referred he responded:

 

“‘Well, where there are circumstances where retailers are selling some of our supplied generic brands at those particular prices is totally out of my control,’ and I had a feeling that I would be disadvantaged obviously if I lost any proprietary brand products.”

 

Mr Cooper said he then told Mr Jones that there was nothing they could do if one of their brands was at 99c to $1.09 nor would they do anything.  He was then asked whether he said why he could not do anything and he replied:

 

“Yes, I think I went through a number of reasons, (1) that we believed it would be illegal …”

 

The following exchange then occurred: 

“Sorry, if I can stop you there.  Could you explain what the illegality was as you saw it?---Well, in my limited experience, I don’t believe I can go and talk to a retailer about his price.

 

About?---His retail price.

 

Was there anything more about the illegality?---Yes, certainly, that we had a contract price with Davids, who were the parent company of these independent stores, and therefore they bought at a particular price and that was a contract price and I had no control at all over their retail price, and I guess thirdly that there weren’t that many around and it was not in our best interests to try and do anything about it anyway.

 

Not many what around?---I wasn’t aware that we had that many circumstances where there was cheap bread.”

 

Mr Jones said that he did not have a one‑on‑one conversation with Mr Cooper in which he explained the policy to him.  Mr Jones said however, that he was present at a meeting with Mr Cooper and Mr Linton when Mr Brookes explained the new bread policy.  According to Mr Jones, Mr Brookes said that customers had complained that Safeway was uncompetitive on brands of bread and that Safeway always expected to buy competitively and if it was unable to buy bread at the same cost price it would reserve the right to withdraw the product from sale.

 

154               I am not satisfied that Mr Cooper’s version of the conversation is a reliable account of what was said or that I should accept it.  His version of the conversation appeared to be more a matter of reconstruction than recollection.  In cross‑examination he said he could not recall that he had said that “where there are circumstances where retailers are selling some of our supplied generic brands at those particular prices is totally out of my control”.  Later in cross‑examination Mr Cooper agreed that he only had the vaguest recollection of the strategy conversations, the three deletions of Buttercup products and a conversation with Mr Brookes in June 1994.  Although he said in evidence‑in‑chief that he told Mr Jones that he believed the strategy was illegal, he said in cross‑examination, after being pressed, that he did not remember using the word “illegal”.  Although his evidence was not supportive of the policy as stated by Mr Brookes and Mr Jones, he did recall Mr Brookes in a conversation, which he placed in June 1994 (but which was probably in April 1994), telling him, not in exact words but in substance, that:

“If Safeway forms the view that it is not buying bread at the best price from a particular supplier, then Safeway will reserve the right to withdraw the supplier’s product where Safeway is uncompetitive on price and replace that with a comparable product which would enable Safeway to be competitive and allow Safeway to try to obtain the best profit possible.”

 

155               Mr Linton said that he attended a meeting in June 1994 with either Mr Brookes or Mr Jones and Mr Cooper to talk about Wonder White bread which had just been launched.  He said that Buttercup was looking for Safeway’s support to help them promote it and to get behind the launch and that the Safeway policy came up very briefly.  He said that either Mr Jones or Mr Brookes enunciated or reiterated the policy but that it was along the lines that if Safeway could not be competitive it reserved the right to protect their business in the way that they saw fit.  When it was put to him in cross‑examination that Mr Brookes said that if Safeway was undersold on a particular baker’s product it would seek a deal from the baker to match its competitor’s price, he did not recall such a statement.

156               In fact Wonder White bread was launched in April 1994.  During cross‑examination counsel put to Mr Linton that the conversation he recalled about the policy in fact occurred in April 1994 but Mr Linton could not recall that fact.  When counsel put the content of the policy to Mr Linton he said that he recalled being told that Safeway would always be competitive on bread prices but he could not remember being told that if Safeway was under‑sold on any particular baker’s product it would seek a deal from that baker to match Safeway’s competitor’s price or that it would range a value brand of bread such as Captain Cutless.

157               In summary, Tip Top and Sunicrust witnesses supported and corroborated Safeway’s contention, and Mr Brookes’ and Mr Jones’ evidence, that it was part of the policy as created and communicated to them that Safeway wanted to be competitive and that it would ask for a case deal on the basis of the same cost price as a competitor was getting and if the case deal was not given, the plant baker’s product would be deleted.  The Buttercup witnesses did not support or corroborate the Safeway evidence on these points but they did not deny that these matters had been raised.

158               If the policy was in the terms alleged by the Commission, and had the purpose of inducing the plant bakers to behave differently in their dealings with the independent supermarkets either by inducing them to stop discounting or by ceasing to supply them with bread, the purpose and aim of such policy was not communicated to the plant bakers.  None of the plant bakers said that they were asked by anyone at Safeway to get the independent supermarkets to increase the price of their discounted bread; nor were they asked to cease selling bread to the independent supermarkets.  That, of course, is not the end of the matter as it is open to me to draw an inference from Safeway’s conduct and the statements made by its employees such as Mr Brookes, Mr Jones, Ms Austin, Ms Miller and Mr Bray that nevertheless they were seeking or attempting to convey such matters to the plant bakers.  It is also open to me to draw an inference from the actions of the plant bakers following upon Safeway’s conduct, that they had conveyed to them that Safeway wanted them to get the independent supermarkets to stop discounting bread.  I will consider whether I should draw these inferences later in these reasons.

Communication of THE policy to Safeway store managers AND STAFF

159               The new Safeway policy was also communicated by Mr Brookes to all store managers and in‑store bakery managers in a memorandum dated 13 April 1994.  In part it stated:

“The major point to note is to ensure that any action on proprietary bread must be initiated through the Category Manager ie. Mark Jones.  Failure to initiate action through Mark results in the lack of vendor support.  Please ensure you help protect our bottom line by ‘communicating to get coverage’.” (emphasis in original)

 

Attached to the memorandum was a pricing policy which contained a passage in the same terms as was set out in the Local Competitors pricing hand book which had been written by Mr Brookes.  In relation to bread the hand book set out:

 

“All action will be to maintain the same standard of grocery pricing policy that we have throughout the rest of the store, i.e never to be undersold by Coles, and within 1% of Franklins.  Individual stores are to take competitive action against their nominated competitor, ie. Franklins, Coles, Jewel, or independents, and match the equivalent Home Brand or proprietary brand bread, prior to any activity taking place.  All assessments and information must be fed through to Mark Jones to ensure that we are making the comparison based on quality, price, supplier, size, and longevity. This way all action that takes place must come through Mark so that we can keep a close handle on the level of markdowns and secure support from suppliers.  Action against hot bread kitchens, fruit barns, and any other competitors, may also be viable but only after Mark Jones has reviewed the situation.”

 

160               Mr Brookes said that a large number of questions had arisen about the policy and on 10 May 1994 he forwarded another memorandum to all stores for the attention of the store managers to clarify the policy.  The memorandum was in a question and answer form addressing major components of the policy and was to assist the managers in their comprehension of the policy. 

161               What is clear from this memorandum is that the policy was not directed to specials.  The memorandum contained the following example:

“e.g.    Jewel runs a Thursday and Friday special on 680g bread at 79c.

Action:  We do not match specials.  We sell more cans of Coke each week than bread and do not match specials.  If you have a competitor constantly specialling bread at a weekly price of 99c then we can look at an offer to match.  Again this must be facilitated through Category Manager.”

 

162               The following reason was given in the memorandum as to why managers should always go through the category manager:

“He/she can get coverage of your GP% [gross profit] by running an auction to select the brand to compete in your market place.

 

The primary objective is to get support from manufacturers, not to remove control.

…

A final question:    What happens if I match Franklins 69c loaf without working through Mark Jones?

Answer:                 You will sell approximately 4000 loaves at a mark down cost of $3000.  With no coverage that $3000 is lost profit.  With contract of the buying office you get support from the manufacturer.”

 

The memorandum did not specifically refer to a policy of deletion if a case deal was not offered but I take the reference to “support” from the manufacturer to be a reference to obtaining a discount or rebate from the manufacturer. 

 

163               The policy was also communicated to Safeway managers by Mr Jones when he gave presentations to store managers in May 1994.  Mr Jones’ presentation notes were tendered in evidence and Mr Brookes saw, signed and dated the notes on or about 17 May 1994.  The notes included the following passages:

“The market of bread is predominantly heading in the area of ‘fresh’ ie instore bakeries, hot bread shops, such as Brumbys’.

 

If we were to continue to sell proprietary bread as we have done in the past, our proprietary bread business, in time, would decline. 

 

Therefore, it is important that we do change our way of thinking and even re-direct the proprietary business towards the market growth areas that are occurring from within the proprietary bread business, hence giving the customer a choice with range.

 

In future the following systems will be in place in our stores. These systems are providing the disciplining steps with our bread suppliers.

 

Objective:         To focus on proprietary bread.

                          To stay in stock with an acceptable range of products up to an acceptable time for our customers without being overstocked.

 

1.         Bread ownership: responsible person nominated.  Job function/routine card in place.  All steps being followed daily.

 

2.         Out of stock checks:  Carried out three times per day and information being communicated to relevant people.  (lists to be provided)

 

3.         Core Products:  In association with the planogram we will be introducing the concept of core selection and not included ranges for each manufacturer.

 

Suppliers have committed to maintaining stock levels on core range at all times of the trading period in all stores.

Core lines include    -  flagship brands

-  major volume/profit contributors

Secondary lines will be ranged where space permits but in not less than 75% of stores.

 

Not included range will be available at store management discretion where demographic or localised needs dictate.  To be displayed in the managers request area only for the applicable supplier

 

4.         Only the lines that appear in your price book are authorised to be carried by your store.  Any queries should be directed to Tim Bray c/o State office.

 

A computer generated facing ticket should appear on refurbished bread racks for each line that is in the price book.

 

5.         Bread merchandising objectives:

(A)       To grow proprietary brands while still realising the need/market place for a generic brand, plus take advantage of specialty breads

…

8.         Competitive Action

Competitive Action company policy attached.

Effective 1/07/94, homebrand bread will no longer be used for competitive action.  Therefore H/Brand bread retail will remain the same throughout state this will eliminate customer dissatisfaction when comparing retails on H/Brand bread in other Safeway stores.

 

Instead two price fighting breads will be used to combat activity.  These lines will be delivered into your store once grocery merchandising is advised that competitive action is required.  Price fighting bread will be used to negate not undercut grocery merchandising will advise which bread location will be substituted for price fighting bread.  Price fighting bread will be withdrawn by grocery merchandising once competitive action is no longer required.

 

Note:  price fighting bread is not sale or return.”  [emphasis added]

 

The Commission submitted that there was a significant omission in this document; there was no reference to the fact that a plant baker’s brands would be removed because they were uncompetitive in relation to a competitor’s secondary brand or generic bread.  The Commission submitted that the document provided reliable contemporaneous evidence that at the developmental stage of the policy Mr Brookes and Mr Jones did not regard deletions of bread as a mechanism to restore competitiveness because Safeway was uncompetitive in a particular plant baker’s bread.

 

164               I do not consider that the document contains this omission.  When the omission was put to Mr Brookes he pointed to the words:

“grocery merchandising will advise which bread location will be substituted for price fighting bread.”  (emphasis added)

 

He said that “substituted” referred to substituted for a proprietary branded product.

165               The sentence is not well‑constructed from a grammatical or syntactical point of view.  It was drafted by Mr Jones as notes to be used for an oral presentation to Safeway store and area managers.  I am satisfied that it refers to an aspect of the policy, namely that grocery merchandising would tell the store which bread would be taken off the shelf so that the price‑fighting bread could be put on the shelves in its place.  The use of the word “substituted” is significant.  The document does not say simply that grocery merchandising will advise which bread location will be used or provided for the price‑fighting bread.

166               Mr Brookes’ evidence that the policy which he created included requesting a case deal is confirmed and corroborated by relatively contemporaneous conversations he had, not only with the plant bakers, but also with other Safeway employees.  Mr Luscombe was an area manager in Victoria from January 1987 until April 1994.  In April 1994 he became Safeway’s senior category manager.  In July 1995 he succeeded Mr Brookes as State Merchandising Manager in Victoria until January 1997 when he became State Operations Manager.  He presented as a careful, truthful witness whose evidence impressed me as being reliable.  There was only one respect in which I had some hesitation about Mr Luscombe’s actions.  That related to a memorandum he sent to Mr Mead, a Safeway director, on 6 December 1995 relating to a media release proposed in relation to the publicity that occurred in November 1995 relating to what was said to be collusion between Tip Top and Safeway.  In that memorandum Mr Luscombe told Mr Mead that he had conducted “several exhaustive interviews” in relation to the November 1995 Albury and Ferntree Gully incidents.  Mr Luscombe acknowledged that “ exhaustive” was a liberal use of the adjective.  He also referred to the fact that in a telephone conversation, Mr Kadir, Tip Top’s National Sales and Marketing Director “confirmed” Tip Top’s understanding of a communication between Mr Jones and Tip Top was in accordance with his investigation of the matter.  Mr Luscombe in cross‑examination acknowledged that Mr Kadir did not confirm his understanding but he did not deny it.

167               Notwithstanding these embellishments in the memorandum I am satisfied that Mr Luscombe was a truthful and reliable witness.  Mr Luscombe was informed by Mr Brookes of the policy on the competitive pricing of proprietary bread during the first six months of 1994 at a weekly management meeting.  According to Mr Luscombe, Mr Brookes said words to the following effect: 

“Where a Safeway store is faced with what appears to be ongoing discounted prices offered by a competitor where the competitor offers a retail price below Safeway’s cost price, Mark Jones will contact the bread manufacturer and ask to be supplied with bread at a competitive cost price.  This is to enable Safeway to match the competitor’s retail price at no loss.  If the supplier refuses to offer Safeway the competitive cost price, Safeway would seek a cheaper alternative from another manufacturer and replace the supplier’s bread with the cheaper bread.  We are currently negotiating with manufacturers to supply low priced bread to us to introduce into stores where the manufacturer will not supply us bread at a competitive cost price.  Store Managers will be directed to refer all decisions about discounting bread to Mark.”

 

This evidence was not seriously challenged in cross‑examination.  It is significant because it provided further evidence that the requesting of a case deal before deleting a plant baker’s bread was part of the policy when it was put together by Mr Brookes.

 

168               Mr Bray, a Safeway shelf merchandiser, gave similar evidence.  Either Mr Brookes or Mr Jones early in 1994 told him of the details of the new bread policy.  As a result of discussions with Mr Brookes and Mr Jones about Safeway’s policy on competitive action on bread he understood the details of the policy which included the aspect that where a competitor was selling cheap bread that adversely affected a Safeway store’s bread sales, an enquiry would be made of the manufacturer whether it was selling bread to the competitor at a particular cost price and, if so, a request would be made for Safeway to be supplied with that bread at that cost price.  If the manufacturer declined to offer Safeway the same price, Captain Cutless would be brought in and would be sold for as long as the store required as a low price bread to compete with its competitor.

169               Mr Bray’s version of the bread policy (not all of which I have set out) was not in the same terms as explained by Mr Brookes.  For example, it was not part of Mr Brookes’ policy that the manufacturer be asked to supply Safeway with the same bread as the manufacturer was supplying to the competitor.  The manufacturer was to be asked to supply the comparable product supplied to Safeway at the same cost price as was charged to the competitor for the bread it was discounting.  Nevertheless, the significance of Mr Bray’s evidence, which I accept, is that he understood from his discussions with Mr Brookes and Mr Jones that Safeway would ask for a case deal at the same cost as was being charged to the competitor before final action was taken to remove the manufacturer’s bread from the store.

170               Ms Austin, Mr Jones’ CMA, gave similar evidence when she said: 

“I am aware that in some situations, Mark Jones dealt directly with bread manufacturers and negotiated for bread to be supplied to Safeway on the same or similar terms as it was being supplied to the retailer who was selling the bread at a cheap price.  I was not involved in any of these discussions or negotiations with bread manufactures.”

 

Ms Miller gave evidence to the same effect in her third witness statement.  I make reference to the fact of the evidence appearing in her third witness statement as her evidence was challenged on the basis that she did not, or could not, recall that evidence at the time of her first and second witness statement.  Ms Miller was unable to give any explanation for this.  I am satisfied that Ms Miller was a truthful witness.  Although at times she could not remember specific events and gave her explanations for what she did in somewhat general terms, I am satisfied that I should accept her evidence.  Ms Miller referred to a time when she was in Mr Jones’ room after she had informed him that a particular Safeway store had reported to her that it was uncompetitive on Buttercup bread.  Ms Miller continued: 

 

“Mark said to me words to the effect that he would ring Ray Cooper and seek a case deal.  I can remember two occasions when immediately after telling me that he would ring a plant baker Mark rang what I understood was Cooper’s number.  In my presence he spoke to someone on the telephone and said words to the effect:  ‘Ray, [a particular store] is selling Buttercup Code C 680 gram bread for [he stated a price lower than the price which Safeway was buying bread at].  How about giving me the same deal?’  On other occasions when I had reported to him that a Safeway Store had rung and said that it was uncompetitive he told me that he had been unable to secure a case deal from the plant baker.  I was not present when he communicated with the plant baker.”

 

This evidence supported Mr Jones’ denial that he never asked for a case deal.

171               Although there were elements of reconstruction in Mr Brookes’ and Mr Jones’ evidence, I am satisfied that it was part of the policy created by Mr Brookes around April 1994 that Safeway would ask the plant bakers for a case deal in order to be competitive with independent stores and that Mr Brookes or Mr Jones communicated this aspect of the policy, along with other aspects of the policy, to the plant bakers.  Whether a request for a case deal occurred in practice all the time is a matter of conjecture to which I shall return.

172               There are a number of aspects of the communications between Mr Brookes and Mr Jones on behalf of Safeway and representatives of the three plant bakers upon which the Commission relied for the purpose of submitting that Safeway’s version of the policy should not be accepted and that I should find that the policy was as contended for by the Commission.  Some of those aspects raised issues as to the credibility and reliability of the evidence of Mr Brookes and Mr Jones but they do not persuade me that Safeway had the policy for which the Commission contended.  The evidence of Mr Brookes and Mr Jones that the policy involved asking for a case deal at the same cost price as was being given to a competitor before a deletion occurred was supported and corroborated by the evidence of the plant bakers and other Safeway employees to which I have referred.

Purpose of the policy

173               The determination of the purpose of the policy was the most critical issue in the proceeding.  The Commission contended the purpose was to punish the plant bakers for selling cheap bread to independent stores which enabled them to undercut Safeway’s prices.  Safeway contended that the purpose was to enable it to be competitive vis-à-vis its competitors and was not punitive.  The Commission accepted that Safeway wanted to be competitive and did not want to be undersold but said that in seeking to be competitive Safeway wanted to deter and punish the plant bakers and bring about a state of affairs where it was not undersold.  In short, the Commission submitted that Safeway had a purpose of punishing the plant bakers which was inherent in its purpose of seeking to be competitive.

174               In this section of the reasons I consider the purpose of the policy without a detailed consideration of the nine incidents involving independent stores which the Commission alleged constituted contraventions of the Act.  Although the Commission submitted that the implementation of the policy in relation to the nine incidents demonstrated what the nature and purpose of the policy was, it is necessary to consider the creation, formulation and alteration of the policy in order to form a view as to how the policy stood and was perceived prior to the first incident at Frankston in May 1994 upon which the Commission relied.  When I come to consider each of the nine incidents involving an independent store I revisit the issue whether the purpose of the particular deletion was to punish the plant bakers as alleged by the Commission.

175               I turn to the more significant matters upon which the Commission relied and which it submitted were consistent with the policy for which it contended.  They can be summarised as follows:

·                    Mr Jones and Mr Brookes told the plant bakers that Safeway’s concern was the sale of cheap, generic and house brands by independent stores at price points of 99c to $1.09.

 

·                    The plant bakers protested about Safeway’s deletion policy.

 

·                    Mr Brookes and Mr Jones did not inform the bakers that Safeway’s particular concern was that a baker’s secondary and generic bread being discounted at an independent store were the same or were perceived as the same bread as that baker’s premium brand ranged at Safeway.

 

·                    Mr Brookes accepted that nothing said by the plant bakers gave him any optimism that Safeway would obtain case deals for their premium branded bread at the same price as the secondary branded or generic bread was supplied to an independent store.

 

·                    Mr Brookes did not tell the plant bakers that Safeway wanted its price‑fighting bread to be available so it could price‑fight against that baker’s bread being sold by a competitor.

 

·                    The plant bakers were informed of Safeway’s policy in what the Commission called a punitive manner.

 

·                    Mistakes were made, according to Safeway, in the implementation of the policy but which, according to the Commission, were not mistakes but were rather a faithful implementation of the policy in accordance with its terms.

 

Some of these matters, taken not only in isolation but also in conjunction with other matters, are no doubt consistent with, and support, the policy for which the Commission contended and invited the inference which the Commission sought to draw.  They also tended to reflect adversely on Safeway.  It is one matter to seek to be competitive generally; it is quite another matter to be focussed on independent stores selling very cheap bread at around 99c for a Code C loaf of bread.  It is also less than candid to ask a plant baker to tender for a cheap price‑fighting bread that will not only be used to price‑fight the same baker’s secondary or generic bread but will also replace that plant baker’s premium branded bread in a Safeway store.

 

176               However when one places those matters in the context of a policy which included as part of its provisions, the requesting of a case deal to match a competitor’s buying price before deleting a product, they do not have the same significance.  As I have already found, officers of two of the plant bakers recalled being told by Mr Jones that Safeway would seek a competitive case deal before deleting a plant baker’s product and some of Safeway’s documentation supports the inference that Safeway was seeking competitive case deals.

177               The Commission’s submission that the plant bakers were informed of the deletion policy in a punitive manner does not warrant an inference or finding adverse  to Safeway when one examines what in fact was said.  According to Mr Linton from Buttercup, he had heard about Safeway’s new policy earlier from Mr Cooper.  There was a meeting between Messrs Brookes and Jones and Messrs Cooper and Linton in June 1994 in which Buttercup was looking to Safeway for support in relation to the promotion of its recently launched “Wonder White” brand.  Mr Linton said the policy came up in the meeting very briefly.  He could not recall who:

“enunciated or reiterated the policy but it was along the lines that Safeway, if they could not be competitive, reserve the right to protect their business in a way that they saw fit.” 

 

I do not consider a statement along these lines to be punitive, particularly when it is not clear in what way the policy was enunciated or reiterated.  Although Mr Brookes denied making the statement I do not consider that his credibility is impaired if I accept that it was he who made the statement.  It was, in terms, a statement made in the context of being competitive.  A statement in similar terms was made to Mr McDowall of Sunicrust on 2 June 1995 in the context of deletions that had occurred at Geelong.

 

178               The Commission challenged Safeway’s explanation of its policy on a number of bases:

·                         It was not part of the policy to seek case deals for premium branded bread from the same plant baker who was supplying an independent retailer with secondary branded or generic bread that was being discounted by that retailer before deleting the premium branded bread from a Safeway store.

 

·                         In fact no case deals were ever sought by Mr Jones before the incidents alleged occurred.

 

·                         If it was part of the policy to seek such case deals, or if they were in fact sought, Safeway always knew that the request would be refused because of brand equity concerns.

 

·                         The use of the planogram concept did not require the removal of the proprietary branded bread from the shelves in order to make way for the price‑fighting bread.

 

·                         Mr Brookes’ reliance on his Queensland experience was not warranted, and Mr Brookes knew that his Queensland experience was irrelevant to the policy.

 

·                         Mr Brookes appreciated that plant bakers were concerned about using proprietary branded bread as a price‑fighting bread.

 

·                         It was part of the policy to bring in a price‑fighting bread supplied by a plant baker other than the plant baker whose bread had been deleted.  It was not part of the policy to prefer to use the price‑fighting bread of the plant baker whose bread had been deleted.

 

·                         Mr Brookes and Mr Jones did not believe that consumers perceived that Safeway was uncompetitive against competitors selling the same bread that Safeway sold but in a different wrapper sold by the competitor.  The concern that the competitor’s bread would be seen as the same as Safeway’s proprietary branded bread but in a different wrapper was not supported by the objective facts.  Safeway store managers were simply concerned about cheap discounted bread. 

 

·                         The memoranda sent to Safeway store managers in relation to the policy did not refer to the fact that a plant baker’s premium branded bread would be deleted because of uncompetitiveness with that baker’s secondary or generic brands which were being discounted by a competitor.

 

·                         The purpose of the policy was not to enable Safeway to be competitive, but was rather directed at eliminating cheap bread.

 

179               I have already made findings in respect of some of these matters.  I have found that it was part of the policy to seek case deals before deletions occurred and that in a number of the incidents relied on by the Commission case deals were sought by Mr Jones.  For reasons to which I shall refer, I am not satisfied that Safeway always knew that a request for a case deal would be refused because of brand equity concerns.  I have also found that Mr Brookes’ Queensland experience entitled him to conclude that bread manufacturers were prepared to provide case deals to enable Safeway to be competitive but not in the circumstances that faced Safeway in Victoria.

180               Safeway submitted that there were a number of reasons why Mr Brookes’ evidence that his purpose in creating the policy was to enable Safeway to be competitive and was not to punish the plant bakers should be accepted.  These reasons, in summary form, were:

·                         Mr Brookes’ evidence was that his purpose was to devise a policy to enable Safeway to be competitive and that evidence was corroborated.  The policy was not concerned with cheap bread as such.

 

·                         Mr Jones understood the purpose of the policy was to enable Safeway to compete. 

 

·                         Before rejecting the evidence of Mr Brookes and Mr Jones I would have to conclude that they conspired to give false evidence about Safeway’s purpose, both in 1994‑1995 and after this proceeding was filed.  This proposition was never put to Mr Brookes or Mr Jones.

 

·                         Mr Brookes’ purpose was consistent with Safeway’s general competition policies.

 

·                         Mr Luscombe, Mr Bray, Ms Miller and Ms Austin gave evidence of communications with Mr Brookes and Mr Jones in which they were told the policy was to enable Safeway to be competitive or as a result of those communications they had such an understanding.

 

·                         Contemporaneous documents showed that the policy was competitive.

 

·                         Mr Brookes and Mr Jones, when explaining the policy to the plant bakers, told them that the purpose of the policy was to enable Safeway to compete.  The plant bakers corroborated Mr Brookes and Mr Jones.

 

·                         Case deals were sought before deletions occurred.  This reason was strengthened by the Commission adopting a fall‑back position that if case deals were sought, Safeway knew they would never be given.

 

·                         The policy did not require all the products of a plant baker to be deleted but only the bread in respect of which Safeway was uncompetitive.

 

·                         Deletions were limited to the Safeway store that was encountering competition.

 

·                         There were circumstances when Mr Brookes and Mr Jones did not take steps to delete products of plant bakers when, if the Commission’s case be correct, they would have been expected to do so.

 

·                         The proposition that Mr Brookes was trying to stop discounted bread only made sense if he could rationally believe the policy would achieve this result.  The plant bakers’ responses to the policy and the nature and extent of discounting in 1994 and 1995 were such that Mr Brookes could not rationally believe that the policy alleged by the Commission would stop the plant bakers providing discounted bread to independent stores.

 

·                         Once Mr Brookes was persuaded by Buttercup that the Black & Gold brand was not proprietary bread there were no more deletions of Buttercup bread.  If Mr Brookes had wanted to punish Buttercup why would he have been so persuaded by Buttercup? 

 

181               Mr Brookes was the architect of the policy and although he communicated it to Mr Jones whose task it was to implement the policy, the prime repository of Safeway’s purpose in the creation of the policy is to be found in Mr Brookes.  Mr Brookes was clear as to his purpose.  It was to meet competition and was not punitive or deterrent.  He explained his purpose in the following terms:

“My purpose in formulating the policy was to attempt to ensure that Safeway bought and sold bread competitively.  My purpose was not to punish plant bakers.  The policy was based on the philosophy of not being undersold on bread, whilst making a satisfactory margin.  I had observed that retail pricing of bread in Victoria was cyclical.  It moved to a price discounting environment then to a premium price, and then reverted back to a price discounting environment and so on.  My objective was to buy bread at the same cost price offered to our competitors.  This was to ensure that, regardless of which part of the cycle the market was currently trading (whether bread was being sold at premium price or at a cost cutting price), our prices would remain competitive.  Safeway’s pricing policy could only be met if Safeway purchased bread at the same cost price as its competitor and sold at a competitive price.

…”

He disavowed any purpose involving bringing pressure to bear on plant bakers to procure retailers to cease discounting bread.  He said:

 

“When developing, implementing and communicating the policy based on my Queensland experience I did not intend to influence plant bakers to force our retail competitors to raise the retail price of bread they sold, or to cease supply to the retailer.”

 

Nevertheless Mr Brookes recognised that a consequence of the policy was that plant bakers might react against independent retailers.  This was demonstrated in the following exchange:

 

“Didn’t it cross your mind that the implementation of the policy might involve Woolworths being seen by the baker to interfere in the baker’s dealings with Woolworths’ competitors?---No, I did not.  I was conscious that a bread vendor could go and breach the act as listed in point 3.  But I never thought they would be silly enough to do that.

 

You say you were conscious of that?---Conscious that when we placed pressure on manufacturers – and again I’d be fibbing to say that when I spoke to a bread vendor or when I encouraged Mark to speak to bread vendors, that one of the options that they could take would be to go and either reduce deals to the independent, or stop selling that line to the independent.  But that was the case with every one of the 1500 manufacturers we dealt with.  I never expected them to go around and actually see the independent and do anything such as withdraw product or put prices up.  So I was conscious – I’d be fibbing to say I wasn’t conscious that it was an option open to them, but [I] didn’t encourage them to do it, for a start, and certainly didn’t ask any of them to take such activity.”

 

The reference to “point 3” is to a passage in Woolworths Trade Practices Act Compliance Manual which stated that a Woolworths buyer should not try to influence a supplier not to supply other organisations or try to influence the price at which the supplier will sell to other organisations. 

 

182               Mr Brookes said that he “never believed that the plant bakers would be so stupid as to try to put pressure on independent retailers to increase their price, or to reduce or to cease supply to the independents, when faced with a request by Safeway for a competitive case deal or run the risk of deletion in one, or a small number of Safeway stores.”  Rather his objective was for Safeway to be competitive by ensuring that it offered its customers as good discounted prices on bread as any other retailer in Victoria.  He did not introduce the policy for the purposes of eliminating or deterring the discounting of bread by independent supermarkets, or to deter or prevent plant bakers from competing with other plant bakers for bread sales to independent retailers.  It was Mr Brookes’ view that it would have been “futile” to attempt to do so because of the high level of discounting through the market. 

183               The main focus in the conception and implementation of the Safeway policy in 1994 so far as seeking the competitive deals and contemplating deletions was concerned, was the conduct of the independent stores in selling Code C bread for around 99c a loaf.  However Mr Brookes did not agree that it was a deliberate purpose of the policy to combat discounting by independent retailers.  When it was put to Mr Brookes that this was a deliberate purpose of the policy he responded:

“It was for us to be competitive against the independent grocers and Coles and Franklins and Jewel, if there [were] instances where they were – determining Jewel as a chain – where they were doing a similar thing to us, for us to be competitive against them, yes.  But our main concern was the independents were the ones that were knocking us off on price.”

 

184               The Commission submitted that, as conceived, the policy was directed at the independent stores, that is to say, it was not directed at the other supermarket chains or the stores operating under a banner name.  I am prepared to accept that the predominant purpose of the policy was to address Safeway’s perceived lack of competitiveness with independent stores, rather than with the other supermarket chains and banner groups but it does not follow from this finding that a purpose of the policy was to stop the independent stores from discounting bread or was to punish the plant bakers if they gave the independent stores discounted cost prices which enabled them to undercut Safeway. 

185               Although the documentation put out by Safeway at the time was couched in terms of applying generally to Safeway’s competitive situation, Mr Brookes acknowledged that Safeway’s main concern was the independent stores.  Coles and Franklins, like Safeway, were running a weekly special regime, and they had not adopted an everyday low pricing policy on bread.  At the time of the creation of the policy Mr Brookes was not aware of any discounting of premium branded bread at every day low prices.  It was only the independent stores who were then selling bread cheaply.  Mr Brookes acknowledged that in his discussions with the plant bakers about Safeway’s uncompetitiveness he highlighted the independent stores as the primary concern.

186               Although Mr Brookes had concerns at the time that Franklins, Coles or Jewel could do something in the future that required competitive action by Safeway, I am satisfied that the major concern which acted as a catalyst for the introduction of the policy was the activities of the independent stores.  Mr Brookes accepted this when he said:

“The other concerns were that potentially the market could change and Franklins or Coles or Jewel could decide to do something with their generic, they could decide to do something with a price fighting bread, they could do something in a specific store, they could move to more regional marketing.  There had to be some way that we could compete, regardless of what movements took place in the market.  The concern at that stage [was] the independents running price fighting bread at a lot cheaper than we could run the equivalent premium branded product.  However, it wasn’t particularly for that purpose.  It was whatever happened in the market, there as a degree of flexibility or adaptability for us to use that policy regardless of who it was doing the discounting.”

 

As Mr Brookes put it, the deepest discounting of communicable lines at the time he introduced the policy occurred in one‑off stores.  Nevertheless Mr Brookes denied on numerous occasions that the purpose of the policy was to stop independent stores giving substantial discounts on bread.  For example, I note the following exchange:

 

“Mr Brookes, I put it to you that from the time the policy was conceived by you and at every stage through its implementation, Safeway’s purpose was to stope independents selling bread at prices substantially more than 10 cents below the Home Brand sell price in a Safeway store?---That’s not right, no”.

 

187               Mr Brookes said that he was hoping that the situation would not have to arise that Safeway would delete a manufacturer’s premium brand in order to restore its competitive position against that manufacturer’s secondary bread.  Yet, in cross‑examination the following exchange occurred:

“You knew, your expectation was, Mr Brookes, that the deletion of the proprietary brands would cause damage to the plant bakers?---I have no doubt that it would have hurt them.  Damage, it depends upon the extent, the number of stores, how long it was, what volume they lost as a percentage of their total volume, what the impact was on their bottom line as to how I’d define damage.  But it would have hurt them, yes.”

 

Mr Brookes said that in 1994 and 1995 he knew that it would not be easy for the plant bakers to reduce the price generally charged by them for premium brands to the level of their secondary brands, fighting brands, house brands and generic brands although he said that he had experience in Queensland that they were doing so on a weekly basis for everything from birthdays, celebrations, store openings to combat activities; that is meeting competition from other stores.  He said that in 1994 and 1995 he knew that the plant bakers were losing market share particularly to in‑store bakeries, hot bread kitchens and catering and food service businesses so that the market within proprietary bread was becoming smaller.

 

188               Mr Brookes said that the options open to the plant bakers included stopping supplying bread, or ceasing the case deal to the independent but he did not think they would be stupid enough to carry out these actions against the independent stores.  He said that another option was to provide Safeway with a case deal on the branded product so that it could be competitive or for Safeway to bring in the price‑fighting bread.  In cross‑examination Mr Brookes denied that one of the by‑products of the policy was to cause harm to the bakers by deletions to get them to give Safeway the case deals that it wanted or to take steps to ensure that the independent stores were not able to sell bread at everyday low prices in circumstances that made Safeway appear uncompetitive.  He said that his objective was to be competitive.

189               The determination of what is the purpose that motivates particular conduct is not made only by reference to what the relevant person says is his or her purpose.  For the purposes of s 46 of the Act, purpose can be established by inference as well as by direct evidence:  s 46(7).  The concept of “purpose” in this context has a subjective element although an inference of that subjective purpose may be drawn from objective facts:  see par 1033 below.

190               It is therefore necessary to consider whether I should infer from the conduct and evidence of Mr Brookes and other Safeway employees such as Mr Jones and Ms Austin that in creating the policy Safeway had the punitive purpose for which the Commission contended.  That purpose was, according to the Commission, to get the plant bakers to withdraw the bread the independent stores were discounting or to induce the independent stores to raise the price of that bread.

191               The determination of the nature of the policy created by Mr Brookes is a substantial integer in the equation of the component parts of each alleged incident.  If I determine that the policy created by Mr Brookes and its purpose was in the terms stated by him, that is, non‑punitive and pro‑competitive, and not in the terms alleged by the Commission in par 6D(h) of the statement of claim, that does not necessarily determine whether the conduct of Safeway in relation to each of the ten incidents constituted a contravention of s 46.  The determination of that issue depends on findings in relation to the ten incidents relied upon by the Commission.

192               Indeed the Commission’s case was that none of the incidents relied upon was an implementation of Safeway’s policy as such because in each case more bread was deleted than the policy required to be deleted and the wrong plant baker’s fighting bread was brought in.  I will return to these issues.

193               There were other matters upon which the Commission relied upon in support of its submission that the policy was punitive and anti‑competitive.  The Commission submitted that the punitive nature of the policy was demonstrated by the fact that after November 1995 there were two major changes to the policy.  The first change was that Mr Jones did not telephone a supplier about a competitive deal and then, when it was not offered, say that Safeway was withdrawing the product.  The product was simply withdrawn from display.  The second change was that no product was withdrawn; Captain Cutless bread was simply brought in.  These changes do not of themselves constitute an admission of guilt; they are just as consistent with a cautious approach to a controversial issue.  I do not consider that I should infer from these changes that the purpose of the policy either as formulated or implemented was to punish the plant bakers.  The changes occurred after there had been publicity of Safeway’s practice of deletions in November 1995.  The Chairman of the Commission had been interviewed on radio, he had discussed the matter and had foreshadowed an investigation.  Mr Luscombe, who succeeded Mr Brookes, could not remember exactly how the changes came about other than that the relevant executives decided to await the outcome of clarification of the matter.  That situation occurred because the Chairman of the Commission had suggested on radio that he was going to investigate the matter and Mr Luscombe regarded it as commercially imprudent to continue something which had been called into question by the Commission.  I accept that explanation.  I consider that Safeway’s response to the publicity was a not unusual commercial response and that it is neutral as to deriving from it any pointer as to the purpose of the policy hitherto implemented. 

194               It was part of the Commission’s submissions that the purpose of the policy was not so much to enable Safeway to be competitive but rather to try eliminate discounting in the bread market and raise the level of the bottom end of cheap bread pricing in the market.  In support of this submission the Commission relied on a document that was produced from Safeway’s custody and, in particular, from the bread file kept by Mr Brookes.  The document is entitled “Safeway Survey” and it bears a handwritten notation by Mr Brookes “File – Bread –B3/8”.  Mr Brookes said that the notation was in his handwriting and that the likely date of the document was 3 August 1994.  He could not explain how the document came into existence, what was its genesis, or who gave it to him.  Neither Mr Jones, Ms Miller or Mr Bray (who was responsible for the planograms) had ever seen the document.  The document set out four categories of stores and was in the following terms:

“                                           SAFEWAY SURVEY

 

(1)       Stores that have made adjustments to their prices;

                                                                    From;                       To;

* Robert & Martin Kerang                         $0.90                        $0.99

* Coles Lavington                                       $1.09                        $1.52

* Franklins Lavington                                $1.09                        $1.52

* Tuckerbag Corowa                                  $1.29                        $1.45

* Tuckerbag B/March                                 $1.19                        $1.25

* Tuckerbag Melton                                    $1.19                        $1.25

* Tuckerbag Sunbury                                  $1.19                        $1.25

* Payless Sunbury                                       $1.09                        $1.15

* Payless Melton                                         $1.09                        $1.15

* Tuckerbag Deer Park                              $1.29                        $1.35

* Foodtown M/Borough                              $1.09                        $1.29

* Acacia Way                                              $0.99                        $1.29

* Sale Market                                              $1.35                        $1.45

* Tuckerbag Leongatha                              $1.19                        $1.39

*Tuckerbag Korumburra                            $1.19                        $1.39

* Sisely’s Festival Sale                                $1.35                        $1.52

* Tuckerbag Hamilton                                $0.99                        $1.29

 

(2)       Stores that we have withdrawn Captain Cutless;

* Arnolds Fruit Market Wodonga              replaced with Sun-Wise.

* Jewels Frankston

 

(3)       Stores that have increased the price of a generic;

                                                                    From;                       To;

* Arnolds Fruit Market Wodonga              $1.00                        $1.20

* Swintons Warrnambool                           $1.30                        $1.50

* Warrnambool Co-op                                $1.15                        $1.35

* Swintons Port Fairy                                 $1.25                        $1.40

* Riteway Port Fairy                                  $1.25                        $1.40

* Nardi Fruit Market                                  $0.99                        $1.10

* Patties Fruit Market                                $0.99                        $1.10

* Costa’s Fruit Shop                                   $0.99                        $1.15

* Werribee Fruit Shop                                $0.99                        $1.10

* Combens Festival Werribee                     $0.99                        $1.19

 

(4)       Stores that we have withdrawn the supply of a generic;

                                                                    Lost Sales

* Tuckerbag Horsham                                200 units per week.

* Pipino Fruit shop Werribee                     2000 units per week.”

 

Because of the reference in category (2) to Captain Cutless, it is a reasonable inference that the document was prepared by, or emanated from, Sunicrust.  The Commission did not put the document to any Sunicrust witness called to give evidence, and the first time it appeared at the trial was in the course of cross‑examination of Mr Brookes.  The Commission did not thereafter apply to recall any Sunicrust witness to give evidence as to the document, and counsel for the Commission could not give any explanation as to why Safeway had the document in its possession.

 

195               In the course of final submissions I asked counsel for the Commission how I should use the document.  Counsel responded:

“I say your Honour can use the document to draw more comfortably an inference from – as one of the surrounding circumstances or the objective circumstances from which you can draw inferences that Safeway’s purpose was to bring pressure or to deter the plant bakers with whom they dealt, supplying cheap generic and secondary brands to independents who sold it at prices below Safeway’s prices and that inherent in that purpose was an interest that Safeway had in resale price maintenance.”

 

It was submitted by the Commission that the document was not an innocent document. 

196               Safeway submitted that I should make no use of the document at all because there was no evidence as to the circumstances in which it came into Safeway’s possession or the purpose for which it was prepared.  As no evidence was sought to be led from any Sunicrust witness about the document Safeway submitted that the only inference that I could draw from the document is that the Commission could not prove anything sinister from Sunicrust in relation to it.

197               The document is a curious document, in particular because of the last category “Stores that we have withdrawn the supply of a generic”.  If the document is to support the inference which the Commission invited me to draw about the nature of the policy, it would be necessary to make a finding as to why Sunicrust was reporting to Safeway the matters set out in the document.  If the document was reporting back to Safeway the implementation of the policy, which included bringing pressure to bear on the plant bakers to compel Safeway’s competitors to raise their prices, it would be necessary to make a finding as to the involvement or participation of Sunicrust in that policy.  There was no evidence, in particular from Mr McDowell or Mr McLeish that they, or anyone else from Sunicrust, participated in the implementation of such a policy, nor is there any evidence from them that a policy in these terms was put to them by anyone at Safeway.

198               No Sunicrust employee was called by the Commission to say that Sunicrust implemented, or was asked to implement, the policy as alleged by the Commission.  Indeed, both Mr McLeish and Mr McDowell denied taking any steps in 1994 and 1995 to cause any retailer of Sunicrust bread to increase the retail prices of that bread.

199               A document brought into existence contemporaneously with conduct is usually a reliable pointer to the nature of conduct that is otherwise described in oral evidence.  In the circumstances of this case I do not consider that the document has any probative value, enigmatic though it may be.  If I was to draw from the document the inference which the Commission invited me to draw I would be making a finding of serious misconduct.  After the document was put to Mr Brookes, and before Mr Jones was called to give evidence, I raised with counsel for the Commission the significance of the document but no subsequent application was made to call further evidence in relation to it or to recall any previous Sunicrust witness.  The state of the evidence in relation to the document is such that in order to reach a conclusion as to how and why it came into the possession of Mr Brookes, I would have to speculate and that is a task I should not, and will not, undertake.  In the absence of any evidence in relation to the document from any Sunicrust witness or, indeed, any witness, I am not prepared to draw any inference from the document adverse to Safeway or Mr Jones.

Same bread different wrapper issue

200               There are two aspects in relation to the Safeway policy that require particular consideration.  The first aspect is whether it was part of the policy as created that if a plant baker’s bread was to be deleted, the price‑fighting bread of that plant baker would be ranged in its place.  Mr Brookes said it was, but this fact was not communicated to the plant bakers either by Mr Brookes or by Mr Jones.  Nor did this occur in the implementation of the policy.  This aspect of the policy is intertwined with the second aspect.  This relates to the evidence of Mr Brookes and Mr Jones as to their belief in the first part of 1994 that there was a consumer perception that bread in a secondary brand wrapper of a particular plant baker was the same bread as the bread in that plant baker’s premium brand wrapper and that accordingly, Safeway was seen by some consumers to be uncompetitive in its premium brand when the secondary brand was sold by an independent store at a price lower than Safeway.

201               However this latter matter, recognition that the competitor’s bread, albeit a different brand to the brand sold by Safeway, was the equivalent of Safeway’s brand, was not the sole justification or reason for the introduction of the policy.  The Commission submitted that the concern of Safeway store managers was simply cheap discounted bread per se and had nothing to do with the same bread in a different wrapper.  That situation no doubt, arose on a number of occasions, but what was motivating Mr Brookes in formulating the policy was the desire that Safeway be competitive.

202               The relevance of this belief is that it was said by Safeway to justify Mr Brookes’ proposal that plant bakers be asked to supply premium bread at the same cost as the secondary brand supplied to Safeway’s competitor.  It was integral to Mr Brookes’ policy that Safeway be seen to be competitive in a particular plant baker’s product.  The fact of discounting itself was not sufficient to activate the policy.  It depended upon the information supplied by the store manager on matters such as whether there was an impact on Safeway sales, whether there had been any adverse reaction from customers and whether the store manager believed that Safeway’s customers recognised the competitor’s bread to be the equivalent of the brand sold by Safeway.

203               It is important in this area to analyse the evidence carefully because the Commission submitted that the belief of Mr Brookes and Mr Jones that some consumers would believe that Safeway was uncompetitive in a plant baker’s premium bread where a secondary brand in a different wrapper made by that plant baker was sold at a lower price by an independent store was not supported by the objective facts.  The Commission also submitted that rather than being concerned about “the same bread in a different wrapper” (as the matter was put colloquially), Safeway store managers were concerned simply about cheap discounted bread.  The Commission submitted that I should reject Mr Brookes and Mr Jones’ evidence as to their belief in this respect.  Accordingly, it is necessary to distinguish carefully between evidence admitted as to the state of mind of Mr Brookes and Mr Jones and evidence as to the objective facts.

204               Mr Brookes gave the following evidence admitted only as to his state of mind: 

“When conducting the review of the Proprietary Bread category, my experience was that some Safeway customers were astute in identifying the plant baker of bread sold by a retailer, even though the bread packaging might not always reveal the name of the plant baker. …

 

However bread was packaged or labelled, my experience was that it was often clear to a significant number of consumers for the reasons set out in paragraph 39 that the bread was manufactured by one of the major plant bakers.  In my view this attracted to plain wrap or secondary brand bread products, part of that plant baker’s goodwill and reputation associated with more prominent brands and assisted the sales of these types of bread products.  In 1994 and 1995 my view was that the quality, texture and consistency of the plant bakers’ lesser known bread brands, and the plain wrap breads sold in Victoria, was such that they were regarded by me, and in my perception by many consumers, as having the same or equivalent quality to the leading brands of the plant bakers.”

 

Mr Jones gave the following evidence, admitted only as to his state of mind:

“Information which was reported to me (generally by the Category Manager’s Assistant) in late March/April 1994 caused me to believe that Safeway stores often faced competition from stores selling a bread which was the same bread as Safeway sold but was packaged in a different wrapper with a different label.  At this time I spoke to some Store Managers but the information I received of responses from Store Managers normally came from the Category Manager’s Assistant.  I was told that stores had reported that competitors were selling (at different times) Tip Top, Buttercup or Sunicrust bread which was packaged differently from the breads of those plant bakers which Safeway ranged but it was the same bread and that customers regarded the competitors bread as the same as the plant bakers bread which Safeway ranged.”

 

205               Mr Brookes estimated that 5% to 10% of Safeway’s customers appreciated that a price‑fighting bread sold by a competitor had been manufactured by the same manufacturer of the premium brand bread Safeway was selling.  However this figure was not based on any empirical research but was rather based on his experience and “gut feel”.

206               That experience was said by Mr Brookes to be supported by what he had been told by store managers and area managers.  It was put to him that he had never had such conversations but he did recall them as the following exchange shows:

“Mr Brookes, I suggest to you that not one single store manager or one area manager ever said to you that Safeway customers are capable of identifying and do identify the secondary brands and the generic brands sold by independents as breads of particular manufacturers who make them?---As I’ve explained, I do recall having discussions with store managers and again – but I can’t say specifically where and when and with who.  It was a long time ago, and I’m sorry, but I can’t give you the names or places that I’ve spoken to them in, I’m sorry.

 

Likewise I suggest to you that no store manager and no area manager ever told you that customers regarded secondary proprietary and generic breads as the same product as the premium branded products of the bakers who made them?---Again, I can’t – I do believe that that’s what they’ve told me but I can’t give you the specific names.”

 

This evidence is not inherently improbable and it is not surprising that Mr Brookes could not remember the persons to whom he had spoken, having regard to the lapse of time and the relative significance of the conversations at the time.

 

207               Mr Jones had also told Mr Brookes after he had been unable, in or about April 1994, to buy proprietary bread at the same price as the bread supplied to Safeway’s competitors that store managers had told him through his CMA, that customers regarded the proprietary bread in independent stores as comparable to the proprietary bread sold by Safeway and that customers regarded Safeway as uncompetitive on its proprietary bread against the independent stores’ proprietary bread.

208               Similar evidence was also given by Mr Bray who worked for Safeway from 1990 until January 1997 and in 1994‑1995, had particular responsibility for preparing shelf layouts and planograms for a number of grocery merchandising categories including proprietary bread.  His evidence was:

“I recall discussions with Safeway customers in relation to a proprietary branded bread sold in a Safeway store when the customer said to me words to the effect that a competitor of the Safeway store was selling the same bread made by the same baker as manufactured the product Safeway sold but the bread was in a different wrapper.  Store Managers also reported to me when I was in their stores that customers had told them the store was uncompetitive on proprietary branded bread because the customer could buy what they regarded was the same bread in a competitor’s store.  I cannot now recall precisely how many times I had conversations with customers and Store Managers to this effect recorded above.  It was not frequent, but I have a clear recollection of statements to this effect being made to me on a number of occasions.”

 

Mr Geoffrey Clarke, a former Safeway employee, and store manager at the Newcomb Safeway store from 1985 to September 1995, gave similar evidence: 

 

“A number of consumers, in your observation or your understanding, regarded some of these generic products as of similar quality to branded products?---Well, I think they were the same products under a different label, that’s all.

 

That was your understanding, was it?---And the consumers as well.

 

That is to say that many consumers formed a view that – take for example a Tip Top Sunblest product – was the same product as a Tip Top unbranded product?---Yes.

 

The same is true also in relation to both the Buttercup and the Sunicrust proprietary breads as against their generic breads?---Yes.

 

That is a view you have commonly heard expressed by consumers over the years?---Yes.

 

It’s a view you hold yourself?---Yes, certainly.”

209               The experience of Mr Peter Berry, Store Manager at Safeway Traralgon was that customers have “more and more come to realise” that plain wrap or generic bread is the same bread as branded bread in a different wrapper.

210               Mr Michael Luscombe, who succeeded Mr Brookes as Merchandise Manager had a belief over a period of years, based on his role as a retailer, that there would be consumers who would recognise that a plain label or price‑fighting bread was made by one of the proprietary bakers.

211               Mr Joseph Quadara operated a number of fruit and vegetable shops on the Mornington Peninsula between 1987 and August 1994.  He had been in the business for many years.  Buttercup supplied him with plain wrap bread which he sold from a Frankston shop in 1993 and 1994 at 99c per loaf.  Mr Quadara said that the bread bore the Quadara label and the wrapper also indicated that it was made by Buttercup.  Some customers would ask Mr Quadara who baked the bread and he would tell them.  The bread was the same quality as Buttercup premium branded bread.

212               There is no doubt that, in general terms, bread was a price sensitive product in 1994‑1995.  Numerous trade witnesses gave evidence to this effect and the proposition was demonstrated by Safeway scan data that was tendered in evidence.  On days when one brand was significantly discounted in price the volume of its sales increased significantly and sales of other bread products decreased in varying proportions.  The switching of purchasers was not limited to switches within premium proprietary brands; it extended to switching from premium brands to generic brands.

213               Although this evidence tended to support the belief held by Mr Brookes and Mr Jones in the first half of 1994 as to the perception of customers in relation to “the same bread in a different wrapper”, the Commission pointed to a number of factors that were said to render Mr Brookes’ and Mr Jones’ evidence as to their belief unacceptable.

214               Mr Brookes and Mr Jones explained the details of the new policy to the plant bakers but they did not raise any concern about the perception of consumers that a secondary brand was made by the manufacturer of a primary brand.  They did not tell the plant bakers that their competitive concern was that the baker’s same premium branded bread was sold by Safeway’s competitors in a different wrapper in circumstances where consumers knew it was the same bread as the premium brand but in a different wrapper.

215               Further, although there was evidence that the ingredients and composition of the product packaged as a secondary or generic brand was substantially the same as the ingredients and composition of the product packaged as a premium brand, Mr Brookes and Mr Jones were well aware that there was product differentiation between brands and differences in the marketing and availability of premium, secondary and generic brands.  The Commission referred to Mr Jones’ evidence that customers were prepared to pay more for a premium brand than a secondary or generic brand and Mr Brookes’ understanding that the plant bakers could not sell premium brand bread at the same price as generic bread.

216               More significantly, the Commission pointed to the fact that apart from one instance (Costa’s in Geelong), Mr Brookes had no knowledge of any competitor of Safeway advertising a secondary brand or plain wrap brand by reference to the identity of its manufacturer.  (And in respect of that one incident, although Mr Brookes said the sign outside Costa’s said “Sunicrust bread” with a price, it was advertised in the Geelong News as “Code C” with a price and Mr Gunton’s contemporaneous note when he saw the sign outside Costa’s was to the same effect).  This lack of evidence is all the more significant when regard is had to Mr Brookes’ evidence that although the main concern was when a store manager reported that a competitor’s sale of a secondary or generic brand was impacting on his store’s sales, a critical issue was how the bread was advertised.  As Mr Brookes put it:

“The main concern was when a store manager reported back that it was impacting his business, that was when the white flag went up.  He was asked questions such as, ‘Was it advertised, marketed, brochured?  What was the price?  Who made it?  Were there posters on the window?  Were they selling large quantities?’  Once those sort of questions were posed it then could be decided whether it fits the criteria.  But the main driving force was whether it was advertised, marketed, brochured, billboard as a – if I take the Thwaites example – as a Sunicrust product.  That was the main concern.  There were customers that had knowledge from some of those other areas, such as the labels and the shelf wobblers, but the predominant one was the advertising, marketing of the product.”

 

Although it does not appear that the policy as implemented involved the store manager being asked all these questions, this evidence demonstrated that a principal concern of Mr Brookes was whether the competitor’s product was advertised or marketed as a product of a plant baker whose premium brand was sold by Safeway.

 

217               More importantly, the Commission submitted that the beliefs of Mr Brookes and Mr Jones were not formed on the basis of any research that supported their beliefs.

218               These factors are cogent matters that weigh against accepting Mr Brookes and Mr Jones’ evidence of their belief as to the perception of some consumers as to the identity of the manufacturer of the secondary or generic brand sold by Safeway’s competitors.  Nevertheless there is the evidence from the other witnesses, to which I have referred, that tended to support the belief of which Mr Brookes and Mr Jones gave evidence.  I am not disposed to reject the evidence of Mr Brookes and Mr Jones in relation to the belief they held.  I found them both to be witnesses who did not deliberately give untruthful evidence.  They did make mistakes from time to time in relation to their evidence and in a number of respects I consider that their evidence savours more of reconstruction rather than actual memory.

219               The respects in which I have reached the conclusion that Mr Brookes and Mr Jones reconstructed their evidence and the mistakes made by them are not so such as to lead me to the conclusion that their evidence generally is unreliable and that I should not accept it.  I am not therefore, disposed to reject their evidence as to their belief as to the perception of some consumers as to the identity of the manufacturer of secondary or generic branded bread sold by Safeway’s competitors.

220               Even if I had rejected the evidence of Mr Brookes and Mr Jones as to their belief as to the perception of some consumers in relation to the “same bread in a different wrapper” issue, it would not have resulted in my rejection of Mr Brookes’ evidence that the purpose of the policy he created was to ensure Safeway was competitive in relation to bread sales.  Nor would it have resulted in my concluding that the purpose of the policy was to punish plant bakers or that the policy was in the terms alleged by the Commission.  There was other evidence to which I have referred, that supported Mr Brookes’ evidence as to the purpose of the policy.  That purpose was not limited to responding to a “same bread, different wrapper” scenario.  Mr Brookes did not give Mr Jones any instructions that the policy was only to be implemented when there was a customer perception that bread in a secondary brand wrapper of a plant baker was the same bread as the bread in that plant baker’s premium brand wrapper.  Rather, Mr Brookes’ instructions covered situations where Safeway was not competitive with a competitor’s proprietary bread regardless of its label or brand.  The same bread, different wrapper scenario was never communicated by Mr Brookes or Mr Jones to the plant bakers or to Safeway’s store managers, nor did it appear in any of the written communications to store managers.

221               Although Mr Brookes said in cross‑examination that the policy was aimed at where a store manager reported that a customer could identify who made a particular brand of bread and Safeway was uncompetitive in respect of that brand, his evidence taken together made it clear that the policy was not so limited.  It was created to cover situations where Safeway was not competitive with bread sold by a competitor regardless of its brand or label and it was triggered when bread was being sold by a competitor of Safeway at a price which Safeway could not match unless it obtained a discount on the bread supplied to it by the plant baker who was supplying the competitor with cheap bread.

222               In a number of respects to which I shall refer, the policy was not implemented in the terms in which it was formulated.  For example, the seeking of comparable case deals and the deletion of products if such a case deal could not be obtained did not apply to short term special promotions by a competitor.  Mr Brookes was not concerned about weekly specials, two day specials, store openings, store refurbishments and birthday celebrations on the basis that Safeway obtained similar deals.  Yet the policy was implemented in the incidents at Albury, Lalor and Geelong.  In other respects the policy was also not correctly implemented such as where more bread than just the uncompetitive product was deleted such as at Karingal.

223               I am satisfied that the policy as conceived by Mr Brookes, communicated to Mr Jones and passed on to Safeway employees during the period March to May 1994 was a policy which included as one of its provisions the requirement that Safeway, through Mr Jones, would ask a plant baker for a case deal before deleting that plant baker’s bread and introducing a price‑fighting bread.  Although the policy was not implemented or carried into effect in a number of respects in accordance with the terms of the policy as conceived by Mr Brookes, I am satisfied that the policy as conceived by Mr Brookes, was not a policy which had as one of its purposes the punishment of plant bakers where they sold bread to retailers, other than Coles or Franklins, at a discounted price which enabled them to undercut Safeway’s retail price.  Nor am I satisfied that the policy was in the terms alleged by the Commission.

224               I am satisfied that the purpose of the policy was not to punish or deter the plant bakers but rather was to enable Safeway to be competitive in the retailing of bread.  This was Mr Brookes’ stated and declared purpose.  The Commission submitted that I should reject Mr Brookes’ evidence as to his purpose in creating the policy as it was a reconstruction and rationalisation of what had been his thinking at the time.  The Commission invited me to disbelieve Mr Brookes’ evidence as to what he was thinking at the time.  I reject this submission and invitation.  I accept Mr Brookes’ evidence as to how the policy was conceived, the content of its terms and the purpose of the policy.  Mr Brookes’ evidence is borne out by statements of other witnesses and a number of the documents produced by Safeway at the time the policy was being promulgated.

225               Although Mr Brookes may have been concerned about the level and extent of discounting in the market, I am still satisfied that his purpose in creating his policy was to enable Safeway to be competitive, to be in a position to respond to competitive situations in the market‑place as they occurred and was not to punish the plant bakers if they sold bread to independent stores at a cost price which enabled them to sell the bread for less than Safeway was selling bread, or to deter them from selling such bread to independent stores.  Although he did not want to see the market dragged down, I do not consider that I should infer from the statement he made to that effect that the purpose of the policy was to bring pressure to bear on the plant bakers to induce independent stores not to discount bread.  Mr Brookes’ statement occurred in the following exchange: 

“If a baker who was interested in growing its secondary brands knew that if it offered a secondary brand cheaply to an independent and knew that as a result Safeway might delete the premium brands and bring in the secondary brands for that baker’s bread, the baker would be encouraged – if it was interested in growing volume at the expense of price – to offer those deals to independents or anybody else who wanted to buy cheap secondary brands?‑‑‑I’m not quite certain how the bread manufacturers would think but if they were encouraged to offer those price fighting breads to independents, then the good part was that we also had those price fighting breads that we could run into.

 

But if they were encouraged – the fact that you would replace their premium brands with their price fighting brands would, as it were, redouble the encouragement?---But from our point of view we had a competitive offer.  We were making customers happy because we had a great sell price and we were competitive up the road.  So that didn’t worry me either, as long as we had a stance.

 

So you weren’t concerned the bakers would be encouraged to, as it were, take off in the direction of volume rather than price by Safeway choosing to range that baker’s fighting brand in place of that baker’s premium brand?---I wouldn’t have liked to have seen it but if that was the way they wanted to dictate their brand and their market then at least we had an offer to be competitive but, yes, I didn’t want to see the whole market dragged down but that’s up to them as to how they want to market their product.

 

But you wanted a market, Mr Brookes, in which Safeway was price leader?‑‑‑Yes, I did.

 

You wanted a market, ideally speaking, in which the lowest price code C available in the market was Home Brand code C save on those occasions when there was a celebration or a combat or a king hit promotion?---That was the basis of the policy, yes”

 

Viewed in context, Mr Brookes was not disavowing his evidence that the purpose of the policy was to enable Safeway to be competitive.

 

226               Each of the instances in which the policy was invoked and implemented otherwise than in accordance with its terms must be analysed to determine whether, standing alone, it constituted a contravention of the Act.  But I am not prepared to infer from these instances, whether taken separately or as a whole, that Safeway had a policy in the terms alleged by the Commission or in the terms alleged in the alternative.  The alternative formulation was that if it was part of the policy to ask for case deals, Safeway knew that the plant baker could not agree to the case deal because to do so would destroy or damage the goodwill or value attached to the premium brand.  I will consider this alternative submission later in these reasons.

227               In the course of final submissions I asked counsel for the Commission whether it was open for me to find that there may have been a benign or competitive purpose for the policy when it was formulated but the policy as implemented, showed a proscribed purpose.  Counsel did not dissent from that proposition.  However I do not consider that finding is open to me, having regard to the pleadings and the manner in which the case was conducted.  The Commission did not contend that Mr Jones disobeyed Mr Brookes’ instructions and implemented a purpose that was not a purpose intended by Mr Brookes.  The Commission’s primary case was that Mr Brookes’ intention and purpose was to formulate and implement a policy of deleting the bread of plant bakers when they supplied cheap bread to independent supermarkets and to bring in, in its place, another plant baker’s price‑fighting brand.  The Commission propounded an alternative or fall‑back case, that if Mr Brookes’ policy was to be competitive by seeking a matching discounted price on proprietary branded bread to meet the competition from an independent supermarket selling discounted generic or secondary branded bread and if it could not get a matching case deal, it would bring in that manufacturer’s price‑fighting bread, that latter aspect was not conveyed to Mr Jones.  Mr Jones was left to fill in the gaps such as which brand of bread to bring in as a price‑fighting bread.  The Commission contended that what were regarded by Safeway as mistakes in the implementation of the policy were not mistakes but resulted from Mr Jones deciding how the policy would be implemented which had been left to him by Mr Brookes.  So, said the Commission, the policy implemented by Safeway was what Mr Jones did, his purpose was Safeway’s purpose and he acted within his authority in what he did.  What he did was to bring in another plant baker’s price‑fighting bread.

228               Safeway contended that this alternative or fall‑back case was not open on the pleadings.  The fall‑back case, as I understood it, was not that Mr Brookes told Mr Jones he had a discretion as to how to implement various aspects of the policy.  Rather it was that there were gaps in Mr Brookes’ policy as conceived, which were filled in when Mr Jones came to implement the policy, so that Mr Jones had to decide how he would deal with that matter.  For example, he had to decide (it not being part of Mr Brookes’ formulation of the policy) which brand of price‑fighting bread he would bring in when he could not get a case deal from a plant baker.  The Commission submitted that the decisions Mr Jones made in relation to how to resolve the gaps became part of the policy so that in order to determine what was the overall purpose of the policy, it was necessary to look at both Mr Brookes’ purpose and Mr Jones’ purpose.

229               It was then said that the best evidence of Mr Jones’ purpose was to look at what occurred as a result of his decisions, that both Mr Brookes’ purpose and Mr Jones’ purpose became Safeway’s purpose for determining whether there had been a contravention of the Act.  The Commission submitted that Mr Jones’ purpose in bringing in a different plant baker’s price‑fighting bread was to punish the other plant baker for discounting the price of bread supplied to independent stores.

230               Subject to two exceptions, I do not accept that Mr Jones’ purpose in implementing the policy in the manner he did was to punish the plant bakers.  The two exceptions are the Frankston incident and the Albury May 1995 incident where the policy was not implemented and case deals were not sought.  Although mistakes were made in the implementation of the policy, particularly in relation to the range of bread to be deleted, these mistakes occurred in the context of a policy that had as one of its components, a request for a case deal.  The fact that the policy created and put in place by Mr Brookes included a provision that case deals be sought before deletion of bread from shelves occurred is critical in determining the purpose of the policy and the purpose of Mr Brookes (and thereby the purpose of Safeway) in creating it.  The existence of the provision for asking for case deals supports the proposition that the purpose of the policy was to enable Safeway to maintain what it saw as a competitive position.  I consider that the provision of the policy whereby a case deal was to be sought before a deletion is inconsistent with the purpose of the policy being to punish the plant bakers.

231               In the latter part of final addresses, counsel for the Commission made a submission which minimised the significance and relevance of the fact that it was part of the policy as created and to be implemented that a case deal be sought before a deletion occurred.  The submission went as follows:

·                   The policy as created initially included an integer that Safeway ask for a comparable case deal when a competitor was selling bread manufactured by a plant baker at a discount.  The Commission said that it did not challenge that case deals were part of the policy at this time.

 

·                   After Mr Jones reported back to Mr Brookes in April 1994 that the plant bakers would not give Safeway comparable case deals, the policy was changed, comparable case deals were not to be sought, rather there would simply be a deletion and a price‑fighting brand would be introduced.  At this point of time case deals became irrelevant.

 

·                   The reason for this change of policy was that Mr Brookes did not want comparable case deals because he did not want to bring down the retail price levels of premium proprietary branded bread and the change of policy was to deter the plant bakers from selling bread to independent stores at a price which enabled them to bring down the prices in the bread market.

 

·                   In short, the policy became that comparable case deals would not be sought, there would simply be deletion of products and the introduction of a price‑fighting bread.  On this basis, the original requirement that a comparable case deal be sought from the plant bakers was of historical interest only, and had no part to play in the policy as changed.

 

·                   After the change in the policy, Mr Jones did not ask the plant bakers for comparable case deals.  If it appeared that he did make such a request, it was not a real request; rather Mr Jones was asking the plant bakers whether as a matter of policy they had changed their minds and would allow premium brands to be used for price‑fighting purposes. 

 

232               I reject this submission for a number of reasons:

·                   It was not put to Mr Brookes or to Mr Jones that there had been a change in the approach to asking for comparable case deals after Mr Jones told Mr Brookes that the plant bakers would not give comparable case deals on premium brands.

 

·                   If asking for case deals on premium brands would, in Mr Brookes’ view, bring down the prices in the market, which he did not want to occur, that consequence applied just as much at the first stage of the policy when Mr Brookes told Mr Jones to ask the plant bakers for comparable case deals.

 

·                   Mr Brookes gave evidence that asking for a comparable case deal was part of the policy as he created it after Mr Jones reported back to him on the responses from the plant bakers.  This evidence is found, for example, in the following exchange in the cross‑examination of Mr Brookes:

 

“To the extent, Mr Brookes, that premium bread was deleted without the manufacturer of that bread being asked for a case deal beforehand, before the deletion, there was also a mistake in the implementation of the policy?‑‑‑In the advent of them not asking for the case deal, that’s correct, yes.

 

[GOLDBERG J]:       As I understand it, it seems to me from what you’ve said it was an integral part of the policy that there be a request for a case deal first?‑‑‑That’s correct.”

 

Indeed, one might say a precondition to the operation of the deletion policy?‑‑‑That’s correct, yes.”

 

Mr Jones also gave evidence of receiving an instruction from Mr Brookes to ask for a comparable case deal before deleting a product and bringing in a price‑fighting bread.

 

·                   It was not put to Mr Brookes or Mr Jones that if there was an instruction by Mr Brookes to ask for a comparable case deal in the second stage of the policy it was not an instruction to ask for a case deal but rather an instruction to ask whether the plant bakers would change their policy.

 

·                   There was evidence from plant bakers, such as Mr McLeish, that Mr Jones from time to time asked them for comparable case deals.

 

·                   The language used by Mr Jones and the plant bakers in describing Mr Jones’ requests for case deals was not such as to convey the understanding or impression that Mr Jones was asking the plant bakers whether they would change their policy and would allow premium brands to be used for price‑fighting purposes.  To adopt this view of the evidence would be to torture language.

 

·                   Although it was put to Mr Jones that he had not asked plant bakers for a comparable case deal before a deletion, it was not put to him that in asking for a case deal, he was asking for something different.

 

·                   Mr Brookes did give evidence that he did not want to see the whole market dragged down but that evidence was given in a different context and had no relevance to the issue of asking for comparable case deals or any reason for not asking for comparable case deals.

 

233               It is still necessary to determine whether each incident relied upon by the Commission constituted conduct in contravention of ss 45, 46, 47 or 48 of the Act, but in considering that conduct I do so against the background of a policy that was intended to be, and conceived for the purpose of being, a competitive response to a market situation rather than the punishment of plant bakers or to deter them from selling bread cheaply to Safeway’s competitors. 

the Commission’s alternative position on case deals

234               The Commission put (and pleaded) its case in the alternative and submitted that if Safeway did ask for case deals on proprietary branded bread from plant bakers it knew that the plant bakers would not agree to a case deal because the sale of proprietary branded bread at prices competitive with generic or secondary branded bread would damage or destroy the goodwill, brand equity or value attached to the brands of proprietary bread.  This proposition was denied by Safeway and, in particular, by Mr Brookes and Mr Jones.  I am satisfied that the evidence does not support the proposition. 

235               The Commission contended that this proposition was not an alternative formulation to its primary case as to Safeway’s policy found in par 6D(h) of the statement of claim (par 80 above), and that the fact of Safeway asking for a case deal knowing it would be refused was implicit in its primary case.  I do not accept that contention.  The policy pleaded in par 6D(h) does not include any element of Safeway asking for a case deal and the allegations raising the alternative formulation in pars 19AA(e) to (g), 19CC(e) to (g) and 19EE(e) to (g) of the statement of claim are not covered by, or implicit in, par 6D(h).

236               A distinction must be drawn, in this respect, between discounting proprietary branded bread on a statewide basis and discounting proprietary bread on an individual store basis.  Mr Brookes recognised that the plant bakers could not generally reduce the price of premium brands to the level of secondary brands.  Witnesses from the plant bakers made it clear that they would not be prepared to discount proprietary branded bread on a statewide basis.  The same position did not apply in relation to individual stores.  A number of plant baker witnesses said that it would be a matter for strategic decision whether to offer a particular case deal.  They rejected the proposition that case deals were never available.  Indeed, the evidence was to the contrary.  Evidence was given of occasions on which particular case deals in respect of premium proprietary branded bread were sought and given.  This situation occurred in relation to store openings, anniversary sales and particular promotions such as “’Big Bang” promotions. 

237               Proprietary branded bread was also given to Safeway at a discounted price by each of the three plant bakers on a three weekly cycle.  Other supermarket chains had similar three weekly cycles of discounted proprietary branded bread.  This had the result that during 1994 and 1995 proprietary branded bread of the three plant bakers was offered for sale each week at a discount with one or other of the major supermarket chains on a statewide basis.

238               Mr McLeish, Sunicrust’s Metropolitan Sales Manager, said that in 1994 and 1995 Sunicrust proprietary branded bread was offered for sale every week in Victoria at discounts of 30c‑35c, that is to say, Sunicrust was selling its proprietary branded at a price 30c‑35c lower than its normal selling price to the major supermarket chains sequentially throughout the year.  Mr McLeish also said that heavier discounts were offered by plant bakers on proprietary branded bread throughout 1994 and 1995 on special occasions such as store openings, store refurbishments, birthday sales and celebration sales where a particular event was being celebrated in a particular location.  Mr McLeish then responded to the following questions:

“MR SMITH:              On occasions such as those that you have just listed, Sunicrust to your knowledge during 1994 and 1995 was, was it not, prepared to discount its proprietary‑branded code C product to levels which would enable the retailer to sell at prices such as 97 cents a loaf?---If we at the time strategically thought that it would not have a downward effect on the total market the answer is yes.

…

In addition to the special occasions that you have identified, there were occasions, were there not, additional [to] the ones that you have referred to, when you on behalf of Sunicrust offered Safeway case deals on Sunicrust proprietary‑branded bread to enable Safeway to sell that bread at prices as low as 99 cents against a low price offered by a competitor of Safeway.  Do you agree with that?---Yes, that was a strategic planning process.  If it wasn’t going to have a downward effect on the total market the answer is yes, it did happen on occasions.”

…

It follows from what you told his Honour that on occasions Mr Jones would ask you for a case deal on Sunicrust proprietary bread to enable a particular Safeway store to compete with a branded proprietary bread offered by a competitor of Sunicrust and Sunicrust agreed to that case deal so as to enable Safeway to sell Sunicrust proprietary bread at prices as low as 99 cents for a code C loaf.  Do you agree with that?---It was our company policy not to do so but on occasions if we thought it worked into our sales or marketing strategies we would, so the answer is yes.

 

[GOLDBERG J]:         That was in Victoria?---Yes, your Honour.

 

Because you mentioned Corowa as an example?---Yes.

 

I am just concerned that that policy also applied from time to time in Victoria?---Yes, your Honour, more so in the country than in the city.

 

Yes, thank you.

 

MR SMITH:                There were, were there not, on the occasions that you’ve just referred to, exceptions made to the general policy?---That is correct.

 

From time to time Jones might ring you up and ask you for a case deal to enable Safeway to sell Sunicrust proprietary bread at a price equivalent to that offered by a competitor of a Safeway store, say, a retail price of 99 cents, and you would agree on occasions to give such a case deal?---On special occasions, yes.

 

In circumstances which could be described as a case deal to be used for competitive action, would you agree?---We made that decision strategically, yes.

 

So whilst I think you’ve agreed that Mr Jones rang you up from time to time asking you to supply Sunicrust branded proprietary bread at prices that have sometimes been described in this court as generic prices, on some occasions you said no and on other occasions you said yes?---That’s right.

 

[GOLDBERG J]:         Mr Jones made such calls to you from time to time.  Is that right?---Yes, your Honour.

 

MR SMITH:                And whether the answer that he got was yes or no depended upon the strategic view that Sunicrust was taking at the particular time the request was made?---That’s right.”

 

There was also the following exchange:

“MR FAJGENBAUM:Could I ask the general question first:  were you ever asked, Mr McLeish, do you recall, by Safeway to offer your proprietary branded breads at cheap prices in order to enable Safeway to be competitive with a rival selling Thwaites or Local Bake cheaply?---Yes, I was given the opportunity if I wanted to.

 

Were you ever asked to offer your proprietary breads at those cheap prices on a statewide basis or only for particular stores?---I was given the opportunity for either if we wished to.

…

Did you have a uniform response or did the response vary?---Okay.  On a statewide basis the response was uniform, the answer being no, it was against company policy.  On an individual basis it depended on the location and if we thought it was going to have any rub‑off or repercussions in the total market.”

 

239               Mr McLeish said that from time to time Mr Jones telephoned him and asked for a case deal to enable Safeway to sell Sunicrust proprietary branded bread at a price equivalent to that offered by a competitor of a Safeway store, such as 99c a loaf, and on special occasions he would agree to such a case deal for an individual store.

240               Mr McLeish said that each time Mr Jones asked him to sell proprietary branded bread at the same price as a generic bread was being sold to an independent store, he told Mr Jones that it was Sunicrust’s policy not to discount proprietary bread heavily because it would bring the whole market down and put a huge hole in Sunicrust’s profitability.  However Mr McLeish made it clear that the policy to which he was referring was the statewide policy as distinct from the policy that applied to particular stores.  Mr McLeish said he never told Mr Jones that Sunicrust was not prepared to discount bread heavily on particular occasions for individual stores.  According to Mr McLeish, Sunicrust had one policy but there were exceptions to the policy on individual stores.

241               Mr Gunton, Tip Top’s Victorian State Sales Manager gave similar evidence in par 121 above.  Mr Guthridge, Tip Top’s General Manager gave evidence to the same effect.

242               Mr Cooper made it clear that Buttercup took a similar position.  Buttercup’s aim was to sell its proprietary branded bread at the highest possible price, and it was not prepared to promote that bread to allow retail prices around $1.00 a loaf on an ongoing long‑term basis.  However, Buttercup allowed discounts to its major accounts on the regular price of its proprietary brands on a regular basis.  According to Mr Cooper, Buttercup regarded it as in its interests to offer to supply proprietary branded bread at prices which would enable their resale below $1.50 a loaf and for short‑term special events around $1.00 a loaf.  Even then it was only on an individual store basis rather than on a chain or statewide basis.  The following exchange in the course of the cross‑examination of Mr Cooper explained Buttercup’s general approach to offering discounts:

“As you understood the position, the company did the discounting, whatever be the level, firstly with the objective of increasing its volume of sales?---Yes, that’s correct.

 

And, secondly, with the aim of, by attracting customers at low prices, to attract customers to your proprietary brands as distinct from you opponents’ proprietary brands?---That’s correct.

 

The level of discounting which you were prepared to engage in was determined, as you recall it, firstly by those two factors to which I’ve just referred to and, thirdly, by, may we take it, the level of support that from time to time major retailers were prepared to give you?---That’s correct.

 

But in each case it was ultimately a commercial decision for the company to determine whether it would discount and to what level it would discount?‑‑‑That’s correct.

 

In determining whether it would discount and to what level it would discount, the company would have regard to each individual situation on its own particular merits, correct?---That’s correct.

 

And determine, having regard to that situation, whether it was in the company’s best interest or otherwise to engage in discounting, correct?---Yes, that’s right.

 

And determine in each particular situation, once it was determined to engage in some discounting, when and at what level that discounting would take place?---And the degree of profitability in that discounting.

 

When you say ‘the degree of profitability’, it’s inevitable that discounting on individual loaves reduces the profit margin on that loaf?---That’s correct, but that depends on whether we decide to get into that particular fight at that time or not.

 

That issue is determined in each instance, is it not, firstly by reference to whether or not getting into the fight would reduce long‑term profitability by decreasing volume, correct?---That’s correct.

 

And, secondly, looking at it from another point of view, whether individual discounting, whilst it may reduce profit margins for a short period of time, would be in the long‑term economic interests of the company?---Yes, and also whether we anticipate that particular price war lasting a week, two weeks or three weeks.  That was also a factor in our decision‑making process. 

 

To be fair to you, in each individual situation there may be a whole series of factors which will determine the company’s response to any particular situation?---Yes.

 

Just as there would be a whole series of factors which could determine the company’s response to any request from a retailer for a particular deal?‑‑‑That’s right.”

 

243               I am satisfied that during 1994 and 1995 the three plant bakers were prepared to offer substantial discounts on the regular price of their proprietary branded bread to meet competitive situations or for special occasions.  They were not prepared to allow substantial discounts on a statewide basis, other than in the context of the regular three weekly discount cycle that was implemented by the major chains.

244               There was no evidence that the plant bakers were prepared to allow substantial discounts on the price of proprietary branded bread to meet competition from secondary branded or generic bread, but the evidence does establish that they were prepared to offer substantial discounts on proprietary branded bread on a store‑by‑store basis.  This practice supported the proposition that such discounting would not damage or destroy the goodwill or value attached to the brand name of the proprietary bread.

245               The evidence, therefore, did not support the alternative claim advanced by the Commission that if a request was made for a case deal it was, in effect, a charade, as Mr Brookes and Mr Jones knew that the plant bakers would not agree.  Not only is the evidence against the proposition, but it is difficult to understand why the request would be made, if it was known it would be rejected.  Nothing would be achieved by such a request.  It was not submitted by the Commission that the request was contrived in order to provide an answer to a claim of contraventions of the Act.

246               The Commission submitted that the evidence showed that the plant bakers were only prepared to discount proprietary branded bread for celebration sales or special promotions and were not prepared to discount proprietary branded bread in the circumstances in issue in this proceeding.  The evidence was not so limited and showed that so far as discounts for proprietary branded bread to individual stores was concerned there was no inflexible rule or policy.  According to Mr McLeish, Sunicrust had a firm policy on statewide discounts, but the policy in relation to individual stores was flexible and depended upon strategic considerations.

247               Although a number of the occasions on which the plant bakers were prepared to offer discounts on proprietary branded bread related to situations where another plant baker’s bread was being discounted, the plant bakers did not say that the situations where they were prepared to consider such discounts were limited to meeting competition from their competitors and did not cover meeting the price at which another store was selling its bread either proprietary, secondary branded or generic.  If the situations were so limited, none of the plant bakers ever communicated this fact to Mr Brookes or Mrs Jones.

248               The finding that it was part of the policy to ask for case deals and the finding that the plant bakers (or at least some of them) were prepared to consider case deals in respect of one store on a strategic, and case by case basis, tells against the purpose of the policy for which the Commission contended, namely to punish the plant bakers when independent stores which were competing with Safeway were discounting bread below Safeway’s prices.

Implementationofthepolicy inconsistently with Safeway’s claimed purpose

249               However there is a tension between those findings and a number of matters relied upon by the Commission.  The policy as conceived by Mr Brookes and communicated to Mr Jones did not lay out a comprehensive and complete plan as to the manner in which the policy was to be implemented.  Mr Brookes’ formulation of the policy left open certain matters about which further decisions would have to be made, for example, which brand of price‑fighting bread to bring in, which categories of bread were to be deleted, what enquiries should be made of stores that were subject to competition from discounted bread, and the extent to which a response should be made to a special promotion.  Mr Jones filled in a number of these gaps and the question arises whether the manner in which he did so was done for the purpose of punishing the plant bakers or implementing a policy to punish plant bakers rather than for the purpose of meeting competition, which was Mr Brookes’ purpose. 

250               A particular matter relied upon by the Commission was the over‑deletion of plant bakers’ bread which occurred in eight of the incidents in issue.  The Commission submitted that the over‑deletions which occurred were inconsistent with the policy propounded by Safeway.

251               The policy only required deletion of those products which were competitive with the independent store’s discounted bread.  In almost all the incidents before the Court there was an over‑deletion of the range of bread products offered for sale.  Safeway submitted that these over‑deletions were mistakes in the implementation of the policy.  The Commission submitted that the best evidence of the nature and purpose of the policy was the manner in which it was implemented.  Thus, said the Commission, the over‑deletions were not a competitive response but rather implemented for a punitive purpose.  The issue of the over‑deletions is significant particularly as Mr Brookes was either privy to, or made aware of, the over‑deletion at Frankston in May 1994.  I will consider each over‑deletion when I turn to the particular incidents relied on by the Commission as constituting contraventions of the Act.  However, for present purposes, it is necessary to consider whether the over‑deletions should lead to the conclusion that it was part of the policy as formulated by Mr Brookes that the whole range, or a substantial part of the range, of a plant baker over and above the bread perceived to be non‑competitive should be deleted when a request for a case deal was made and rejected.  It is also necessary to consider whether such over‑deletions became part of the policy as it was implemented.

252               The Commission’s case that the deletions and over‑deletions occurred for a punitive purpose relied on the following circumstances:

·                         Apart from the Preston Market incident, which was different in character from the other incidents, all the deletions were in response to discounting by an independent store.

 

·                         The perceived uncompetitiveness was in respect of cheap bread, being a secondary brand or generic bread.

 

·                         Deletions ceased when either the competitor’s price increased, Safeway obtained a case deal and was able to reduce its price or the store manager advised the category manager’s office that the competitor’s bread was no longer competitive.

 

253               I consider that much of the problem that arose in relation to over‑deletions was caused by a lack of clear communication by Mr Brookes to Mr Jones, and then by Mr Jones to his staff, as to the nature of the deletions that were to occur in a given situation.  Mr Brookes left the nature and extent of deletions to Mr Jones.  Mr Brookes’ evidence was:

“The decision as to what bread products should be deleted depended on the bread concerned, Safeway’s competitiveness, the number of suppliers, the locality, and the shelf allocation.  I discussed these issues with Mark Jones at the time I formulated Safeway’s competitive pricing policy.  The decision on these matters was left to Mark Jones but implementation was carried out at store level.”

 

In cross‑examination Mr Brookes made it clear that he gave little direction to Mr Jones as to what was to be deleted.  He said he spoke to Safeway employees about comparable 680g products but did not go to the extent of talking about whether it should be multigrain, white or wholemeal bread.  What is clear is that Mr Brookes did not give Mr Jones any direction as to how to determine what bread products were comparable products for the purpose of deletions.

 

254               There was no direct evidence that it was part of the policy as formulated by Mr Brookes to delete all products of a plant baker who was selling bread at a discounted price to an independent supermarket that was in competition with a Safeway store, other than what occurred in respect of the incidents under consideration.  Mr Brookes denied that deletion of all a plant baker’s brands was part of the policy.  There was no evidence that Mr Jones or Ms Austin were told it was part of the policy.  Ms Miller said that the policy which she implemented was only to delete the bread that was uncompetitive with, and comparable to, the discounted bread of the competitor.

255               The matter was compounded by Mr Jones’ lack of understanding as to what made a product a comparable product.  That lack of understanding can be found in the following exchange in the cross‑examination of Mr Jones:

“What I want to ask you is what difference does it make whether a product was a code C or a code D?  For example, the Multigrain, you say, if it was code D it should not have been deleted, if it was a code C it should have been deleted.  Can you explain that distinction you make?---From what I understand from the policy is that it was to be like on like products.  If it was code C, then it should have been code C products.

 

So what makes a product a like product for this particular purpose then, the coding of it, the colour of it, the texture, the price, the size – what is it?‑‑‑From what I understand, where customers can do a comparison and they usually – in those days code Cs was the way which customers did the comparison.  That’s the way it was – I didn’t really ask the question, to be honest.

 

You never asked the question at the time?---No.”

256               Mr Jones’ evidence was that Mr Brookes told him that uncompetitive bread was to be taken out of the Safeway store.  Mr Jones’ intention was not that a plant baker’s whole range would be deleted but rather the product or products which were not competitive would be deleted.  According to Mr Jones, his practice was that when a deletion situation arose he would inform his CMA that she should arrange to have Captain Cutless brought in to the particular store.  In his evidence‑in‑chief Mr Jones did not say that he told his assistant, Ms Austin or Ms Miller, what to have deleted.  Rather, his evidence was that they told the plant baker that its product would be removed from the store.  Ms Austin, in her primary evidence, said that in her conversations with plant bakers when a deletion situation occurred she would tell them that their products were deleted.  I will consider her evidence in greater detail later as there is a significant issue as to whether she had Safeway’s authority to act in the way she did so as to bind Safeway.

257               Mr Jones had little recollection of what Mr Brookes told him as to the bread to be deleted.  He recalled being told to delete the bread in respect of which Safeway was uncompetitive, that is to say, the bread in respect of which the store managers had said Safeway was uncompetitive.  However Mr Jones did not generally speak to the store managers who rather spoke to his CMA who passed on the message to Mr Jones.  Although Mr Jones denied he gave an instruction to a store to delete or remove all the products of a plant baker as part of competitive action, he did tell his CMA, for example, to remove 680g Code C bread of a plant baker.  According to Mr Jones, in such circumstances, the CMA would give instructions to remove products such as white, wholemeal, toast, sandwich grain in the Code C range.  The following exchange occurred in the course of the cross‑examination of Mr Jones:

“Your instruction to your assistant was that she should organise the removal, the deletion of the bread that Safeway was uncompetitive in?---That’s correct.

 

Did you tell her what that meant, the bread that was uncompetitive in?---Yes, I believe so.

 

What did you tell her?---I told her that she could contact – well, when the store had advised us, which they had, the bread which we were uncompetitive on, then that bread should be removed from the store, to advise the store manager to remove the breads that were uncompetitive and for us to advise the supplier accordingly.

 

But how was she to know what bread Safeway was uncompetitive on?---The store, when they phoned up, advised her what breads we were uncompetitive on.

 

So if the store manager said, ‘We’re uncompetitive on Tip Top 680‑gram loaves,’ for example, if it was Tip Top, you’d say the store manager would ring up and say, ‘We’re uncompetitive on Tip Top 680‑gram’?---Yes, that’s correct.

 

So does that mean that you told Felicity to ring up Tip Top and arrange for the removal of all Tip Top 680‑gram loaves?---Well, that’s right, 680 gram.

 

That’s all?---When I talk Tip Top 680 gram, there’s a range of products which relates to code C 680 gram.  That would be the product that she would remove.

 

Do you want to explain that please?---680‑gram bread, code C, there’s a group of products that fall into that commodity group and the category manager’s assistant is aware of that because she actually does the links on all the bread.

 

[GOLDBERG J]:         She does the?---Links.  Part of her responsibility is to link up all the products which fall under the code C 680‑gram bread, so she’s probably more familiar with all the range than what I am, and that’s the instruction that I was given to do.

 

MR FAJGENBAUM:   What do you mean by ‘links’?---It’s an in‑house term.  When you have a code C bread, you may have one variety and then you may have two or three other different other varieties being on the same product or product range, so if you’re looking at code C, you’re looking at sandwich, and the link to that would be toast, for one example, then the other variants which may be wholemeal and grain, so they’re linked up.  So if we did any changes to the record, your Honour, you wouldn’t have to punch them all in on the four; she’d only have to punch the one and it would link to the other three or four.

 

[GOLDBERG J]:         Are you saying something to this effect, that if you told her to remove either code C or 680‑gram code C, she would understand that to cover things like white, wholemeal, toast, sandwich, for example?---Exactly right, your Honour, yes, that’s correct.”

 

258               It is against the background of this evidence that I am satisfied that from time to time over‑deletions occurred either by mistake or through lack of clear communication.  Not all the over‑deletions can be explained this way.  For example, the Frankston deletion in May 1994, which involved Mr Brookes becoming aware of the extent of the deletion at the time the deletion decision was made, is significant because, as Mr Brookes agreed, the memorandum from Mr Jones which he saw (when it was sent) was an instruction to withdraw all Buttercup bread other than Atlantic and specialty rye.  I shall return to this issue.

259               Mr Brookes recognised that an over‑deletion could be viewed as punishing a plant baker in the following exchange:

“If all these breads were deleted, it would be wrong, because in those circumstances what Safeway would be doing would be punishing the baker rather than restoring its competitive position?---I would say that if that’s occurred the reasons could certainly be deemed as punishing the baker.  However, it could also be deemed that it was very poor communication on my part to Mark in not spelling out the policy clearly enough or perhaps clear communication from Mark to his team, from the category team to the store manager, from the store manager to the assistant manager or the duty manager –there’s any combination of those that could have resulted in that taking place.  But as you’ve spelt it out there, it could be seen as being punitive to that manufacturer, yes.”

 

However Mr Brookes disavowed a punitive purpose in the policy and I accept his evidence in this respect.

 

260               I am not satisfied that the over‑deletions that occurred lead to the conclusion that it was a purpose of Safeway’s policy, or part of Safeway’s policy, to punish plant bakers by deleting all their products or by deleting more products than just the product or products in respect of which the relevant store manager or Mr Jones perceived Safeway was uncompetitive.  The over‑deletions must be considered together with the other evidence to which I have referred, in relation to the creation and implementation of the policy which includes not only the evidence from Mr Brookes and Mr Jones, but also the evidence in relation to the communications to Safeway staff and the evidence of plant bakers, in particular, in relation to requests for case deals.  Further, as I have found earlier, a number of the deletions occurred either by mistake or through lack of clear communication.

261               There were also instances where over‑deletions were corrected and bread was restored to the shelves.  Mr Jones told of one such instance involving Buttercup in May 1994.  Mr Cooper from Buttercup said that on occasions when products were deleted that should not have been deleted, he telephoned Safeway and complained about the deletions and generally the bread was restored.  If the purpose of the policy was to punish the plant bakers by deleting all their products or by deleting more products than just the products in respect of which Safeway was perceived to be competitive, it is unlikely that over‑deletions would have been corrected.

262               It will be necessary to consider each over‑deletion in the context in which it occurred to determine whether a contravention of the Act occurred in that instance and I will address this issue when I come to consider each particular incident upon which the Commission relied.

263               I turn to the issue of which brand of price‑fighting bread should have been introduced when a plant baker’s bread was deleted.  Notwithstanding the concern Mr Brookes and Mr Jones had in relation to Safeway being seen to be competitive in relation to a plant baker’s branded products, Mr Jones did not introduce the price‑fighting bread of the plant baker whose bread was deleted.  Captain Cutless, made by Sunicrust, was the price‑fighting bread introduced when Tip Top or Buttercup bread was deleted and Budget Family Fresh, made by Buttercup, was used when Sunicrust bread was deleted.  The Commission submitted that the use of a price‑fighting bread other than the price‑fighting bread of a baker whose bread had been deleted reflected and implemented Safeway’s punitive policy.

264               Safeway’s evidence on this issue was unsatisfactory and Mr Brookes’ and Mr Jones’ evidence diverged.  In his statement, Mr Brookes did not suggest that it was any part of the policy that the price‑fighting bread to be introduced was the bread of the baker whose bread was being deleted.  Nor did he suggest that he had communicated this matter to Mr Jones.  However, in cross‑examination he said that it was part of his thinking and part of his policy to introduce the price‑fighting bread of the baker whose bread was being deleted.

265               If this was his thinking, he did not communicate it to Mr Jones.  Nor did he or Mr Jones tell the plant bakers the reason why Safeway wanted the price‑fighting bread.  Further, Mr Luscombe and Mr Mead said that Mr Brookes had told them that if a baker did not offer Safeway a case deal, Safeway would bring in a cheaper bread of another baker to replace that baker’s bread.

266               On the first occasion on which Mr Brookes was involved in a deletion he did not seek to introduce the price‑fighting bread of the plant baker whose bread was deleted.  The first occasion was the Frankston incident, to which I refer later in these reasons.  In that incident Mr Brookes either gave instructions for, or approved of, the deletion of all the Buttercup range and the introduction of Captain Cutless made by Sunicrust.  I am satisfied that it was not any part of Mr Brookes’ policy that when a plant baker’s bread was deleted, that baker’s price‑fighting bread should be introduced.  Even if it had been part of Mr Brookes’ thinking, he never communicated this matter to Mr Jones, Mr Mead or Mr Luscombe. 

267               Mr Jones could not recall Mr Brookes or anyone else telling him that he had to introduce the price‑fighting bread of a plant baker whose bread was being deleted.  Mr Jones’ practice was to introduce Captain Cutless in every deletion, except when Sunicrust was deleted in which case he would bring in Budget Family Fresh.  His explanation was that he thought it was stupid to ask a supplier to supply a price‑fighting bread when the supplier had refused to supply a competitive bread and think that the supplier would service Safeway with stock and support.

268               This explanation is difficult to accept.  Sunicrust and Buttercup had agreed to supply their price‑fighting bread within twenty‑four hours of an order being placed.  Apart from the Lalor incident in April 1995, Mr Jones did not ask a plant baker whose bread was being deleted to supply its price‑fighting bread (save for the latter stage of the Traralgon deletion).  There was no reason to expect that Sunicrust and Buttercup would not supply the bread they had agreed to supply.

269               Further, when Buttercup or Sunicrust bread was deleted, Mr Jones expected those companies to deliver their bread which had not been deleted.  In the case of Sunicrust, this included Home Brand bread.

270               I do not find Mr Jones’ explanation as to why he did not introduce the price‑fighting brand of the plant baker whose bread was being deleted credible.  He had no factual basis for believing that Sunicrust and Buttercup would not honour their contractual commitments and he expected them to continue to deliver non‑deleted products when other products were deleted.

271               However, I am not satisfied that Mr Jones’ decision to introduce a price‑fighting bread other than the bread of the plant baker whose bread was being deleted warrants the conclusion that Safeway had a policy of punishing the plant bakers in the terms alleged by the Commission.  Mr Jones’ reason for introducing the price‑fighting bread he introduced must be evaluated together with the other evidence to which I have referred, in relation to the creation and implementation of the policy which includes not only the evidence from Mr Brookes and Mr Jones, but also the evidence in relation to the communications to Safeway staff and the evidence of plant bakers, in particular, in relation to requests for case deals.

272               It will be necessary to consider each incident in which a price‑fighting bread was introduced in order to determine what was the purpose of the deletion in that particular case, albeit against a background of the policy created by Mr Brookes as I have found it.

Conclusion on the purpose of the policy

273               There was substantial evidence that pointed to the conclusion that the purpose of Safeway’s policy was to enable it to be competitive with its competitors and was not to punish the plant bakers if they sold bread to independent stores at a cost price which enabled them to sell the bread for less than Safeway was selling bread or to deter them from selling such bread to independent stores.  I have already analysed some of the evidence that supports that conclusion – the evidence of Mr Brookes, Mr Jones, Mr Bray, Mr Luscombe and the evidence of the plant bakers in relation to Safeway requesting case deals before deletions occurred.

274               The Commission submitted that the best evidence of the purpose of the policy was the manner in which it was implemented which demonstrated that its purpose was to punish plant bakers for selling bread at a discount to independent stores.  There are certainly aspects of the implementation of the policy that may be said to be inconsistent with the purpose of the policy as claimed by Safeway.  I have already referred to the issue of over‑deletions and the choice of the price‑fighting bread which was introduced when a deletion occurred.

275               Although Safeway asserted that the purpose of its policy was to enable it to be competitive with its competitors and was not a policy targeted at 99c bread, in practice what happened was that the deletion of a plant baker’s bread occurred as a result of an independent store discounting a secondary or generic brand by a substantial amount often as low as 99c a loaf.  Mr Brookes acknowledged this in the following exchange: 

“As it turned out, it was the 99‑cent bread that was the main object of the implementation of the policy, or have I got that wrong?---No, that turned out to be the main object but our object was anywhere we were undersold.  But as it turned out, the main instances were at 99 cent bread or 99 or below $1 bread.”

 

276               There is also support for the conclusion that Safeway was concerned with competitors’ cheap bread rather than a particular brand of a plant baker in the fact that the competitors in respect of whom the incidents occurred, sold premium brands of the plant bakers in addition to the secondary brands which they sold at discounted prices.

277               In a number of the incidents relied upon by the Commission, the Safeway store managers gave evidence as to what they communicated to Safeway’s head office.  They referred to the fact that cheap bread, or bread at 99c a loaf, was being sold rather than that the bread was perceived as the same bread as Safeway’s premium brand.  Although they identified the manufacturer of the bread, the thrust of their communication was that it was the cheapness of the bread which concerned them.  No store manager suggested that in a particular instance there was a concern that customers were perceiving the discounted bread as the same bread as the premium brand sold by the plant baker to Safeway but in a different wrapper.

278               Even if it be the fact that Safeway was concerned about cheap discounted bread per se, it does not follow that the purpose of its policy was not to be competitive but rather was to punish plant bakers for selling, or to deter them from selling, bread at a discount to independent stores.  I do not draw that conclusion from the evidence that Safeway was concerned about cheap bread and frequently activated its policy in relation to cheap bread.

279               It was also submitted by the Commission that it was no part of the policy as formulated or implemented that case deals were sought before deletions occurred.  I have already found that the policy as formulated included a requirement that case deals be sought before deletions occurred.  In some of the incidents relied on by the Commission (to which I shall refer) a case deal was not sought before the deletion occurred.  An example is the deletion which occurred at Frankston in May 1994.  However, there was evidence that on a number of occasions Mr Jones sought a case deal before the deletions occurred.  The fact that a case deal was not sought on a particular occasion does not lead me to the conclusion that the implementation of the policy showed that it was no part of the policy, as created, that case deals be sought before deletions occurred. 

280               There was evidence, in particular, from Mr McLeish from Sunicrust, that on a number of occasions Mr Jones asked Mr McLeish to supply Sunicrust branded products at the same price as it was supplying a secondary, generic or unbranded bread to another store.  The following exchange in the cross‑examination of Mr McLeish was illuminating in this respect:

“Does it follow from the answer you gave to that last question, Mr McLeish, that you accept that Mr Jones did say to you words to the effect of, ‘Is Safeway buying the Sunicrust bread at the same cost price as Sunicrust is supplying the bread to the independent’?---Yes, well, it happened so many times it could have happened on that occasion.

 

When you say it happened so many times, you’ve referring to the fact that Jones’ invariable practice in conversations he had with you about discounting prices was to ask you whether Safeway was buying the Sunicrust bread at the same cost as it appeared to be supplied to the competitor?---That’s right.

 

That was his invariable practice, was it not?---Yes, on numerous occasions.”

 

In relation to the Preston incident, Mr Guthridge from Tip Top recalled a conversation with Mr Jones to the following effect:

 

“Then I want to suggest to you that shortly thereafter you had a conversation with Mr Jones which was to this effect:  that Mr Jones said to you, ‘Chris, we’ve just gone and purchased a loaf of bread from Tip Top’s Preston stall.  You lied to me.  You’re selling fresh bread.  I find it difficult to deal with somebody from Tip Top who would tell me lies.  Safeway wants to buy Tip Top bread at the same cost price at which you’re supplying the Preston Market stall,’ and you said that you would get back to him.  Do you remember that conversation?---I do remember a conversation in those lines, yes.”

 

I do not conclude from an absence of such a request on a particular occasion that the policy had changed.

 

281               Although the over‑deletions which occurred were inconsistent with the policy contended for by Safeway, as I have noted earlier, they have to be evaluated and considered together with all the evidence led by Safeway and the Commission in relation to the policy.  It is open to me to infer from the over‑deletions that occurred that the purpose of the policy was to punish plant bakers but I am not prepared to draw that inference having regard to other evidence, to which I have referred.  That evidence included not only evidence from Mr Brookes and Mr Jones as to how the policy came into existence, but also evidence in relation to the communications to Safeway staff in relation to the policy and the evidence of plant bakers as to the terms in which the policy was communicated to them, including the evidence that case deals were to be sought before a deletion was decided upon and a price‑fighting bread was introduced.  The seeking of case deals before deletions occurred is inconsistent with the policy for which the Commission contended.  If the purpose of the policy was to punish the plant bakers I do not consider that Safeway, through Mr Jones, would have sought case deals before the deletions occurred.

282               A consideration of the whole of the evidence, to a substantial part of which I have referred (and including the evidence as to the price‑fighting bread used), satisfies me that Safeway had a bread policy which was not in the form of the policy alleged by the Commission, but was rather brought into existence to enable Safeway to be competitive.  I am satisfied that it was not introduced, nor did it exist, to punish the plant bakers if they sold bread to independent stores at a cost price which enabled them to sell the bread for less than Safeway was selling bread, or to deter them from selling such bread to independent stores.  The policy created by Mr Brookes was not to delete all the bread of a plant baker if a particular premium or proprietary brand of a particular plant baker was not competitive with the bread sold by an independent supermarket.  Mr Brookes denied this was the policy and I accept his denial.  I reject the Commission’s submission that Mr Brookes’ rationale for his policy was so wrong he could not have held it and that his explanation of the policy was not credible.

283               I am satisfied that the nature and purpose of Safeway’s policy, where independent stores were selling a plant baker’s bread for a price lower than Safeway’s price of that plant baker’s proprietary bread, was not as contended by the Commission in its primary form (as pleaded in par 6D(h) of the statement of claim) (par 80 above) or in its alternative form (as pleaded in pars 19AA(g), 19CC(g) and 19EE(g) of the statement of claim).  The existence of that part of the policy which involved Safeway asking for case deals before deleting a plant baker’s product is inconsistent with the Commission’s contentions as to the nature and terms of the policy.

The role of Mr Jones’ Category Manager’s Assistant

284               Mr Jones’ CMA played a significant role in the implementation of Safeway’s bread policy.  Three persons occupied the position of CMA at relevant times.  Ms Carlene Lewis (later Stosic) was CMA from 5 July 1993 to 30 May 1994, Ms Felicity Austin was CMA from 30 May 1994 to April 1995 and Ms Elissa Miller was CMA from the end of April 1995 until November 1995.  Mrs Stosic was the CMA when the Frankston incident commenced.  Ms Austin was the CMA during the period when the Preston, Frankston, Southland, Vermont, Traralgon and Lalor incidents occurred.  Ms Miller was the CMA during the period when the two Albury incidents and the Geelong and Ferntree Gully incidents occurred.  The CMA’s role was that of an administrative assistant to Mr Jones but the CMA’s work involved more than secretarial and clerical activities.  The CMAs were involved in communications to and from Safeway stores and they would answer Mr Jones’ telephone.  The CMAs were the initial point of contact for store managers who wanted to bring to the category manager’s attention (as they were required to do under the policy as formulated by Mr Brookes) the fact that their store was uncompetitive in bread because of the discounting of bread by a competitor and the fact that they wanted to take competitive action.

285               The Commission submitted that the CMAs implemented the bread policy in a manner that demonstrated that the true purpose of the policy was to force the independent stores to cease discounting bread (either secondary brand, generic or plain wrap) below Safeway’s standard pricing for its cheapest bread.  I do not consider that the evidence warrants or supports that conclusion and I propose to examine it in some detail.  The Commission also submitted that Ms Austin said that her intention in contacting plant bakers was to have the discounting by the retailer the particular plant baker was supplying cease.  This submission does not take into account the whole of Ms Austin’s evidence to which I shall refer.

286               The duties of Mr Jones’ CMA extended into the area of being the recipients of information from store managers as to the existence of discounted bread sold by their store’s competitors or arranging for Captain Cutless bread to be introduced into Safeway stores.  On some occasions, to which I shall refer, the CMA told the plant bakers that their bread, which was uncompetitive in relation to a Safeway competitor’s bread, was deleted from the Safeway store.  This proceeding is concerned with ten incidents involving the deletion of plant bakers’ bread but that should not obscure the fact that Mr Jones’ CMA received many telephone calls from Safeway stores relating to the stores’ competitors selling low priced or discounted bread.  Ms Austin estimated that she would have received more than 200 such telephone calls and Ms Miller said she received hundreds of such telephone calls.

287               The CMAs also monitored the Safeway stores and the retail prices at which bread was being sold by stores in competition with Safeway stores.  Ms Austin used a form that set out the name of each Safeway store in Victoria to record the type of bread that had been introduced into a Safeway store to meet competition from a particular competitor.  In this form she set out the supplier to the competitor (which she obtained from the local store manager), the name of the competitor, the price of its bread, the competitive bread introduced by Safeway and its price.  Ms Miller used the same form and up‑dated the Safeway store lists on her computer weekly.

288               It was part of the implementation of the policy by Mr Jones that his CMA was the point of contact with plant bakers and Safeway stores when he decided that a plant baker’s bread should be deleted from a particular store.  Mr Jones said that the normal practice was that his CMA would telephone a store manager to tell him or her that particular bread was not to be displayed on the shelves.  Mr Jones also said that it was part of his practice to get his CMA to telephone the plant bakers and tell them that bread was being deleted.  If Mr Jones decided that a price‑fighting bread should be introduced into a store he told his CMA and it was the CMA, rather than Mr Jones, who arranged with Sunicrust for the delivery of Captain Cutless or arranged with Buttercup for the delivery of Budget Family Fresh.

289               Mr Jones’ CMA was the first recipient of all telephone calls made to Mr Jones.  His telephone was answered initially by his CMA.  In particular, Mr Jones’ CMA was the primary point of contact for store managers who telephoned Mr Jones about uncompetitive bread.  This is a significant matter because it had the consequence that Mr Jones did not find out directly what was the concern of the store manager.  For example, Mr Jones only found out about what was happening in Albury in May 1995 and in Ferntree Gully in November 1995 as a result of the Safeway store manager telephoning and speaking to Ms Miller. 

290               Mr Jones said that he gave instructions to his CMA as to what questions to ask store managers when they telephoned about uncompetitive bread.  Ms Miller said that her procedure was to ask the store manager for details about the competitor’s bread such as its price, type, who was the supplier and for how long has it been sold at that price.  Ms Austin did not say what questions, if any, she asked store managers, although it was apparent from the evidence that the store managers gave her some details of the relevant competitive bread.  However it was only the CMAs who could give reliable evidence as to what the store managers said about uncompetitive bread.  This becomes an important issue when one turns to consider the particular incidents alleged as in some of the cases the deletions occurred otherwise than in accordance with the policy.  For example, the policy did not apply to special promotions.  Yet a deletion occurred in Albury in May 1995, notwithstanding that Bob’s IGA was conducting a two day special.

291               Mrs Stosic had little recollection of any matter concerning competitive activity in the proprietary bread category. 

292               After Ms Austin became Mr Jones’ CMA, she routinely called most of Safeway’s stores in Victoria to see if the store manager had any problems.  She was also the recipient of frequent calls from store managers who had problems in relation to bread sales and supply.  Although Ms Austin commenced by calling the stores, after some months the stores fell into the routine of calling her.  Typically the calls would relate to problems of service or complaints that a competitor was selling discounted bread which was affecting Safeway’s sales.

293               After Ms Austin had been CMA for some time she began arranging for Captain Cutless to be introduced into a Safeway store after its manager called and told her that a competing retailer was selling bread cheaper than Safeway was.  She would call Sunicrust and organise the delivery.  Although Ms Austin initially said that Mr Jones had told her that she could carry out this task, her later evidence suggested that this was not an unlimited authority.  Ms Austin at one point in cross‑examination, did not accept that if she determined, without reference to Mr Jones, that a store could have Captain Cutless she would be doing something that she was never told she was allowed to do.  In her words, deciding if a store manager could have Captain Cutless “was part of the bread thing”, and she did not ask Mr Jones all the time whether she could put Captain Cutless into a store.  Ms Austin put it another way when in response to the question – “Did Mr Jones ever say to you that you had authority to put in Captain Cutless”, she answered “That was part of my job function to do that”.  She could not identify the circumstances in which that would occur.

294               Ms Austin accepted that when she first started as CMA it was primarily the responsibility of Mr Jones to determine whether Captain Cutless should be introduced into a store and that when she was told by a store manager that his or her store’s bread was uncompetitive it was her responsibility to tell Mr Jones about it.  When it was put to Ms Austin that that remained the position throughout her employment, she did not agree and said that she had authority to introduce Captain Cutless into a store.  This occurred in the following exchange in cross‑examination: 

“I am asking you, you understand, throughout the time that you worked Mr Jones, the position was, wasn’t it, that you understood it to be primarily the responsibility of Mr Jones to determine whether Captain Cutless should be introduced into any particular store?---When I first started, yes.

 

I want to suggest to you that that remained the case throughout the period of your employment.  Do you agree with that?---Not when it’s put to me that I can – that I have that authority to put it in.

 

Did Mr Jones ever say to you that you had authority to put in Captain Cutless?---That was part of my job function, to do that.

 

But you’ve just told us, as I understand your evidence, that initially you understood that it was Mr Jones’ primary responsibility to determine when Captain Cutless would go in?---When I first took over the position, yes.

 

Then, as I understand your evidence, you say that something changed?---No, I can only say that that was on the okay from Mark, from Mark Jones.

 

[GOLDBERG J]:       I’m sorry, what was on the okay from Mark?---For me to do that.  I wouldn’t have just done that.”

 

295               However Ms Austin was not prepared to say that Mr Jones told her that she could introduce Captain Cutless into a store without reference to him.  In effect she appeared to accept that when Mr Jones was available she referred a complaint or request from a store to him.  This appeared from the following exchange:

“You don’t remember Mr Jones ever saying to you that you could arrange for the supply of Captain Cutless to stores without reference to him?---I couldn’t confidently say that, no.

 

What happened in fact was that from time to time when Mr Jones was unavailable you did that.  Is that right?---That could have been the case, yes.

 

When Mr Jones was available you referred it to him to make the decision?‑‑‑Yes.”

 

296               Although Ms Austin said that she arranged for Captain Cutless to be introduced into stores without the need to tell Mr Jones 80 per cent of the time, that answer was given after she said she was unable to give an approximate percentage of the cases in which Captain Cutless was introduced where she consulted Mr Jones and obtained his approval before Captain Cutless was introduced.  Ms Austin’s figure of 80 per cent also does not sit easily with her earlier evidence that it would have been on quite a few occasions that she put Captain Cutless into a store without first informing Mr Jones.  I am not prepared to accept Ms Austin’s figure of 80 per cent as evidence that she had authority to introduce Captain Cutless to a store without recourse to Mr Jones if he was available to be consulted. 

297               I am satisfied that the extent of Ms Austin’s authority to introduce a price‑fighting bread into a Safeway store was limited to those occasions when Mr Jones was unavailable to be consulted on the matter.  Further, Ms Austin agreed that she had no authority to talk to a plant baker about case deals or the cost of bread to be supplied by the plant baker.  Mr Jones agreed with Ms Austin’s evidence that it was part of her job to put Captain Cutless into stores.  Mr Jones also agreed that he had given Ms Austin instructions to the effect that she could make arrangements to introduce Captain Cutless into stores when he was unavailable but that she should refer the matter to him if he was available. He did not give her instructions that she could otherwise introduce Captain Cutless into stores without reference to him.

298               What is significant about Mr Jones’ evidence is that he did not address the point that the introduction of Captain Cutless into a store usually involved the deletion of a plant baker’s bread which Ms Austin also arranged.  Although Captain Cutless could be introduced into a store without necessarily deleting a plant baker’s bread, that was the usual practice when a store manager telephoned about uncompetitive bread and the decision was made to introduce Captain Cutless as a price‑fighting bread.  Put another way, the introduction of Captain Cutless and the deletion of a plant baker’s bread were part and parcel of the same transaction or activity.  As Ms Miller said deleting bread “came hand in hand” with the introduction of Captain Cutless.  This evidence occurred in the following exchange:

“Do you recall, either way, any discussion with Mark Jones about whether you could, at your discretion, if he wasn’t there, delete bread?  I want to move away from putting in Captain Cutless to deleting the bread?---Removing the bread?

 

Removing the bread?---It came hand in hand.  We wouldn’t insert Captain Cutless without the removal of the competitive bread.

 

Why is that?  Why did it go hand in hand so far as you were concerned?---The only time we would put Captain Cutless in was when we were notified from the store that they were uncompetitive on 680-gram code C bread for instance and we would then combat that activity with Captain Cutless bread.

 

Yes, but tell me if this is correct or incorrect:  as I understand your evidence you can’t recall any discussion with Mr Jones where he told you you had the discretion?---No.

 

Do you agree with that?---Yes, I do.

 

You told his Honour that you can recall one occasion when you yourself – Mr Jones being absent and Mr Brookes being absent – told a store that Captain Cutless was coming in and telephoned a supplier to say that there would be no deliveries.  Do you recall that evidence?---Yes.

 

Do you now recall whether you told Mr Jones about that or you didn’t tell Mr Jones about your conduct?---I always tell Mark Jones.  I left him both a voice‑mail, a message on his desk and spoke to him first thing in the morning when he arrived back.

 

Do you recall what Mr Jones’ reaction was when you told him?  Do you remember what he said?---Not specifically but I recall him saying he would have done the same thing”.

 

299               There is no direct evidence that Mr Jones told Ms Austin or Ms Miller that they had a discretion whether to delete a plant baker’s bread when introducing Captain Cutless, but I am satisfied that it was implicit in his approval of them introducing Captain Cutless to a store if he was unavailable that they could delete the relevant plant baker’s uncompetitive bread from that store.

300               Although Mr Brookes said that it was part of the policy that only Mr Jones could authorise the introduction of the price‑fighting breads, Captain Cutless and Budget Family Fresh, this aspect was not specified by Mr Brookes in the evidence he gave as to the content and terms of the policy.  Mr Brookes left the implementation of a number of aspects of the policy to Mr Jones to work out.  I am satisfied that it was not a part of the policy as formulated by Mr Brookes, or as he communicated to Mr Jones, that only Mr Jones, and not any member of his staff, could decide in a particular case to introduce Captain Cutless or Budget Family Fresh into a store.  Whether that situation was to occur was for Mr Jones to determine in deciding how to implement the policy.  Mr Jones told Ms Austin that she could make that decision if he was unavailable.

301               This finding is important because there was no evidence that on the occasions on which Ms Austin authorised the introduction of Captain Cutless into a store she did so even though Mr Jones was available to be consulted on the matter.  Rather the evidence was that when Mr Jones was available she referred the matter to him for decision.  It will be necessary, therefore, to return to Ms Austin’s involvement when I consider those specific incidents alleged by the Commission to be contraventions of the Act.

302               The Commission submitted that it was significant that Ms Austin said that her intention in contacting the plant baker whose bread was being discounted by a competitor of a Safeway store was to have the discounting cease and that her purpose was to get the competition back up to where the competitor’s price became standard pricing.  It is problematic whether such an expressed intention and purpose by Ms Austin could be attributed to Safeway for the purpose of determining whether Safeway has contravened the Act, (see the analysis in relation to Mr Feldgen’s authority – pars 804‑818).  In any event, Ms Austin explained this evidence in terms that neutralised the significance of the evidence. 

303               Ms Austin’s evidence along these lines emerged in the following exchange: 

“When you rang the bread manufacturer, any one of those people you mentioned, who were supplying the fellow down the road, what would you usually say to them?---‘So‑and‑so down the road has got code C, whatever it was, at this price.  Can you fix it?’

 

[GOLDBERG J]:         I’m sorry?---‘Can you fix it?’

 

Can you fix it?---Yes, and I use that term very loosely.

 

I’m sorry, what do you mean by that?---Just in my statements I know that things can get taken the wrong way and that when I say ‘fix it’ they resolve it or they – I don’t know what they do to fix it.

 

MR GINNANE:          So ‘fix it’ in the sense of resolve it, solve the problem?---Solve the problem.

 

What common response did you get from the person at the bread manufacturer that you spoke to?---The problem was usually resolved.

 

But taking it step by step, when you first rang them and said, ‘There’s a fellow down the road selling at this price, fix it’ or words to that effect, what would they say in the first instance?---Okay.”

 

The evidence, after objection, continued in the following terms:

“When you rang the bread manufacturer, whichever one it was, because of the price down the road, what was your purpose in making the call?---I think the purpose was to get the competition back up to a level where it becomes standard pricing.

 

By competition, what do you mean?---Well, there isn’t [-] people were going to Joe Bloggs instead of going - - -

 

Going to where?---To that particular Safeway store.

 

Now, I asked you before where you got the authority to ring Sunicrust to order the Captain Cutless and you said that after a couple of months in the job you did get that authority from Mark Jones.  Where did you get the authority to ring the bread manufacturer, in addition to ringing Sunicrust for Captain Cutless?---That was just – that became part of it.  It was actually doing the bread companies a favour in letting them know that they wouldn’t be required in that store – courtesy.

 

All right, a courtesy call?---Courtesy call.”

304               The response that Ms Austin was letting the plant bakers know, as a matter of courtesy, that their bread would not be required in the Safeway store is not consistent with her earlier answer that she called the plant bakers to ask them to fix or solve the problem.  Nor is it consistent with her evidence that she expected the plant baker to contact the competitive retailer with a view to increasing its bread prices.  In cross‑examination Ms Austin said that this expectation was a presumption on her part as to what might have happened and she agreed that the plant baker might equally have discontinued the discount being given or discussed prices with Mr Jones.

305               Ms Austin’s explanation for her evidence as to her intention and purpose emerged as the result of the tender of an earlier handwritten statement she had made to Safeway’s solicitors.  In par 5 of that statement Ms Austin said:

“My understanding of Safeway’s approach to the bread companies was that Safeway tried to get the same deals on cost price from manufacturers as given to other retailers.  It was not my job as a Category Manager’s Assistant to try to get these deals.  That was Mark Jones’ job.  My job was to advise manufacturers of any delistings of their bread at a particular Safeway, and arrange to bring in Captain Cutless bread.  This is what I tried to explain to Mr Eva when I said in my Second Statement, para 11 that ‘my intention [in contacting the manufacturer was to seek to have the discounting by the] retailer cease’.”

 

306               Ms Austin said that this paragraph reflected her understanding of the procedures that were adopted in relation to the withdrawal of bread and the supply of Captain Cutless although she did not know if Mr Jones ever said that to her.  Ms Austin agreed with counsel for Safeway that when she said “My intention in contacting the manufacturer was to seek to have the discounting by the retailer cease”, she was referring to what appeared in par 5 of the statement made to Safeway’s solicitors.  This answer appeared to mean that her intention was not to achieve a result that was a contravention of the Act but rather was to achieve a result that put Safeway in a competitive situation through the bread it sold.  I have some difficulty in determining precisely what Ms Austin meant when she gave this answer to counsel.  It is confusing and it is not easy to reconcile the two statements. 

307               Ms Austin’s evidence as to her purpose became more confused when, in re‑examination, counsel for the Commission put to her the first sentence in her handwritten statement where she had said that her understanding of Safeway’s approach to the bread companies was that it tried to get the same deals on cost price from manufacturers as was given to other retailers and her earlier answer that her purpose in making telephone calls to the bread manufacturers was to get the competition back to a level where it became standard pricing.  Counsel asked Ms Austin could she reconcile the two statements.  Her answer was that she was presuming that Safeway wanted the same cost. 

308               Ms Austin also agreed that the following paragraph in the statement accurately reflected the purpose of the policy as she understood it:

“In any business, such as Safeway I believe you should try to get the same deals from suppliers as other competitors get.  That is all I believed Safeway and Mark Jones were doing”.

 

309               The following exchange then occurred:

“When you said this morning at page 753, ‘The purpose was to get the competition back up to a level where it becomes standard pricing,’ you weren’t intending to say anything inconsistent with the handwritten document which I’ve just shown you now?---No.”

 

310               Counsel for Safeway then put to Ms Austin her earlier evidence (par 303 above) that when she telephoned the plant bakers about a Safeway competitor selling discounted bread she usually said “Can you fix it?” and put to her that what she was intending to convey was that she never discussed with the plant bakers what they should do to fix the problem and she was never told by Mr Jones to do anything like that.  Ms Austin agreed.

311               Ms Austin had given evidence that in some instances when she spoke to plant bakers about a Safeway competitor discounting bread she was told that the person to whom she spoke would see to it that the retailer increased its price to a level acceptable to Safeway, or words to that effect.  She could not identify who made this statement, when it was made, or which company it was, and said that it only happened on one occasion.  She agreed that she had not told Mr Jones of this statement.  As her earlier evidence showed, it was not her intention to achieve such a result.

312               If the purpose of calling the plant bakers was to get Safeway’s competitors to increase the price of their discounted bread, that purpose was not communicated by Mr Jones to Ms Austin.  Ms Austin said that Mr Jones told her that the reason for replacing plant baker’s bread with Captain Cutless where a store manager regarded the store as uncompetitive, was to have competitive bread.  Ms Austin agreed that when a Safeway store manager telephoned about a competitor selling discounted bread she would not automatically say that Captain Cutless would be introduced.  If the store felt that it needed competitive bread it would be introduced; if the store felt that it did not need competitive bread, it would not be introduced. 

313               It is not easy to reconcile Ms Austin’s evidence as to her intention and purpose in implementing the policy.  Her various explanations (to which I have referred) make it difficult to determine what was her intention and purpose at the time she was implementing the policy.  Her evidence in this respect is not reliable, and applying the Briginshaw principle, I am not satisfied that it was her intention or purpose to induce, or attempt to induce, the plant bakers to get Safeway’s competitors to increase the price of their bread.  This is not to cast any doubt on the credit of Ms Austin.  I am satisfied that she was a truthful witness who made a sincere attempt to recall events long since past.  Her demeanour in the witness box and, in particular, her evident distress on some occasions when questioned by counsel albeit in an appropriate non‑threatening manner, demonstrated to me that she was doing her best, albeit sometimes in a confused way, to be honest and non‑partial. 

314               As noted earlier, Ms Miller succeeded Ms Austin as Mr Jones’ CMA in April 1995.  Ms Miller obtained most of her knowledge as to her duties from Ms Austin and, in particular, she said that she received 85 per cent or 90 per cent of the instructions in relation to her role in taking competitive action on bread from Ms Austin, although Mr Jones had some input.

315               Ms Miller received hundreds of telephone calls from Safeway store managers in relation to competitors selling discounted bread.  These calls related to big competitors such as Coles and Franklins as well as independent stores.  When she received these calls she would find out the price and type of competitive bread, its supplier, the length of time it had been sold and whether it was a special promotion.  She passed on this information to Mr Jones and it was his decision whether to introduce Captain Cutless.  The name Budget Family Fresh was not familiar to her.  Although she did not speak to plant bakers about obtaining a case deal for Safeway she arranged with Sunicrust to introduce Captain Cutless when asked to do so by Mr Jones.  Whenever Ms Miller arranged to introduce Captain Cutless to a store, she arranged for the removal or deletion of the relevant plant baker’s uncompetitive bread.

316               According to Ms Miller, Captain Cutless was normally introduced if Safeway could not get a case deal and was uncompetitive in relation to the competitor’s bread.  But she said being uncompetitive was not the sole basis on which a decision was made to introduce Captain Cutless.  There were other criteria such as the length of the competitor’s promotion.  If it was a one day promotion, she would tell the store manager, after referring the matter to Mr Jones, that no action would be taken.

317               Ms Miller said that Mr Jones was generally available when she received calls from Safeway stores so she could pass on the details to him and he would make the decision whether to introduce Captain Cutless.  Ms Miller was able to introduce Captain Cutless into a store if Mr Jones was unavailable and she only exercised this discretion on two occasions.

318               Like Ms Austin, Ms Miller spoke to the plant bakers when a decision had been taken to introduce Captain Cutless to a Safeway store and delete a plant baker’s bread.  Ms Miller did not have a specific recollection of what she told a plant baker on any particular occasion but she said that she had a standard practice.  She would tell the store that it would be receiving Captain Cutless and that it should sell it at a particular price and that it should withdraw the bread that the store had said was uncompetitive bread, that is, take it out to the back of the store.  Ms Miller said that on these occasions either she or Mr Jones would telephone the plant baker whose bread was to be withdrawn and tell the plant baker to collect the bread that had been delivered and not deliver any further bread until further notice.  She would describe the bread to be withdrawn as the bread in respect of which Safeway was uncompetitive such as by reference to its code, for example, 680 g Code C white sliced.  She would tell the plant bakers that the reason for the withdrawal was the activity happening in the particular competitor’s store concerned.  The deletion would continue until the competitive activity of that store ceased.  It is significant that Ms Miller was clear in her evidence that neither Mr Jones nor Ms Austin told her that she should withdraw all the bread of a plant baker. 

319               When these deletions occurred Ms Miller, like Ms Austin, would record the information on the form relating to competitive bread and the introduction of the price‑fighting bread.  She would give Mr Jones a copy of this form every time it changed.

Planograms

320               It was part of Safeway’s case that one of the changes that Mr Brookes made when he became Merchandise Manager in Victoria in 1994 was the introduction of a planogram technique for the location of bread.  The planograms were introduced into supermarkets progressively.  The planograms were created by a computer program called “Apollo” which sought to create a system whereby the best way of marketing a particular product or a range of products in a store could be worked out empirically.  A planogram was the graphic or visual representation of how the store was to be laid out and where products were to be displayed.  It was a pictorial depiction of the precise location of items and the manner in which those items are placed on a shelf in a store.  What Safeway sought to do by this technique was to plan its stores in an organised and logical way rather than leaving it to the various store managers from time to time.  This type of program was not unique to Safeway and had been adopted worldwide by all major retailers.   The planograms were prepared on a store by store basis. 

321               Planograms were used by supermarkets (amongst other users) to determine the optimum space and layout of items offered for sale in supermarkets.  The software performed a sophisticated calculation to determine when and where space should be devoted to an item within a category.  The software considered questions such as the total space available in the supermarkets, the sales history and performance of an item, the number of items offered for sale within the supermarket, the profitability based on sales history of particular items, and the size of items. 

322               The issue of planograms initially appeared to loom large as a reason why proprietary bread was deleted when a price‑fighting bread was introduced.  In its contentions filed before the hearing commenced, Safeway contended that the deletion of bread had two purposes.  The first was to make space for the introduction of a price‑fighting bread in circumstances where the constraints of a planogram discipline dictated that the most efficient means of introducing a new product involved the removal of another product to make way for it.  The second purpose was to preclude any perception that Safeway was uncompetitive.  There was considerable evidence as to how the price‑fighting bread, in particular Captain Cutless, was ranged or displayed on the shelves of particular Safeway stores and whether proprietary bread needed to be deleted or removed from the shelves in order to make space to display a price‑fighting bread.  Planograms did not make provision for special promotions and there was no provision in any planogram for price‑fighting bread such as Captain Cutless or Budget Family Fresh. 

323               The planograms were an integral part of the bread policy and were supposed to be followed to the letter.  Store managers had no discretion to vary them.  Nevertheless there was evidence that in a number of Safeway stores bread was placed in locations other than where the planogram required.  Mr Brookes was aware from his own observations that the directions as to where bread was to be located was not always followed.

324               The evidence in relation to when planograms were introduced to the stores involved in the relevant deletions was incomplete as was the evidence as to where the price‑fighting bread was placed when it was introduced.  In some of these stores the price‑fighting bread was not displayed in the space previously occupied by the deleted proprietary bread. 

325               By the time final addresses were reached, Safeway did not submit that the deletions occurred to make space to range or display the price‑fighting bread.  Mr Brookes had not advanced the need to make space as a principal reason for the deletions.  He said in his witness statement that:

“… withdrawal of product produced the convenient result that space was made available in the bread racks to introduce a price fighting bread which was offered for sale at a competitive price.  The main reason for the instruction to withdraw product was to ensure that consumers would not conclude that Safeway was uncompetitive.”

 

In his final address, counsel for Safeway said that Safeway did not put forward the need to have space to display the price‑fighting bread as a principal reason for the deletion of the proprietary bread; he said it was a consequence of deletion for reasons of uncompetitiveness that space became available for the price‑fighting bread.  Counsel for Safeway said that the planogram system and space requirements were not the principal reason for the deletion policy but were rather a secondary reason.

 

326               The Commission was critical of what it said were the shifts, changes and turns of Safeway’s planogram argument in the course of the hearing.  Certainly the emphasis on the reliance and significance of the planograms in relation to the deletion policy changed from time to time.  Although the Commission invited me to take these changes into account in determining whether I should accept Safeway’s evidence as to the purpose of its policy, I do not draw an inference adverse to Safeway as to the nature and purpose of its policy that it relied on the system of planograms to justify the purpose of the deletion aspect of its policy.  I accept Safeway’s submission that the purpose of the deletion aspect of the policy and the introduction of a price‑fighting bread in place of the deleted products was to enable it to be, and be seen to be, competitive and that the need to find space for the price‑fighting bread to be displayed was a consequence of the deletion.

THE TEN INCIDENTS

327               The contraventions of the Act alleged in the statement of claim arose out of ten specific incidents.  Eight incidents involved the deletion of plant bakers’ bread at Safeway stores where cheap bread supplied by a plant baker had been sold by an independent store.  One incident (Ferntree Gully) involved a threat to delete bread but no deletion occurred.  One incident (Preston Market) involved a deletion where cheap bread was sold by the plant baker itself at a market stall.

328               The incidents, dates of the deletions and the plant bakers involved are:

(a)        Frankston, 16 May to 6 July 1994 – Buttercup

(b)        Cheltenham, 15‑26 July 1994 – Buttercup

(c)        Vermont/Forest Hill, 16 July to 25 October 1994 – Buttercup

(d)        Traralgon, 5 August to 25 October 1994 – Sunicrust

(e)        Lalor and Thomastown, 13‑18 April 1995 – Sunicrust

(f)         Geelong, 17‑21 May 1995 – Sunicrust

(g)        Albury, 10‑15 May 1995 – Tip Top

(h)        Preston Market, 24 March to 30 April 1995 – Tip Top

(i)         Albury, November 1995 – Tip Top

(j)         Ferntree Gully, November 1995 – Tip Top (no deletion)

I will consider the incidents substantially in chronological sequence but grouped by reference to the particular plant baker involved in the order of Buttercup, Sunicrust and Tip Top.

 

THE FRANKSTON INCIDENT

Background

329               The first incident alleged by the Commission related to the deletion of Buttercup bread from two Safeway stores in Frankston for a period of seven weeks between 16 May 1994 and 6 July 1994.

330               The case put by the Commission against Safeway and Mr Jones, in general terms, alleged that Safeway and Mr Jones attempted to induce Buttercup to engage in resale price maintenance (s 96(3)(a) and (b)), made or attempted to make, and gave or attempted to give effect to, a contract or arrangement with Buttercup or arrived at or attempted to arrive at an understanding with Buttercup that had the purpose of substantially preventing, hindering or otherwise lessening competition in the retail market (s 45(2)(a) and (b)), and engaged or attempted to engage in the practice of exclusive dealing (s 47(1), (4) and (5)).  The Commission also alleged that Safeway took advantage of its market power in contravention of s 46 of the Act. 

331               The Commission placed particular significance on this incident, submitting that it was the inaugural implementation of Safeway’s policy.  It was said that this was the one incident in which Mr Brookes participated actively and that it established a benchmark or precedent for what Mr Jones was to do on future occasions to implement the policy when Mr Brookes was not involved.

332               The benchmark, which the Commission said was set by this incident, was to attempt to restore Safeway’s competitiveness against an independent store’s or fruit barn’s heavily discounted bread by:

·                    Deleting most of the range of the plant baker that made the discounted bread without seeking a case deal prior to the deletion.  The Commission contended that such a deletion was a punishment of that baker.

 

·                    Bringing in a price‑fighting bread, not the deleted baker’s price‑fighting bread, for Safeway to match against the competitor’s discounted bread.  The Commission contended that this was part of the punishment of that baker.

 

·                    Reintroducing the deleted baker’s bread when the competitor was no longer retailing the cheap bread or had ceased selling it at deeply discounted prices.  This was an incentive for the deleted baker to bring about those conditions for the reintroduction of its bread.

 

The principal witnesses who gave evidence in relation to this incident were Messrs Quadara and Cooper for the Commission and Messrs Brookes, Jones, Kelly and Lewry for Safeway and Mr Jones.

 

333               During the period 1993 to 1994, Mr Joseph Quadara (and his family) operated a fruit and vegetable store in Ashleigh Street, Frankston under the name “Quadara One Stop Food Shop”. Mr Quadara had operated other stores at various times but the issues raised by the Commission against Safeway and Mr Jones were limited to the Frankston store. For convenience I will refer to this store as “Quadara”.

334               Quadara stocked bread supplied by Buttercup.  From 1993 the bread products ordered by Mr Quadara included a Code C 680g plain wrap or generic bread branded “Quadara”. In mid 1994 Quadara was one of the few independent stores, if not the only independent store, supplied with generic bread by Buttercup that was not either a chain (such as Coles who was supplied with the “Savings” brand) or a wholesaler supplying independent retailers trading under its banner (such as Davids who was supplied with the “Black & Gold” brand). 

335               The Quadara brand was owned by Mr Quadara.  Quadara was advertised in its own name, not as Buttercup bread.  Nevertheless the Quadara bread wrapper had printed on it that it was manufactured by Buttercup.  It was also delivered to Quadara in Buttercup crates.  These same crates were used to display the bread in the store.  Mr Quadara did not hide from consumers the fact that Quadara bread was manufactured by Buttercup.  Some consumers wanted to know who baked the Quadara bread, and Mr Quadara let those customers know that it was Buttercup.  It was Mr Quadara’s view that there was no difference in quality between the Quadara bread and the Buttercup premium branded breads.  It was also his understanding that customers regarded Quadara bread as equivalent in quality to the premium branded bread of the plant bakers.

336               Quadara bread came in four varieties – white, toast, wholemeal and wholemeal toast.  Mr Quadara purchased it from Buttercup for $1.00 per loaf, but after the rebate allowance, the cost price became 90c a loaf.  Quadara retailed the bread at 99c a loaf.  On a few occasions Mr Quadara purchased the bread from Buttercup at a price less than 90c a loaf and during one two week period retailed the bread as low as 59c a loaf.  All purchases from Buttercup were on a returns basis.

337               On 4 July 1994 Buttercup made its last delivery of bread to Quadara as a result of Quadara ceasing to paying its bills.  Mr Quadara later filed his own petition for bankruptcy.

338               From 1987 until the closure of Quadara in 1994 Mr Quadara sold discounted bread on a continual basis in his stores because he felt that as an everyday household commodity it was a better gimmick than advertising to get people into the store.  He regarded the use of 99c bread as a very successful tool to attract people but said that the bread had to be best quality bread to get the customer in more than once or twice.

339               Quadara was located near a number of supermarket stores including a Safeway store (store 3158) and a Woolworths (as it then was) store (store 3244).  The Woolworths store later became a Safeway store.  Both the Woolworths and Safeway stores were located in the Karingal Hub Shopping Centre on Cranbourne Road in Frankston, approximately two kilometres from Quadara.  At the relevant time in 1994 Buttercup supplied bread to the Karingal Woolworths and Safeway stores.  At the time of the incident Mr David Lewry was the store manager of store 3244 and Mr Mark Kelly was the store manager of store 3158.

340               One of the Commission’s principal submissions was that Safeway’s concern was cheap bread being discounted by a competitor regardless of what type of bread it was.  The Commission submitted that the Frankston deletion, and in particular, the evidence of the store managers, highlighted this issue. 

341               Mr Kelly said that Quadara wasnot a nominated competitor of store 3158 for bread or other items.  However he and his staff undertook price checks (probably once a week) on fruit, vegetables and bread during the first half of 1994.  Mr Kelly learned that Quadara was stocking a Buttercup cheap bread at a discounted price of 99c a loaf.  In the first half of 1994, it was part of Mr Kelly’s responsibilities to pass on to the bread category office information on a regular basis about the prices at which the store’s competitors were selling bread.  It was Mr Kelly’s practice to telephone Mr Jones to inform him of the extent of the discounting of bread and other staff would also telephone Mr Jones to convey that information.  In the weeks prior to the deletion, discounting by Quadara was reported in accordance with the policy to Mr Jones.  Mr Kelly said that the substance of what he told Mr Jones would have been the company (Quadara), the line (Quadara’s bread) and the price (99c).   He could not recall telling Mr Jones that Quadara bread was made by Buttercup.  He did not request that any competitive action be taken.  At this time Mr Kelly understood that one element of the bread policy was that a line might be brought in to combat the competitor but he did not understand that any bread was to be deleted.

342               Mr Kelly said that a customer or an outsider would not be able to tell by looking at the Quadara bread that it was made by Buttercup.  He knew that it was Buttercup bread because of coding used on the bread bag labels.

343               Quadara was a nominated competitor of store 3244 for bread and was price checked approximately weekly.  Mr Lewry was aware of Quadara’s advertising in local newspapers and handbills.  Mr Lewry had a practice of personally telephoning Safeway’s State office to notify the relevant personnel of discounted prices (including bread) of the competitors he monitored.

344               On Thursday 12 May 1994, as part of his normal competition reporting, Mr Lewry telephoned Mr Jones but Mr Jones was not available.  Mr Lewry spoke to a woman and reported the fact that they were selling “cheap bread at Quadara”.  He also told the woman the price of the bread and said that customers had asked why they could not buy the cheap bread at Safeway.  The woman said that they would get back to him.  Later in the day a woman (possibly the same one) telephoned Mr Lewry and told him that they could match the price of the bread.  Mr Lewry understood this to mean that he could use Safeway’s Home Brand bread to match the price with Quadara’s bread, although he could not remember whether the woman to whom he spoke told him to match it with Home Brand.  Mr Lewry could not recall whether there was any mention of not accepting or removing Buttercup bread.  Mr Lewry’s concern, and what he related to the category manager’s office, was a concern about the competitor selling cheap bread.  He did not indicate that he was concerned about any particular brand of plant baker’s bread.

345               The next day, Friday 13 May 1994, a woman from State office telephoned Mr Lewry and told him that there would be no deliveries of Buttercup bread from the following Monday 16 May 1994.  It is important to note in respect of the case brought against Mr Jones that Mr Lewry said that he was certain that in May 1994 he did not have any conversations with Mr Jones himself in relation to the Buttercup deliveries to the store.

346               The identity of the woman with whom Mr Lewry spoke was not disclosed.  The probability is that it was Mr Jones’ CMA, but it is not clear which CMA it was.  On or about 30 May 1994 Ms Austin took over from Ms Lewis as Mr Jones’ CMA but it is unclear who was the CMA in mid‑May 1994.  In any event, Ms Austin could not remember the details of any of the incidents and although Ms Stosic said that Mr Lewry’s name sounded familiar, she had not heard of Quadara and did not recall a telephone call with Mr Lewry that mentioned Quadara. 

347               Mr Lewry conceded that he could not recall prior to May 1994, a line of proprietary bread being withdrawn on the orders of the Mulgrave office and that in that sense it was a most unusual event for a product such as Code C Buttercup bread to be deleted from his store.  His competitive concern was cheap bread being discounted by Quadara and that it would affect all lines of proprietary bread.

348               In his witness statement Mr Jones said that when he was informed by Safeway Karingal that it was uncompetitive with Quadara on Buttercup bread he had not heard of the Quadara store. He spoke with Mr Luscombe, who had been the area manager of an area that included Frankston, and asked him about the impact of Quadara because at that time Mr Jones thought Quadara may have been a baker.  According to Mr Jones, Mr Luscombe told him that Quadara was one of the largest groups of vegetable sellers in the area, that his business had a major impact on Safeway and that it was necessary to match bread prices offered by Quadara on a cent for cent basis.  Mr Jones told Mr Brookes of this conversation with Mr Luscombe and Mr Brookes suggested that they visit the Safeway Karingal store.

The deletion

349               On Friday 13 May 1994 Mr Brookes and Mr Jones visited the Safeway Karingal stores and spoke with both store managers.  Only Mr Lewry could recall the visit to his store however he could not remember the date, what occurred, or what was said on that occasion.

350               Mr Brookes said that one of the principal objectives for the visit to the Karingal stores was to check on their competitiveness.  He said it was one of the many reasons for being out that day although the only other one he could recall was that Mr Kelly was being considered for a promotion and part of some succession planning.  Mr Brookes recalled discussing with Mr Kelly the extent to which Quadara was impacting on their business.  Mr Brookes could not recall what brand Safeway was competing against. 

351               Mr Jones recalled visiting the stores with Mr Brookes.  He did not speak with the managers and Mr Brookes did the majority of the talking.  Mr Jones recalled that one of the store managers said that the bread prices offered by Quadara were having an adverse effect on the business of the Frankston store and that his practice was to match the Quadara store by discounting Home Brand.  Mr Jones said that the store had advised that Quadara had been selling Code C Buttercup bread for 90c but that he had not been told what brand Quadara was selling.  Mr Jones could not say that at the time he knew what Quadara was selling, although he believed that one of the Karingal store managers told Mr Brookes that he was uncompetitive on 680g bread from Buttercup.  Mr Jones said that Mr Brookes had informed the store manager that they would have to withdraw the uncompetitive Buttercup bread.  Neither Mr Brookes or Mr Jones visited the Quadara store.

352               After leaving the stores Mr Brookes suggested to Mr Jones that Safeway offer two loaves for $1.80 and instructed Mr Jones to advise the stores of this.  Mr Brookes remembered walking out to the car park with Mr Jones and talking about the need to remove Buttercup but did not recall whether he gave Mr Jones the direction to remove Buttercup or whether they agreed to do this.  He said he may have given the direction to delete the Buttercup bread at both stores but could not recall doing so.  According to Mr Jones Mr Brookes had already told the store managers that they would have to withdraw the uncompetitive Buttercup bread when he was speaking to them.  However either way, Mr Brookes participated in, and approved of, the decision to delete Buttercup at the Frankston stores at the time the decision was made.

353               Mr Brookes did not recall agreeing to the deletion of anything other than 680g bread.  However, Mr Brookes said that although he did not specify all Buttercup products to Mr Jones, he did say to Mr Jones that it was necessary to withdraw Buttercup bread.  At another stage in cross‑examination he said that:

“… during a discussion [in the car park] on the way to the car, Mark and I were talking about the need to be competitive and I said, ‘Well, if that’s the case we need to take the bread or the Buttercup bread out of the store’.”

 

354               Whatever may be Mr Brookes’ and Mr Jones’ recollection of what they decided to delete, the determination of what in fact was the decision is aided by the existence of a contemporaneous memorandum prepared by Mr Jones on the day of the visit to the Frankston stores which was sent to, seen and read by Mr Brookes.  For the reasons to which I shall refer, I am satisfied, particularly by reference to that memorandum, that Mr Brookes and Mr Jones either agreed together in the car park that all Buttercup products, save for Atlantic bread and specialty rye bread, were to be deleted, or that one or other of them made that decision, and the other approved it.  Mr Brookes accepted that he directed the removal when he said:

“Mark and I spoke and I believe either I directed or approved – but, yes, I directed the removal of the breads at Karingal because we were uncompetitive.”

 

355               After the visit to the Karingal stores, and the conversation in the car park, Mr Jones drafted a memorandum, first in hand and then had his CMA type it, in the following terms:

“MEMO TO:     158 KARINGAL          MARK KELLY

                          244 KARINGAL          DAVID LEWRY

CC:                   DAVID GOODARD    AREA MANAGER

                          BERNIE BROOKES    GROCERY MERCHANDISING MANAGER

 

RE                     BUTTERCUP BREAD & PRICING

 

GENTLEMEN

 

EFFECTIVE MONDAY 16/5/94 BUTTERCUP BREAD IS TO BE WITHDRAWN FROM BOTH STORES EXCEPT FOR ATLANTIC AND SPECIALTY RYE BREAD.  A COMPETIVE [sic] BREAD, CAPTAIN CUTLESS, WILL BE DELIVERED ON MONDAY.  THIS BREAD IS TO BE RETAILED AT 2 FOR $1.80.  THIS BREAD IS NOT SALE OR RETURN. MARK DOWNS WILL HAVE TO BE MADE AT STORE LEVEL.  THEREFORE YOUR STORE MUST ORDER REQUIREMENTS WITH SUNICRUST REPRESENTATIVE.

 

BUTTERCUP BREAD IS NOT TO BE RANGED UNTIL ADVISED BY GROCERY MERCHANDISING.  680G HOMEBRAND CODE C IS TO BE PRICED AT FULL RETAIL $1.52 AS OF MONDAY 16/05/94.

 

 

MARK JONES

CATEGORY MANAGER”

 

Mr Jones signed the memorandum and assumed that he sent it in the internal mail service before the weekend commencing Saturday 14 May 1994.  This is consistent with Mr Kelly’s evidence that he received it prior to Monday 16 May 1994 and Mr Lewry’s evidence that he would have received it at or around that time.

 

356               The instruction in the memorandum was implemented.  Buttercup products, save for Atlantic bread and specialty rye, were deleted from the two Karingal stores.  It was admitted by Safeway and Mr Jones in their defences that Buttercup products were not purchased by, or sold from, the two Karingal stores between 17 May (Tuesday) and 6 July 1994.  The instruction that Buttercup products had been deleted, which was given to Buttercup, came from Safeway’s head office.  Neither Mr Lewry nor Mr Kelly gave an instruction to their staff not to accept deliveries of the Buttercup range, nor did they request or advise Buttercup not to deliver Buttercup bread.  They both said that on 16 May 1994 the Buttercup delivery representatives came in to the stores and took the returns, left the Atlantic products and other specialty lines and did not deliver the Buttercup range.

357               The following products were in fact deleted from store 3158:  Country Split White Bread 450g, Super Sandwich 680g, Toasty 680g, Wonder White Sliced 680g, Wonder White Toast 680g, Country Split Wholemeal, Wholemeal Plus 680g, Ploughman Wholemeal 900g, Wholemeal Pritikin 680g, Vogel Wholemeal & Grain, Vogel Wholemeal SES 900g, Taylors Wholemeal 900g, Country Split Multigrain 450g, Multigrain Plus 680g, Multigrain Toast 680g, Natural Grain 680g, Natural Grain Toast 680g, Ploughman Barley/Oats 900g, Ploughman Wholegrain Wm 900g, Vogel Family Size 900g, Buttercup Premium Fruit 450g, Fruit 'N Spice 680g, Ploughman Fruit/Grain 750g, 5"Hamburger buns Pkt 6, Country split soft rolls, Buttercup 6 Mini Dampers.  The same Buttercup products were deleted from store 3244 except that Vogel Wholemeal & Grain, 5"Hamburger buns Pkt 6 and Country Split soft rolls were not deleted.  None of the deleted Buttercup products were being discounted by Quadara.  Throughout the period of the deletion both stores continued to purchase numerous Atlantic and specialty rye bread products from Buttercup.

358               It was not in issue that the deletions that occurred went beyond the deletions required or dictated by Safeway’s version of the policy.  If products had been deleted in accordance with Safeway’s version of the policy only 680g Buttercup bread should have been deleted.  Mr Jones said that the only products that should have been deleted were Super Sandwich 680g, Toasty 680g, Natural Grain 680g and Natural Grain Toast 680g.  Mr Brookes said that the deletion would definitely have gone too far if all of the products listed above were deleted and that the deletions at Karingal “were wider than what the policy would initially allow for”.

359               The memorandum was copied to Mr Brookes.  Mr Brookes gave differing evidence as to his recollection and knowledge of it.  Initially Mr Brookes said that he recalled seeing the memorandum at the date it was issued because he remembered the two loaves for $1.80 offer.  Later he said that he “obviously read” the memorandum.  However, later again, he said that he did not recall seeing the memorandum but that it had his name on it and that he “obviously authorised the sending out of it”.  At another stage he said that he did not recall the memorandum.  Finally, in re‑examination Mr Brookes said that he did not recall seeing the memorandum but that if it had “a courtesy copy to him up the top” he must have received a copy in the mail.  I have no doubt that Mr Brookes read and approved, or authorised, the memorandum.

360               When one analyses the memorandum its terms and meaning are clear – all Buttercup bread, with two specified exceptions, was to be withdrawn.  That is what in fact occurred, the terms of the memorandum were implemented.  Mr Brookes and Mr Jones sought to explain that the memorandum was not intended to have, what on its face was, a clear meaning and that it did not bear the meaning that all Buttercup bread was to be deleted with two specified exceptions.

361               Mr Brookes said that he had not agreed at the time of the deletion for all Buttercup products other than Atlantic and specialty rye breads to be deleted from the stores but he acknowledged that by approving the memorandum he had allowed that to happen.  He did not have a recollection of what he agreed to other than that it was necessary to take Buttercup out of the stores.  It was his assumption that it was to be the products directly comparable to the Quadara bread that were to be deleted, and he did not recall approving a deletion further than the same 680g range of bread that Safeway was competing with.  However, he never made this explicit.  What he told Mr Jones was that it was necessary to withdraw Buttercup bread from the two stores.

362               Nevertheless Mr Brookes agreed that the memorandum was an instruction to withdraw all Buttercup bread other than Atlantic bread and specialty rye.  He also agreed that he should not have allowed the memorandum to be sent in that form and should not have allowed the withdrawal of all Buttercup bread.  He also agreed that by approving of the memorandum he had agreed to the introduction of Captain Cutless instead of Budget Family Fresh.  His only explanation for the memorandum was that he had erred.  In relation to the Frankston incident generally, he said it showed mismanagement of the policy on his part.

363               Counsel for Mr Jones submitted that it was not clear what the memorandum conveyed when read in isolation and as a matter of plain English meaning.  I reject that submission.  The meaning is clear, and was clear to Mr Brookes – it was an instruction to withdraw all Buttercup bread (that is bread manufactured by Buttercup) other than Atlantic bread and specialty rye bread.  Even if there be some doubt about what the memorandum meant, it certainly did not mean that only Code C Buttercup bread was to be withdrawn.

364               Counsel for Mr Jones submitted further that the memorandum could not be construed in a vacuum.  That may be so, but Mr Brookes said that what he told Mr Jones in the car park was that it was necessary to withdraw Buttercup bread from the two stores.

365               When the memorandum was put to Mr Jones he said he did not make the decision to withdraw all Buttercup bread, with the exception of Atlantic bread and specialty rye, from the two stores.  Mr Jones said that he did not believe that anyone made that decision.  When he was asked to explain what was in the memorandum, he gave an explanation which was curious and which had not been put to, or assented to, by Mr Brookes.  Mr Jones said that when he referred to “Buttercup bread” he was talking about 680g bread and that it was “a term which we generally used”.  He said he was trying to:

“make sure I was perfectly clear other than withdrawing – to make sure they only withdrew the Buttercup 680 gram bread or the bread which the store manager advised was uncompetitive”.

 

When it was put to him in cross‑examination that he did not take any step in either his draft or the typed version of the memorandum to confine the withdrawal to 680g loaves he replied:

 

“Mr Brookes had already explained that when he spoke to the store manager, quite clearly.  So there was no doubt in my mind that the store manager would have a clear understanding of what we were trying to convey to him there.

 

[GOLDBERG J]:         Why did you need to refer to Specialty Rye bread?‑‑‑I wanted to make sure that the store manager saw it and there was no doubt in anyone’s mind that we were talking about Buttercup and the bread – which we were speaking to them when we were at the store, your Honour.  I admit that I should have gone a step further and put 680gram bread but I was very confident the fact that he would totally understand and I wanted to make sure that that’s the only bread they withdrew.”

 

I do not accept Mr Jones’ explanation that when he referred in the memorandum to Buttercup bread he was referring to 680g bread.  His explanation that it was a term they generally used was not assented to by Mr Brookes who did not dissent from the proposition that the memorandum referred to all Buttercup bread.  Mr Jones’ explanation is also not credible having regard to the specific reference in the memorandum to Code C bread.

 

366               Mr Jones acknowledged that in the second last sentence of the memorandum there was no restriction on the “Buttercup bread” to Code C, yet in the next sentence Code C was mentioned in relation to Home Brand bread.  When it was put to him that when he wanted to speak about Code C he expressly referred to it he answered:

“… I appreciate what you’re saying, but it’s not what I’m – the intention of the bulletin was.

 

It’s what it says though, isn’t it?---Yes, I know that, your Honour, but Captain Cutless doesn’t say 680 gram bread either, that’s in the bulletin.  So after the discussion which we’d had with the store manager it was clear to me that he was aware of the bread which we were uncompetitive on, and that it was the 680 gram Buttercup bread, and that we were actually bringing in the 680 gram Captain Cutless bread.”

 

Mr Jones also said that by using the words “a competitive bread, Captain Cutless, will be delivered on Monday” he meant 680g bread and that because Captain Cutless bread was a competitive bread that was going to replace the 680g Buttercup bread, the words “Buttercup bread” in the memorandum were intended to mean 680g Code C Buttercup bread. 

 

367               If “Buttercup bread” was a term people in Safeway generally used to describe or refer to 680g bread, that description or reference was not known to the Safeway Frankston store managers.  Mr Lewry said that he understood the words “Buttercup bread” to refer to all Buttercup bread except those expressly referred to.  Similarly Mr Kelly understood that all Buttercup bread except for Atlantic and speciality rye bread would not be delivered.  They both accepted the memorandum as a direction or instruction that Buttercup bread, as specified in the memorandum, was to be withdrawn from sale.

368               I am satisfied that Mr Jones, with the approval of Mr Brookes, gave instructions for the deletion of the whole of the Buttercup range, with the two specified exceptions, and that it was the intention of both Mr Jones and Mr Brookes that such a deletion occur.  The memorandum speaks for itself; Mr Jones’ explanation for his use of the expression “Buttercup bread” is not credible and I reject it.

Did Safeway ask for a case deal before the deletion?

369               Mr Brookes assumed that Mr Jones had already sought a case deal or spoken to the bread vendor but he had no knowledge of whether it occurred, nor did he recollect asking whether it had occurred.

370               The issue whether Mr Jones asked Buttercup for a case deal before directing the deletion is controversial.  Mr Jones said he asked Mr Cooper for a case deal; Mr Cooper said he did not.  It is also controversial as to when the conversation relied on by Mr Jones occurred.  According to Mr Cooper it occurred on or a day or so prior to 16 May 1994 which was after Mr Jones had directed the deletion in his memorandum which was sent to the store managers on Friday 13 May 1994.  The evidence is not clear as to when Mr Jones said he had the conversation.

371               It is helpful to understand what are the particulars of the conversation alleged by the Commission.  In its particulars of claim (par 18A(b)(ii)) the Commission pleaded that on or about 15 May 1994 Mr Cooper received a telephone call from Mr Jones and had a conversation in words to the following effect: 

“Jones:             ‘You are out of our Frankston stores because Safeway cannot meet its strategy to be competitive.  If I cannot compete on your brands, I will go to other brands.’

 

Cooper:            ‘This is bullshit I have no control over retailers, but OK, you’ll get no stock from us as from tomorrow.”

 

372               In the part of par 22 of his statement that was admitted in evidence, Mr Cooper said that on a date which he did not presently recall but which from company records he believed was within a day or so prior to 16 May 1994, he received a telephone call from Mr Jones and that they had a conversation.

373               When Mr Cooper was first asked to give oral evidence about the conversation with Mr Jones he said that it occurred on 16 May 1994 and that Mr Jones had said to him:

“There’s a problem in the area.  Your Buttercup brands are out of those two particular stores.”

 

An objection was taken to the next question which sought an elaboration of Mr Cooper’s answer to the previous question.  I asked Mr Cooper to try and recreate the conversation, and if he could not remember the words used, to give the substance of the conversation.  He said it was a fairly short conversation in these terms: 

 

“’It’s Mark Jones here.  There’s some cheap bread in the Frankston area.  On the basis of that, you’re out of the Woolies and the Safeway store.’  I said, ‘You know I can’t do anything about it.’  He said ‘Well, that’s the rules,’ and that was the end of the conversation.  We were out the next day.”

Mr Cooper knew that the source of the problem was Quadara selling bread too cheaply or at a price of 99c because Buttercup had a reasonably good intelligence network that allowed them to understand some of those things.  There was no reference in Mr Cooper’s version to any request by Mr Jones for a case deal.

 

374               Mr Jones denied Mr Cooper’s version of the conversation and said he had a recollection of speaking to Mr Cooper about a case deal for Frankston, after which he sent the memorandum.  In his witness statement he said he sent an instruction dated 12 May 1994.  That date must be incorrect in the light of the later evidence that the memorandum was sent by internal mail on 13 May 1994 after the visit to Frankston.  Mr Jones’ version of the conversation was:

“What did you say to Mr Cooper---I told Mr Cooper that a competitor of ours in the Frankston area was selling 680 gram bread at a cost price – well, I asked him whether we were buying our Buttercup bread at the same cost price as what he was buying his at, and I think I named 680 gram bread as being the bread we were uncompetitive with. 

 

What did he say?---He basically said there was a brand called Black and Gold and it was a contractual bread price or something.

 

Did you make any reply to that statement?---I said to him that Safeway viewed Black and Gold as a comparable product with Buttercup bread and the customers viewed that, that Black and Gold was the same as Buttercup bread, and that we wanted to get the same deal as what they were getting so we could be competitive and retail at the same cost price.

 

Did Mr Cooper make any reply to that comment?---He said no, he wouldn’t do it.

 

Did you make any reply?---I said to him that that being the case we would have to withdraw the uncompetitive bread.”

 

In cross‑examination Mr Cooper said he could not remember Mr Jones telephoning him and saying “We have a competitor in Frankston and we’re uncompetitive in the Frankston Store with your 680 gram products.  Are we buying at the same price as our competitor?”  Nor did Mr Cooper remember Mr Jones saying that “We’re going to have to withdraw your product because we’re uncompetitive”.  However, Mr Cooper was more certain about his recollection of other parts of the conversation.  He denied “absolutely” that he said to Mr Jones that “They’re using Black and Gold.  It’s a contractual price” and he denied that Mr Jones said “I want to buy Buttercup as they’re buying” and that he responded “I can’t do it”.  He denied that Mr Jones asked for the same price as the competitor was buying.

 

375               Safeway submitted that Mr Jones’ version of the conversation should be accepted and that I should conclude that a case deal was sought and refused before the deletion of Buttercup bread from Safeway’s Karingal stores.  It submitted that it was Mr Jones’ job to ask for case deals on Mr Brookes’ direction and that since there was uncontested evidence that he asked for case deals at Preston Market, Traralgon, Geelong and Albury (in November 1995), I should not on this occasion, reject his evidence of doing so in relation to Karingal.  However on this occasion there was a firm denial that Mr Jones asked for a case deal. 

376               Safeway submitted that Mr Cooper gave two versions of the conversation in evidence‑in‑chief.  I do not agree with this submission.  What in fact happened was, as the Commission submitted, that Mr Cooper gave a “rolled up” account of the conversation and after a request from me to narrate the conversation as best he recalled, Mr Cooper gave the more expansive answer in par 373 above.

377               Safeway submitted that the conversation between Mr Jones and Mr Cooper must be viewed in the light of the conversations earlier in which Mr Cooper had been advised of the policy.  However, there is nothing in those conversations which persuades me that I should not accept Mr Cooper’s version of the conversation with Mr Jones in which Mr Jones told him that Buttercup was deleted from the Frankston stores.  Mr Cooper ultimately said that he had not used the word “illegal” in his earlier conversation with Mr Jones and although Safeway submitted that Mr Cooper’s evidence was unreliable, I am satisfied that his account of his conversation with Mr Jones is reliable.  Mr Cooper, in his earlier conversation with Mr Jones, may have referred to the fact that Buttercup had a contract price with Davids and may have had a discussion with Mr Jones about Black & Gold bread, but those matters were not relevant to what Mr Jones was raising with Mr Cooper.  Although Mr Cooper agreed that he had only the vaguest recollection of the deletions in which he was involved, I am satisfied that I should accept his evidence as to the conversation he had with Mr Jones in relation to the Frankston deletion, particularly having regard to the fact that I am satisfied that such conversation occurred after the decision to delete Buttercup products had been made by Mr Brookes and Mr Jones. 

378               I do not consider that Mr Jones’ evidence that Mr Cooper referred to Black & Gold bread is credible or reliable.  Mr Cooper knew that Mr Jones was talking about bread being sold by Quadara and that Buttercup had been supplying Quadara stores for seven years.  There was no reason for Mr Cooper to have referred to Black & Gold in this conversation and I find that he did not do so.  Further, Mr Kelly said that when he reported the competitive activity at Frankston to Mr Jones, he indicated that the bread involved was Quadara bread.  Thus, there was no reason for Mr Jones to refer to Black & Gold bread.  Mr Jones may have had another deletion, or another conversation in mind when he said Mr Cooper referred to Black & Gold bread, but I am satisfied that his reference to Black & Gold in this conversation demonstrates that his evidence of this conversation is not reliable and that I should prefer Mr Cooper’s version.

379               I am satisfied that the conversation occurred in accordance with the terms of Mr Cooper’s evidence, that Mr Jones did not ask for a case deal in it and that it occurred after Mr Jones had decided to delete all Buttercup bread from the two Frankston stores.  The conclusion that Mr Jones did not ask Mr Cooper for a case deal is confirmed by the time at which Mr Jones and Mr Brookes made the decision to delete the Buttercup products.  If the conversation occurred after that decision had been taken, then it is improbable that Mr Jones asked Mr Cooper for a case deal.  There was no point, the decision had been made.  The decision to delete Buttercup products was made by Mr Brookes and Mr Jones in the car park at Frankston on Friday 13 May 1994.  Mr Jones drafted and sent the memorandum after the visit to the Karingal stores on that day and before the weekend commencing Saturday 14 May 1994. 

380               In his oral evidence Mr Cooper said the conversation occurred on Monday 16 May 1994.  If I accept Mr Cooper’s version of the conversation, namely that Mr Jones did not ask for a case deal, the content of the memorandum is not of significance.  Mr Jones did not give evidence of the date when the conversation occurred other than that it occurred after he and Mr Brookes had visited Frankston.

381               Counsel for Mr Jones submitted that the telephone call between Mr Jones and Mr Cooper was not on Monday 16 May 1994 but “earlier as recalled by Mr Jones”.  However Mr Jones did not put the telephone call and conversation at any point of time before he and Mr Brookes visited Frankston.  Mr Jones’ evidence in relation to the timing of the conversation with Mr Cooper was the following:

“In relation to Frankston and the Safeway Karingal store in particular, did you after having visited the Safeway Karingal store have a conversation with Mr Cooper?---Yes, I did”  (emphasis added)

 

382               This was after Mr Brookes and Mr Jones had made the decision in the car park to delete Buttercup bread, which deletion was recorded in the memorandum later on Friday 13 May 1994.  Thus, even it I were to accept Mr Jones’ version of the content of the conversation, namely that he asked for a case deal, it would have little consequence because the case deal would have been requested after the decision to delete had been made and the memorandum sent.

383               I am satisfied that the conversation between Mr Cooper and Mr Jones took place at some stage after the decision to delete Buttercup products had been made.  I am satisfied that the conversation occurred around 16 May 1994.  That finding supports the conclusion that a case deal was not sought prior to the decision to delete. 

384               This finding as to the date and substance of the conversation is open to be found on the pleadings.  Although the particulars in the statement of claim use different words, the conversation is said to have occurred on or about 15 May 1994.  The substance of the particulars and Mr Cooper’s evidence is to the same effect – Buttercup bread is to be deleted from the Frankston stores because Safeway cannot compete with cheap bread supplied to another store by Buttercup.  Mr Cooper’s response was that he could not do anything about it.

The introduction of a price-fighting bread

385               Safeway and Mr Jones admitted in their defences that from 16 May 1994 to 5 July 1994 680g Captain Cutless was sold at the Frankston stores.  At and around the time of the deletion Sunicrust’s invoice cost of Code C 680g Captain Cutless to Safeway was 90c per loaf. 

386               Buttercup’s Budget Family Fresh was available to be supplied by Buttercup on the terms of its tender – that it would supply and deliver within 24 hours of being ordered by Safeway.  At the time of the deletion and introduction of Captain Cutless, Budget Family Fresh was able to be purchased at a net net price of 86c per 680g loaf no returns, or 90.6c per loaf with returns. 

387               The Commission submitted that Safeway’s failure to use Budget Family Fresh as the price‑fighting brand was an intentional part of Safeway’s policy when there was a deletion of Buttercup bread.  This was denied by Mr Brookes who said that Budget Family Fresh should have been introduced into the Karingal stores.  At the time the memorandum went out Buttercup had already tendered for the supply of Budget Family Fresh, and its tender had been accepted. 

388               Mr Brookes said that his preference was, as a general rule, to bring in the identical brand as a price‑fighting bread because the policy was based on being competitive on identical brands.  However he said that in deciding whether to introduce Budget Family Fresh (a comparable product to Buttercup proprietary bread), Mr Jones would also have to take into account the locality, how quickly Buttercup could supply the relevant Safeway store, which manufacturer’s bread was on special that week, the price of the special, availability of stock, where the plant baker was and which Safeway store was involved.  He said that if Mr Jones decided to introduce Captain Cutless and not Budget Family Fresh in circumstances where the product was unavailable, or the bakery could not respond quickly, or could not service the quantity required, it would not be a mistake in the application of the policy. 

389               Mr Jones denied that the reason he never asked a baker whose bread was being deleted to supply the price‑fighter was that it was inconsistent with the policy and denied that it was done for the purpose of harming the plant baker.  But Mr Jones had a different view from Mr Brookes.  He said that, having asked for a competitive case deal and having been refused, it was stupid to expect that that plant baker would deliver its price‑fighting bread in the quantity of stock required and keep up stock and service.  However both Sunicrust and Buttercup were obliged, in accordance with their accepted tenders, to supply their price‑fighting bread upon request.

390               Mr Jones also said that he preferred to use Captain Cutless over Budget Family Fresh because Sunicrust, who manufactured Captain Cutless, made two deliveries a day which enabled the Safeway store to rotate the product and reduce mark downs.  There was only one Buttercup delivery per day, the deliveries were poor, they did not arrive on time and in some cases Buttercup was unable to deliver the product as it did not have bags. 

391               From the beginning of 1994 until the week ending 22 May 1994 (the week Mr Jones’ memorandum was received), both Safeway Karingal stores were retailing Safeway Home Brand at 99c.  Both Mr Lewry and Mr Kelly were of the view that 99c Home Brand by itself provided a sufficient competitive response to compete against Quadara. 

Resumption of supply of Buttercup products to Safeway Karingal

392               Deliveries of Buttercup bread to the Safeway Karingal stores resumed on 7 July 1994.  There was limited evidence about the circumstances in which the deliveries were resumed.  Neither Mr Kelly or Mr Lewry could recall receiving any forewarning that Buttercup was to be re‑delivered to their stores in or around 7 July 1994.  Both Mr Lewry and Mr Kelly relied upon an instruction from head office to re‑range Buttercup products at their stores.

393               Mr Lewry recalled a sales representative of Buttercup (he could not remember his name) calling in at Safeway Karingal and having a conversation with him during which the representative said words to the effect of “As from Monday we will be delivering our bread to you again”.  Mr Lewry replied that he had not received any confirmation from State office but assumed it would come through.  Mr Lewry later received notification either by way of a telephone conversation, or message, or voicemail to the effect that “As from Monday Buttercup will be delivering”.

394               In par 27 of his witness statement Mr Cooper said that the supplies of bread to Safeway Frankston were resumed on or around 6 July 1994.  Further, he said “I do not recall having any discussions with Mark Jones about the resumption of supply to Safeway Frankston.”  However, in examination‑in‑chief, Mr Cooper said that he telephoned Mr Jones after Quadara had gone bankrupt.  He told Mr Jones that fact and that Quadara owed Buttercup $20,000, that Buttercup was not supplying Quadara bread and that as the bread was gone, could Buttercup put its products back.  Mr Jones told him he could do so.

395               When asked in cross‑examination about his evidence‑in‑chief, Mr Cooper initially disagreed with the proposition that no such conversation with Mr Jones ever occurred and said that what made him certain that there was such a conversation was that he had to get the bread back in and would only get it back in by talking to Mr Jones to reinstate it.  However when confronted with the content of par 27 of his statement Mr Cooper said that he did not have any explanation for its content and that he could not guarantee that he had a conversation.  Mr Jones did not dispute that such a conversation occurred and I accept that it occurred.  It is the only evidence of a communication between Buttercup and Safeway in relation to the reinstatement of Buttercup bread at the two Karingal stores, which in fact occurred.

The purpose of the deletion

396               Mr Brookes denied that the purpose of the deletion, which was an over‑deletion, was to punish Buttercup, although he acknowledged that if he were a baker one of the thoughts that could cross his mind was that a general deletion of his products was a punishment for allowing the discounting to continue.

397               Mr Brookes’ denial that the purpose of the deletion was to punish Buttercup does not stand easily with the facts, as I have found, that no case deal was sought before the deletion and that Mr Brookes and Mr Jones intended that the whole range of Buttercup products be deleted other than Atlantic and specialty rye bread.  In this context Mr Jones’ memorandum is important.  Such an intention was inconsistent with the purpose of the deletion being in order for Safeway to be, and be seen to be, competitive with the Quadara store.  I am satisfied that the purpose of the deletion was to penalise or punish Buttercup for putting Quadara in a position to sell cheap bread in the Frankston area.  That purpose emerged clearly in Mr Jones’ conversation with Mr Cooper (par 373 above).  What occurred in this incident was that Safeway’s policy was not implemented.  It was not a case of a change in the policy; rather it was a case where Mr Jones and Mr Brookes did not seek to implement the policy.  In acting as he did, Mr Jones’ action and intention is to be attributed to Safeway.  It was within the scope of his actual authority as category manager to make decisions as to the deletion of a plant baker’s product where Safeway was not competitive with its competitors in relation to those products and to decide how Safeway would respond to a competitive situation.  Consistently with the authorities and principles, to which I have referred in considering Mr Feldgen’s authority in relation to the Preston Market incident (pars 804‑818 post), I am satisfied that Mr Jones was acting within the scope of his actual and apparent authority in making the decision to delete the Buttercup products from the two Frankston stores, notwithstanding that he did not ask for a case deal before the deletion.

398               It does not follow from such a finding that Safeway and Mr Jones contravened any provisions of Pt IV of the Act.  There was no contravention or attempt to contravene s 45 of the Act.  There was no attempt to make, or give effect to, a contract, arrangement or understanding.  Mr Jones did not seek to make any contract or arrangement or reach any understanding with Mr Cooper.  He presented him with a unilateral decision – “You’re out” of the Safeway stores.  There was nothing in the conversation or in Mr Jones’ conduct in relation to it which disclosed an attempt, or an intention, for there to be a meeting of the minds as to what was to happen thereafter.  Mr Cooper agreed that Mr Jones never asked him to control the retail pricing of bread.  Later in these reasons I elaborate on the reasons why I have concluded there was no contravention of s 45 in relation to the Frankston incident.

399               I consider later in these reasons whether Safeway and Mr Jones committed, or were involved in, a contravention or an attempted contravention of s 46 of the Act. 

400               I am not satisfied that this incident resulted in a contravention of s 47 of the Act.  Mr Jones did not suggest, either explicitly or implicitly, that Safeway would be prepared to do business with Buttercup depending upon the terms upon which Buttercup did business with Quadara.  As observed earlier, he presented Mr Cooper with a fait accompli and was not seeking to negotiate any ongoing terms of trade.  Later in these reasons I elaborate on the reasons why I have concluded there was no contravention of s 47 in relation to the Frankston incident.

401               The Commission submitted that Safeway attempted to induce Buttercup to engage in resale price maintenance and that the telephone call from Mr Jones to Mr Cooper and the deletion of Buttercup bread constituted the attempt to induce.  Nothing was said in the conversation about price other than that there was cheap bread in the Frankston area.  I do not consider that the telephone call, coupled with the deletion, constituted conduct aimed at getting Quadara to increase its retail price to a specified price.

402               The Commission submitted that the conduct of Mr Brookes and Mr Jones sought to have Buttercup ensure that Quadara did not sell Buttercup bread at a cheaper price than the price of Safeway’s cheapest grocery bread.  That was not the case as pleaded.  In any event there was nothing in what Mr Jones said to Mr Cooper that indicated that Safeway was seeking to have Quadara sell bread at any particular price, whether at or about the price of Safeway’s cheapest grocery bread or higher.  Although a precise monetary amount does not have to be specified in order for there to be a price specified or a statement of price for the purposes of s 96(3), there has to be, at the least, some reference to a standard or formula or range by reference to which the price is to be determined.  There was no reference, explicit or implicit, in the conduct engaged in by Safeway, to any price at which Quadara should sell bread and, in particular, there was no conduct which indicated that Quadara should be induced to sell Buttercup bread no cheaper than Safeway’s cheapest grocery bread.

403               I am satisfied that there was no contravention of s 48 in relation to the Frankston incident.  I elaborate on this conclusion later in these reasons.

404               The Commission submitted that the Frankston incident was the benchmark by which the policy and its implementation was to be determined.  It is true that it was the first incident in respect of which the policy and the manner of its implementation was placed under detailed and close scrutiny.  However, I do not consider that it is appropriate to extrapolate findings in relation to the other incidents from the Frankston incident.  The facts and circumstances in each incident were not uniform and in a number of respects critical distinctions and differences from the Frankston incident occurred in the other incidents.  The conversations were different and, in particular, in some of the other incidents the plant bakers acknowledged that Mr Jones asked for a case deal before the deletion occurred.  What was also different about the Frankston incident was the clear, unequivocal written instruction as to the deletion of the whole of Buttercup’s range with the exception of Atlantic and specialty rye bread.

THE Cheltenham INCIDENT

Background

405               The second incident alleged by the Commission involving Buttercup related to the deletion of Buttercup bread from a Safeway store in Cheltenham between about 15 July 1994 and 26 July 1994.  In summary, the Commission alleged that Safeway and Mr Jones attempted to induce Buttercup to engage in resale price maintenance (s 96(3)(a) and (c)), made or attempted to make a contract or arrangement with Buttercup or arrived at or attempted to arrive at an understanding with Buttercup that had the purpose of substantially preventing, hindering or otherwise lessening competition in the retail market (s 45(2)(a) and (b)) and engaged or attempted to engage in the practice of exclusive dealing (s 47(1), (4) and (5)).  The Commission also alleged that Safeway took advantage of its market power in contravention of s 46 of the Act.

406               The principal witnesses who gave evidence in relation to this incident were Messrs Carroll, Cooper and Ms Austin for the Commission and Messrs Brookes, Jones and Scott for Safeway and Mr Jones. 

407               Between 1984 and April 1997, Mr Joseph Carroll owned and operated two stores under the name “Cheapa Food Barn”, one at the Brentford Square Shopping Centre at Vermont or Forest Hill and the other at the Cheltenham Market on the Nepean Highway at the corner of Bay Road, Cheltenham.  The market was opposite Southland Westfield Shopping Town in which a Safeway supermarket was located.  The Safeway supermarket was less than 500 metres from the Cheapa Food Barn.  Mr Matthew Scott was the relieving assistant store manager of Safeway Southland from about February 1994 to August 1994, and from 5 September 1994 to March 1995 (when he moved to the Safeway store in Mentone) he was the assistant store manager of Safeway Southland.  During those periods Mr Ian Knox was the manager of the store.  At the date of trial Mr Knox no longer worked for Safeway and was not called as a witness.  Mr Scott did not know who was Safeway Southland’s nominated competitor for bread at the time of the deletion although he said that Cheapa Food Barn and Franklins were competitors of Safeway in relation to bread.

408               Cheapa Food Barn did not offer special deals from time to time on the products it sold.  Rather it developed a marketing strategy of having four products – bacon, bread, margarine and wine continually advertised at the same discounted prices on a permanent basis.   The four products were advertised on large boards at the front of the store facing the Southland Westfield Shopping Town complex.  In particular, throughout 1994 it featured a large painted sign (approximately 10' by 12' in size) that stated words to the effect:  “Code C Bread 99 cents”.  Mr Carroll used bread manufactured by different bakers for this promotion.  Until about 3 July 1994 Mr Carroll purchased Hot Bake branded bread from Tip Top for both stores.  He then commenced purchasing Black & Gold bread from Buttercup for both stores which he sold at 99c a loaf.

409               At about the time of the relevant conversations Cheapa Food Barn was purchasing 680g Hot Bake Toast from Tip Top at $1.62 per loaf.  From this price there was deducted a 63c per loaf rebate and a 2½% settlement discount.  Cheapa Food Barn retailed the loaves for 99c.  When Tip Top withdrew the rebate it had been giving Cheapa Food Barn on Hot Bake bread, Mr Carroll contacted Buttercup to see if it would supply him with a brand of bread at a lesser price than the retail price of a loaf at which he wanted to sell it.  Buttercup agreed to supply him with a non‑proprietary brand of bread called Black & Gold. 

410               Cheapa Food Barn purchased 680g Code C Black & Gold white, toast and wholemeal bread.  Mr Carroll was able to buy Black & Gold bread because he was a wholesale customer of Davids.  Buttercup had contracted to supply Black & Gold bread to Davids and its customers.  Although the Cheapa Food Barn did not trade under the Davids banner, Buttercup was obliged by its contract with the wholesalers to supply Black & Gold to independents such as Cheapa Food Barn at wholesale prices fixed by the contract rather than as a special deal.  By being a customer of the Davids warehouse, Cheapa Food Barn was able to purchase the Black & Gold products.

411               Mr Carroll said that small independent bakers were not a credible source of supply for Cheapa Food Barn.  Previously when Cheapa Food Barn had difficulty getting a commitment of a bread supply to be able to retail at 99c, it used bread from Vardar, a small bakery in Thornbury.  Although for a period of time Vardar had proved a useful substitute to the major plant bakers, Vardar could not keep up the volume of bread required by Cheapa Food Barn.

412               From 13 July 1994 Cheapa Food Barn commenced purchasing both branded and generic bread from Buttercup although by far the greatest proportion of bread was generic.  It was extremely rare for it to get the plant bakers’ major brands at the price of generic bread.  It sold the Black & Gold Code C 680g loaves of bread for a retail price of 99c a loaf. 

413               Mr Scott knew in 1994 that Cheapa Food Barn was selling a cheap Code C bread (which he thought was Black & Gold) at 99c a loaf and he knew that Cheapa Food Barn was not selling any of its branded proprietary breads at 99c.

The deletion

414               There was no evidence as to what communication, if any, was made to Safeway’s head office or Mr Jones’ office from Safeway Southland relating to Cheapa Food Barn or its sale of discounted bread or of any need of Safeway Southland to be competitive.  Nor was there any evidence as to how the instruction to delete Buttercup bread was communicated to Safeway Southland. 

415               Mr Scott, the assistant store manager at the time, could recall only one occasion on which the products of one of the major bread suppliers were removed from display at Safeway Southland, and on that occasion it was Buttercup bread.  Mr Scott’s recollection of the circumstances in which the removal occurred was very vague.  Mr Scott had no recollection of personally receiving an instruction to remove the Buttercup bread from display and did not know one way or the other whether it was he who received the instruction or someone else at Safeway Southland.  Nor did he have a recollection of whether a storeman or someone else in the Safeway store’s management team physically removed the Buttercup bread.  He said that the usual practice in relation to communications or instructions from Safeway’s head office was that the store would receive either a memorandum from the category manager or voicemail from an area or category manager or their assistants.  There was no other evidence of any instruction to Safeway Southland to withdraw any Buttercup bread. 

416               Mr Scott believed that the reason for the removal of the Buttercup bread was because of poor service by Buttercup.  This understanding was based on a conversation he had with the Buttercup representative after the bread was reinstated in Safeway.  He said that it was never mentioned that Buttercup bread was removed because of cheap bread being sold by Cheapa Food Barn.

417               In the particulars to par 18A(c) of its statement of claim in relation to the Cheltenham incident the Commission pleaded:

“(i)      On or about 15 July 1994, Mr Cooper received a telephone call from either Mark Jones or Felicity Austen [sic] and had a conversation in words to the following effect:

 

He/she:           ‘You have got Black and Gold in to Cheapa Food Barn at 99 cents.  This is too cheap.  You are out of Southland.’

 

Cooper:          ‘Fine.  I’ll make sure there’s no bread tomorrow.’

 

(ia)      On or about 15 July 1994 Jones (either personally or through his assistant) instructed the manager of the Safeway Southland store by telephone or voice mail to remove all Buttercup bread from that store and not to accept further supplies of Buttercup bread until further notice.

…”

There was conflicting evidence as to whether this conversation occurred and if so, with whom it occurred, when it occurred and the content of the conversation.

 

418               In evidence‑in‑chief Mr Cooper said that he found out about the deletion of Buttercup from Safeway Southland because he received “a phone call from Mark or Felicity, I don’t remember which”.  When asked to remember the substance of what he was told Mr Cooper replied:

“It got to the stage where it was just, ‘Okay, there’s a problem down at Southland.  You’re out’ and there was no point arguing, so I didn’t.”

 

Mr Cooper was not told what the problem at Southland was but he was aware of the issue because of his field intelligence that told him that Black & Gold bread was being retailed at Southland for 99c.

 

419               Mr Cooper could not recall any enquiries made of him by Safeway in relation to Safeway Southland, Frankston or Vermont, whether any Buttercup products could be supplied to Safeway or to particular Safeway stores at prices other than those which were prevailing at the time (ie a case deal). 

420               When it was put to Mr Cooper in cross‑examination that the telephone call he had was not from Mr Jones, he said that he could not “be specific either way”.  He agreed that, whoever it was, he had not been told that the retail price at Southland was 99c but that he could not remember if that was the case.  Mr Cooper said in cross‑examination that he was not sure now that he was aware of the issue at Southland as he had said in evidence‑in‑chief.  Significantly, Mr Cooper agreed with the proposition put to him that he had only the vaguest recollection of the strategy conversations to which he had referred, and the deletions in which he was involved, that is at Frankston, Cheltenham and Vermont.

421               Mr Jones, in his witness statement said that he was not aware of the withdrawal of Buttercup products from Safeway Southland, he denied speaking to Mr Cooper about any such withdrawal and denied that he had the conversation with Mr Cooper referred to in par 418 above.  He denied he had any conversation with Mr Cooper about reintroducing Buttercup bread to Safeway Southland.  This position did not change in cross‑examination.  He denied that he instructed Ms Austin to telephone Mr Cooper to tell him that Buttercup was out of Southland.  Mr Jones said that apart from himself and Mr Brookes, two senior category managers had the authority to direct the deletion of Buttercup products from Safeway Southland. 

422               Mr Brookes had no recollection of being aware of, or being told about, the Southland deletion incident.  Ms Austin had no recollection of the incident.

423               Safeway and Mr Jones admitted in their defences that Safeway did not purchase or sell Buttercup bread at Safeway Southland between 16 July and 25 July 1994.  The following Buttercup products were deleted from Safeway Southland during the period 16 July 1994 and 25 July 1994:  Country Split White 450g, Super Sandwich 680g, Toasty 680g, Wonder White SLC 680g, Wonder White Toast 680g, Country Split Wholemeal 450g, Wholemeal Plus 680g, Ploughman Wholemeal 900g, Wholemeal Pritikin 680g, Vogel Wholemeal & Grain, Vogel Wholemeal SES 900g, Taylors Wholemeal 900g, Country Split Multigrain 450g, Multigrain Plus 680g, Multigrain Toast 680g, Natural Grain 680g, Natural Grain Toast 680g, Ploughman Barley/Oat 900g, Ploughman Whole Grain WM 900g, Vogel Family SZ 900g, BC Premium Fruit 450g, Fruit 'N Spice 680g, SL 5"Hamburger Buns Pkt 6 and Country Split soft rolls.  None of these products were products that were being discounted by the Cheltenham Cheapa Food Barn.  Not all Buttercup products were deleted.  Buttercup continued to make deliveries of specialty products such as Atlantic and specialty rye breads such as ‘Riga’, ‘Karls’ and ‘Conways’.

424               Safeway and Mr Jones admitted in their defences that between 15 July 1994 and 26 July 1994 Safeway Southland sold Sunicrust’s Captain Cutless 680g branded proprietary bread at a price equivalent to the retail price of Black & Gold bread at Cheapa Food Barn.

425               Mr Scott could not remember when Captain Cutless was brought into the Southland store.  However he remembered that Captain Cutless was used as a price matching bread to compete with Cheapa Food Barn or Franklins.  He knew that Cheapa Food Barn sold cheap bread and had a sign advertising Code C 99c bread.

426               The invoice cost of buying Code C Captain Cutless bread from Sunicrust for the weeks ending 22  and 29 July 1994 was 90c per loaf.  From 12 September 1994 Sunicrust’s net net price of Code C Captain Cutless to Safeway was 82c a loaf, on a no returns basis.  The net net price before 12 September 1994 was less.  At the time of the deletion Safeway was able to acquire Buttercup’s Code C 680g Budget Family Fresh bread, on the terms of its tender, for a net net price of 86c per loaf no returns or 90.6c per loaf with returns.

427               The full range of Buttercup bread was restored to Safeway Southland on 26 July 1994.  Mr Cooper did not recall having any conversations with Mr Jones about restoring the bread into the store.  His only recollection was the fact that Buttercup was made aware that the store manager was getting many complaints from consumers about not being able to purchase certain Buttercup lines and the store manager insisted that the range be put back in.  Mr Cooper did not personally speak to the store manager and did not know how Buttercup became aware of the complaints.  Mr Jones had no knowledge of the reintroduction of Buttercup bread into Safeway Southland. 

428               The Cheltenham deletion is a particular example of the type of situation which attracts the application of the Briginshaw principle in making findings as to what conversations occurred.  It is also a particular example of the care with which one must approach evidence of conversations that occurred four to five years earlier at a time when there was no incentive or motivation to regard the conversations as worthy of being remembered.  Mr Jones denied having the conversation of which Mr Cooper gave evidence but otherwise had no recollection of the Cheltenham incident.

429               I am not satisfied that Mr Cooper had the conversation with Mr Jones in the terms Mr Cooper said occurred.  Mr Cooper’s evidence of the conversation savours of reconstruction rather than recollection.  In its terms, it is not a recollection of a particular conversation, but rather a description of his understanding of what occurred on a number of occasions.  When I couple that finding with Mr Cooper’s acknowledgment that he could not be specific as to whether he had the telephone call with Mr Jones or Ms Austin and his agreement that he only had the vaguest recollection of the incident, I reach the conclusion that I am not satisfied that either Mr Jones or Ms Austin had the conversation with Mr Cooper.  Mr Cooper did not say that any case deal was sought in that conversation but I am not prepared to make a finding that no case deal was sought before the deletion occurred as I do not have any basis upon which I can make a finding as to what was said in such conversation as occurred.  In any event, as Mr Cooper could not be specific one way or the other as to whether he had the telephone conversation with Mr Jones or Ms Austin, I am not able to make any finding that it was Mr Jones who had the telephone conversation with Mr Cooper.  Even if the conversation was held with Ms Austin, it was not part of her work to seek case deals from the plant bakers and she had no authority to direct a deletion, except when Mr Jones was unavailable.  Further, as I have already found, she did not have a purpose in what she did which would lead to a contravention of the Act.

430               The Commission submitted that Mr Jones’ denial of the conversation should be understood as nothing more than him having no recollection of the incident because in re‑examination he said that he did not have a recollection of the Southland deletion.  The Commission submitted that there was ample evidence from which I could infer that the deletion was at Mr Jones’ direction.  First, the incident at Southland occurred very soon after the Frankston incident involving Quadara and the introduction of the deletion aspect of the new bread policy.  Secondly, Mr Jones could not recall an occasion when another category manager or a senior category manager made a decision regarding competitive activity in bread.

431               The Commission submitted that the particulars pleaded were not inconsistent with Mr Cooper’s evidence of the telephone call and that the substance of the call was to the same effect – a short telephone call in which Buttercup was advised of a deletion without any request for a case deal from Safeway.  For present purposes, I am prepared to accept that the conversation relied on by the Commission, Mr Cooper’s evidence does not go beyond the particulars pleaded.  But the evidence did not swear up to those particulars, there being no reference in Mr Cooper’s evidence to the type or brand of bread, the store selling it, the price at which it was being sold, and the fact that 99c was too cheap.  The conversation, the subject of evidence is, to that extent, less compelling.  To make a finding that the conversation occurred in the terms of Mr Cooper’s evidence, when Mr Cooper only had the vaguest recollection of it, would be to fail to have proper regard to the Briginshaw principle particularly when regard is had to the role played by the conversation in the matrix of the allegations raised against Safeway.  In any event, the evidence falls short of establishing to the requisite degree of satisfaction that Mr Jones was involved in the deletion or the reinstatement.

432               The evidence as to the reason for the deletion was limited, and such evidence as there was, was of little probative value.  Neither Safeway nor Mr Jones submitted the planogram was an explanation for the deletion of any of the Buttercup products.  In any event there was no evidence that the planogram for bread had been introduced into Safeway Southland in July 1994.  Mr Scott could not remember when it was introduced.

433               Mr Scott said that the reason for the deletion was poor service by Buttercup but he only knew that from what he was told by a Buttercup representative.  Overall his recollection of the circumstances of the deletion was very vague.  Mr Scott agreed that an instruction to delete because of poor service would usually have been by memorandum or voicemail.  In par 86 of Mr Jones’ statement, he said that when Mr Brookes became Merchandise Manager a procedure was adopted whereby out of stock sheets were completed on a daily basis.  The recorded information was available to Safeway head office and sent to the plant baker with a covering letter recording the fact that the particular store had the problems with supply recorded on the form.  If a store had repeated occurrences and the forms were sent to the same plant baker on a number of occasions, then the plant baker’s products were deleted from the store in question.  A pertinent example was a letter dated 6 June 1994 from Mr Jones to Mr Cooper advising him that Safeway was deleting muffins and crumpets because of continuing “out of stock” problems.  The absence of such paperwork in the month following July 1994 in relation to the Safeway Southland deletion leads me to the view that the deletion was not, as Mr Scott said, because of poor service or stock weight problems. 

434               The Commission submitted that the reason for the deletion was to punish Buttercup.  It submitted that I should infer from the evidence that it was Cheapa Food Barn’s sale of Buttercup bread at 99c that led Safeway Southland to commence and cease selling Captain Cutless at the same discounted price as Cheapa Food Barn’s bread simultaneously with the period of the Buttercup deletion.  I am satisfied that the reason for the deletion was the fact that Cheapa Food Barn was selling bread at 99c.  Buttercup bread was removed from Safeway Southland during the same period as Cheapa Food Barn was discounting Black & Gold bread at an every day low price of 99c, and Captain Cutless was introduced.  Mr Scott agreed that Captain Cutless was used as a price matching bread “mainly to compete” with Cheapa Food Barn.

435               In reaching a conclusion as to the reason why the deletion occurred it is important to look at the bread that was in fact deleted when compared with Safeway’s version of the policy.  Mr Jones said that if Cheapa Food Barn was not a nominated competitor no bread should have been deleted.  If it was a nominated competitor, Mr Jones said that the only bread that should have been withdrawn was the bread in respect of which the store manager believed Safeway was uncompetitive.  Mr Jones said that to be consistent with the policy the store manager should have identified the code of bread (in this case Code C 680g ) that was being sold by the Safeway competitor and only bread in that code (except Code C Home Brand as that was a Safeway brand) should have been deleted.  According to Mr Jones, only four of the twenty‑four Buttercup products that were deleted should have been deleted if the Safeway policy had been implemented.  Mr Brookes agreed that numerous Buttercup bread products that were deleted should not have been deleted.  Cheapa Food Barn was not discounting any of the Buttercup products that were deleted.

436               Safeway submitted that there was no evidence that justified a conclusion that the extent of the withdrawal of Buttercup products from Safeway Southland demonstrated that Safeway’s purpose was to punish Buttercup.  Safeway submitted that I should find that Buttercup representatives withdrew the bread products.  This proposition was never put to Mr Cooper, and the store manager, Mr Knox, was not called to give evidence.  There is no reason why the Buttercup representatives would make the decision to withdraw all the Buttercup products unless they were told to do so.  And if they were told to do so by a Buttercup employee, there would be no reason for that instruction to be given unless that person had been told by a Safeway representative that all the Buttercup products were to be withdrawn.  The implementation of the policy required a deletion to be communicated by Safeway to the relevant plant baker, and I am satisfied that this occurred in relation to the deletion at Safeway Southland.  The Safeway Southland deletion occurred only nine days after the Frankston deletion ended, and I am satisfied that the temporal proximity of the Frankston deletion to the Southland deletion supports this finding.

437               However there is insufficient evidence to enable me to reach a conclusion that Mr Jones directed or was privy to, the deletion.  In the absence of being able to make a finding as to who directed the deletion, I am unable to make any finding as to the purpose of the deletion.  If, and insofar as Ms Austin may have directed the deletion, I have already concluded that she did not have a relevant proscribed purpose.

438               The analysis of the evidence I have undertaken and the findings I have made do not disclose any contravention or attempt to contravene ss 45(2)(a) and (b), 47(1), (4) and (5) or 96(3)(a)‑(f) of the Act.  There is insufficient evidence to enable me to be satisfied that Safeway or Mr Jones attempted to induce Buttercup to cause or compel Cheapa Food Barn to increase the retail price of its bread or to induce Buttercup to stop supplying bread to Cheapa Food Barn.  There was no suggestion in the evidence that this proposition was put to Mr Cooper.  He specifically denied he was told to get the independent stores to put up their prices.  There was no attempt by Safeway or Mr Jones to make any contract or arrangement with Buttercup or reach any understanding with Buttercup in relation to the supply of bread to Safeway or to Cheapa Food Barn.  Nor was any such contract, arrangement or understanding made or entered into by Safeway or Buttercup.  The allegations made by the Commission in relation to exclusive dealing are not made out on the evidence.

439               The evidence does not warrant a conclusion that Safeway attempted to induce Buttercup to engage in resale price maintenance.  The Commission relied upon the telephone call to Mr Cooper and the subsequent deletion.  The evidence of the telephone call to which I have referred, even when coupled with the deletion, is quite inadequate to justify the finding that Safeway attempted to induce Buttercup to get Cheapa Food Barn to sell its Buttercup bread at any particular price.  The Commission submitted that the inducement was to get Cheapa Food Barn to sell its Buttercup bread at a price less than Safeway’s retail price for its cheapest grocery bread at the time.  That was not the case pleaded against Safeway and, in any event, it is not made out on the evidence.  I elaborate on these conclusions later in these reasons and I also consider later the allegation of a contravention of s 46 of the Act.

THE VERMONT/FOREST HILL INCIDENT

Background

440               The third incident the Commission alleged against Safeway and Mr Jones related to an incident involving the deletion of Buttercup bread from the Safeway Vermont store from 16 July 1994 to 25 October 1994.

441               The Commission alleged that Safeway and Mr Jones attempted to induce Buttercup to engage in resale price maintenance (s 96(3)(a)(c)), made or attempted to make a contract or arrangement with Buttercup or arrived at or attempted to arrive at an understanding with Buttercup that had the purpose of substantially preventing, hindering or otherwise lessening competition in the retail market (s 45(2)(a) & (b)) and engaged or attempted to engage in the practice of exclusive dealing (s 47(1) & 47(4)&(5)).  The Commission also alleged that Safeway took advantage of its market power in contravention of s 46 of the Act.

442               The principal witnesses who gave evidence in relation to this incident were Messrs Cooper and Carroll for the Commission and Messrs Jones and Hanna for Safeway and Mr Jones.

443               In July 1994, in addition to the Cheltenham Cheapa Food Barn, Mr Carroll owned and operated another store operating under the same name in Forest Hill or Vermont.  This store has since changed it name to Festival IGA.  The store was in the Brentford Square shopping centre located in the vicinity of the boundary of the suburbs of Forest Hill and Vermont.

444               Safeway operated a store in the Brentford Square shopping centre about 200 metres from the Cheapa Food Barn.  As witnesses referred to the store as Safeway Vermont I will adopt “Vermont” as the description although, from time to time, reference was made to the Safeway and Cheapa Food Barn at Forest Hill.  In the period leading up to the deletion of Buttercup bread from Safeway Vermont on 16 July 1994, the store manager was Mr Ralph Hanna.  Mr Hanna commenced as store manager in September 1993.  On 11 July 1994 he commenced four weeks annual leave.  Mr Hanna did not return to Safeway Vermont.  While on leave he was notified that he was to commence as relief store manager at a Safeway store in Mentone for five weeks commencing 8 August 1994.  On 26 September 1994 he commenced as store manager at Hampton. 

445               Ms Spears took over from Mr Hanna as store manager at Safeway Vermont when he went on leave on 11 July 1994.  The deletion of the Buttercup bread commenced on 16 July 1994 and continued until 24 October 1994.  Ms Spears was not called as a witness by Safeway or Mr Jones although she remained an employee of Safeway.  At the time of the hearing she was acting relief impact manager for Victoria. 

446               It will be recalled that it was a marketing strategy of Cheapa Food Barn to have four products – bacon, bread, margarine and wine advertised at the same discounted price on a permanent basis rather than a large number of different specials each week.  Cheapa Food Barn had bread available for sale at 99c a loaf whenever it could to build its image.  The bread was supplied by different manufacturers.

447               From 13 July 1994 Cheapa Food Barn commenced purchasing both branded and generic bread from Buttercup although the greatest proportion of bread purchased was generic.  Like the Cheltenham store, the generic brand that Cheapa Food Barn purchased from Buttercup for the Vermont store was 680g Code C Black & Gold in white, toast and wholemeal varieties.  The bread was retailed at 99c a loaf.

448               Buttercup’s wholesale price to Cheapa Food Barn was the standard contract price between Buttercup and the SSW banner group under which Cheapa Food Barn purchased bread.  For the week ending 6 November 1994 (the week after the end of the deletion), Buttercup charged Cheapa Food Barn a wholesale price of 92.3c per 680g loaf of Code C Black & Gold bread on a returns basis.  From Monday 7 November 1994 the wholesale price was 97.3c per loaf on a returns basis.

449               Mr Hanna said that Cheapa Food Barn was not a nominated competitor of Safeway Vermont for bread or other items although he regarded it as a competitor in relation to bread.  Mr Hanna always knew that Cheapa Food Barn was continuously discounting bread that was not a proprietary branded bread at 99c a loaf.  He was aware of the sign outside the store advertising bread for 99c a loaf.

450               Mr Hanna was not aware of the type of packaging used for the bread sold by Cheapa Food Barn nor was he aware of the manufacturer of that bread.  He was concerned that Code C bread was being sold for 99c a loaf and regarded it as imperative that Safeway Vermont have an identically priced Code C bread to compete properly.  He gave instructions for the monitoring of the price of Code C bread at the Cheapa Food Barn.  Between September 1993 and May 1994 Safeway’s Home Brand Code C bread was priced at 99c per loaf in order to compete with the bread sold by Cheapa Food Barn.

451               Mr Hanna’s concern was that there was an adverse effect on Safeway Vermont’s sales across the range of bread in the proprietary bread category rather than just the bread made by a particular baker.  It was simply cheap bread at 99c a loaf that concerned him.   His concern was recorded in the following passage in cross‑examination:

“And you weren’t concerned to find out what was the bread inside being sold at 99 cents?--- The point is it’s a cheap bread.  It was at 99 cents, code C.

 

You didn’t know the wrapper it was in?---No.

 

But you assumed that it wasn’t proprietary branded bread at 99 cents?---I assumed that it was a plain label bread, yes, at 99 cents.

 

The Tip Top deletion from 23 June 1994 to 11 July 1994

452               The case pleaded against Safeway and Mr Jones in relation to Safeway Vermont related to the deletion of Buttercup bread between 16 July 1994 and 25 October 1994.  The Commission submitted that the evidence also disclosed a deletion of Tip Top bread from Safeway Vermont during the period 23 June 1994 to 11 July 1994.  The Commission did not seek relief in relation to this deletion but submitted that it was relevant to, and probative evidence of, the Buttercup deletion.  I will respond to that submission but in order to do so it is necessary to set out the evidence in relation to it. 

453               Prior to 3 July 1994 Cheapa Food Barn Forest Hill was selling Tip Top’s Hot Bake bread on promotion at 99c a loaf.  In or about May 1994 Mr Hanna had a conversation with his Assistant Store Manager who said that he had been instructed by State office not to discount the price of Home Brand any more.  Mr Hanna told him that they still needed to compete with Cheapa Food Barn bread and that they would have to use the production bakery plain wrap bread in order to compete.  Within a couple of weeks of issuing an instruction to use in‑house production bakery bread, Mr Hanna had a conversation with the Safeway Vermont Bakery Manager who told him that he had been told not to sell production bakery plain wrap bread any more at 99c a loaf.  Mr Hanna said there was a period of time when he did not have a cheap bread available to sell at 99c a loaf but relevant scan data showed that Safeway Vermont was selling bread at that price during June.  Nothing turns on the point, the only issue being Mr Hanna’s subsequent telephone conversation with Mr Jones.

454               Mr Hanna telephoned Mr Jones and said words to the effect “I need a bread to sell at 99c to match Cheapa Food Barn, which is in Brentford Square”.  Mr Jones said that he would get back to him with what he could do.  About ten days after this first conversation and about two or three days prior to 23 June 1994, Mr Hanna telephoned Mr Jones again and said to him words to the effect of “What’s happening?  What have you got for me to compete with Cheapa Food Barn?”  In par 16 of his first witness statement Mr Hanna said that Mr Jones replied in words to the following effect:

“I have arranged for a line called Captain Cutless to be delivered to you for sale at 99c.  We can’t get the same deal from Buttercup so we’ve made the decision to withdraw their products from your store.  Do you have a problem with that?”

 

Mr Hanna said he answered “No”.

455               In his supplementary statement filed on 20 July 1999 (he gave evidence on 2 and 3 August 1999) and in his oral evidence Mr Hanna qualified this record of the conversation by saying that he could not recall whether Mr Jones said to him that Safeway had decided “to withdraw their products” from Safeway Vermont or whether he said there would be a “withdrawal of the Buttercup range”.

456               Mr Hanna said that following this conversation with Mr Jones and within a day or so there were no more deliveries of Buttercup bread products and supplies of Captain Cutless were displayed where the Buttercup products were previously displayed.  Mr Hanna did not take any steps to withdraw Buttercup bread from the store nor, to his knowledge, did any other Safeway employee.  He did not give an instruction to any of his staff not to accept Buttercup bread nor did he give an instruction to a Buttercup delivery person not to deliver some or all of the range.  He claimed that the decision as to which bread would be delivered to the store was not made by him or any employee responsible to him but by the Buttercup representative.  He said that the delivery representative from Buttercup arrived at the store and took the Buttercup range and left.

457               Although Mr Hanna said that the conversations leading up to 23 June 1994 involved Buttercup bread, this evidence was inconsistent with the evidence as to when Buttercup Black & Gold bread was supplied to Cheapa Food Barn and when Buttercup bread was deleted.  That deletion only occurred on 16 July 1994, after Mr Hanna had commenced his annual leave.  Mr Hanna could not have had a conversation with Mr Jones about Buttercup bread two or three days before 23 June.  Scan data and invoices showed that numerous Tip Top products (including Codes C, D, E and X products) were not delivered to, or retailed, from Safeway Vermont from 23 June 1994 to 11 July 1994 inclusive and that Captain Cutless was delivered and sold at 99c a loaf at Safeway Vermont from 23 June 1994.  Mr Hanna said that this was the status quo at the time he took leave on 11 July 1994.  The scan data also showed that deliveries of Captain Cutless to Safeway Vermont ceased from 12 July 1994 to 14 July 1994 but recommenced again on 15 July 1994.

458               In oral evidence Mr Hanna repeatedly denied that the deletion and conversation he recalled with Mr Jones concerned Tip Top bread despite being shown the scan data that recorded that it was Tip Top bread that was not delivered during that period.  His evidence was that it was Buttercup bread.

459               Mr Jones denied that he spoke to Mr Hanna about a Buttercup deletion and said that he could not recall ever having a conversation with Mr Hanna, who was a man of whom Mr Jones said he had neither heard nor knew. 

460               Given the contemporaneous documentation and the point of time at which Cheapa Food Barn introduced Black & Gold bread, I am satisfied that Mr Hanna could not have had a conversation with Mr Jones in which Mr Jones referred to Buttercup bread when Mr Hanna said he did.  However, I am satisfied that such a conversation occurred albeit in relation to the deletion of Tip Top bread rather than Buttercup bread.

The deletion of Buttercup bread

461               On 13 July 1994, Cheapa Food Barn commenced to purchase 680g Code C Black & Gold generic bread from Buttercup, which it retailed at 99c a loaf.

462               In the particulars of the statement of claim the Commission alleged:

“On or about 15 July 1994, Raymond Cooper (‘Cooper’), then Victorian sales manager for Buttercup, received a telephone call from a representative of Safeway, Felicity Austen [sic].  The representative and Cooper engaged in a conversation in words to the following effect:-

 

Austen:             “Ray, there is a problem at Vermont.  There’s an IGA store selling at 99 cents.  Given our strategy you are out of the Vermont store as from tomorrow.”

 

Cooper:            “You know I can’t do anything about it.  I guess I am out.”

 

Mr Cooper said that on or about 15 July 1994 he received a telephone call from Mr Jones or Ms Austin advising him of the deletion of Buttercup bread.  In oral evidence‑in‑chief Mr Cooper gave the following version of that conversation:

 

“How did you first learn of the deletion at Vermont or Forest Hill as a result of the IGA store selling Black and Gold at 99 cents?---I had a phone call from either Mark or Felicity, I don’t recall which.

 

Felicity who?---Felicity Austin.

 

Who was she?---She was Mark’s category assistant.

 

Yes?---From either of those, saying that, ‘You’re out of that particular store.’  I knew very well why I was out of that particular store because we used to shop at the Cheapa Food Barns on a Sunday.  It had a big board across the front of its store saying, ‘Black and Gold for 99.’

 

[GOLDBERG J]:         As best you recall it, how did the conversation go though?---It was as short as that.

 

But the person who spoke to you, what did that person say?---‘You’re out of Vermont.’

 

Did the person identify themselves?---I don’t know whether it was Mark or Felicity. 

 

No I understand that?---Yes, they would have.  I mean, I would recognise Mark’s voice, I would also recognise Felicity’s voice.  One of them, I don’t remember which, said, ‘You’re out of Vermont.’  I mean, the policy was not a secret.

 

Did this person say why you were out of Vermont?---I didn’t even ask; I knew.

 

MR FAJGENBAUM:   Did you say anything in response?---I said, ‘I can’t do anything about it.  I’ll take the bread out tomorrow.’

 

In cross‑examination when Mr Cooper was asked if it was probable that he spoke to Ms Austin and not Mr Jones he said that it was possible.  Ms Austin had no recollection of any of the deletion incidents.

 

463               Mr Jones said that he had no involvement at all in this incident and was not aware of the withdrawal of Buttercup products at Safeway Vermont during 1994 until late in 1995 when he visited the store and learned that Captain Cutless had continued to be ranged in the store since October 1994.  He said that he had no conversation with Mr Cooper in relation to the circumstances in which Buttercup products were deleted from the Safeway Vermont store or reintroduced to the store and denied that he had the conversations or made the statements attributed to him or Ms Austin by Mr Cooper.  Mr Jones also denied that he made the decision to delete or reintroduce Buttercup products at Safeway Vermont.

464               Safeway submitted that Mr Jones’ denial was not challenged but it was put to him in cross‑examination first, that it was either he or Ms Austin on his instructions who telephoned Mr Cooper to tell him that Safeway Vermont was withdrawing the Buttercup products and secondly, that either Mr Cooper telephoned him or Ms Austin to inform him that Cheapa Food Barn had stopped selling cheap Buttercup bread.  Mr Jones denied the first proposition and said he was not aware of the second telephone call taking place.  Mr Brookes had no knowledge of the Vermont incident.

465               There was no evidence that prior to the deletion Safeway asked Mr Cooper for a case deal for proprietary branded Buttercup bread at the same cost price that Cheapa Food Barn bought Black & Gold bread.  Mr Cooper could not remember any circumstance where he was asked to supply Buttercup products at a Black & Gold price but he could not deny it.  It was not put to Mr Cooper in cross‑examination that he was in fact asked for a case deal.  Mr Jones said he was not involved in the deletion.  Ms Austin did not have a recollection of any of the incidents.  In any event Ms Austin said it was not part of her job to seek case deals or cost prices from manufacturers. 

466               Mr Jones did not know who organised the Vermont deletion.  The deletion ran for three months but Mr Jones said he had no knowledge of it, although he looked from time to time, about once a fortnight or once a month, at the list of competitive action his CMA kept.

467               It was admitted by Safeway and Mr Jones in their defences that Buttercup products were not purchased by, or sold from, Safeway Vermont between 16 July 1994 and 25 October 1994.  The following products were in fact deleted from the Safeway Vermont store:  Country Split White 680g, Super Sandwich 680g, Toasty 680g, Wonder White sliced 680g, Wonder White Toast 680g, Country Split Wholemeal 450g, Wholemeal Plus 680g, Ploughman Wholemeal 680g, Wholemeal Pritikin 680g, Vogel Wholemeal & Grain, Vogel Wholemeal SES 900g, Taylors Wholemeal 900g, Country Split Multigrain 450g, Multigrain Plus 680g, Multigrain Toast 680g, Natural Grain 680g, Natural Grain Toast 680g, Ploughman Barley/Oat 900g, Ploughman Wholegrain WM 900g, Vogel Family SZ 900g, BC Premium Fruit 450g, SL 5"Hamburger Buns Pkt 6, Bag Split Hot Dog Roll and Country Split soft rolls.

468               On 1 October 1994 several items were re‑listed at Safeway Vermont.  These were:  Ploughman Wholemeal 900g, Vogel Wholemeal & Grain, Vogel Wholemeal SES 900g, Ploughman Barley/Oat 900g and Ploughman Wholegrain WM 900g.

469               On or about 26 October 1994, the remaining deleted bread products were reinstated into the Safeway Vermont store.  Of the bread deleted from the Safeway Vermont store, none of the products was sold by Cheapa Food Barn.  Safeway admitted in its defence that Black & Gold bread was not at any relevant time acquired or ranged by it. 

470               Although Mr Brookes had no recollection of the Vermont deletion, he agreed that numerous Buttercup bread products that were deleted should not have been deleted.  Mr Jones said that if Cheapa Food Barn was not a nominated competitor no bread products should have been deleted.  Mr Jones said that on his understanding of the proper application of the policy if it was a nominated competitor only four products should have been deleted – Super Sandwich, Toasty, Wholemeal Plus, Natural Grain and Natural Grain Toast. 

471               It was admitted by Safeway and Mr Jones that Safeway Vermont sold Captain Cutless 680g bread from 23 June 1994 to 4 November 1994.  Sunicrust invoices showed that there were deliveries of Captain Cutless to Safeway Vermont from 23 June 1994 to 11 July 1994 and from 15 July 1994.  There were no deliveries of Captain Cutless from 12 to 14 July 1994.  After deliveries of Captain Cutless recommenced on 15 July 1994 it continued to be sold in the Safeway Vermont store until December 1995 despite the deletion of Buttercup products finishing on 25 October 1994.  From 26 October 1994 to the end of 1995, Cheapa Food Barn was selling 99c cheap bread but no major plant baker’s products were deleted from Safeway Vermont. 

472               At and around the time of the deletion Sunicrust’s invoice cost of 680g Code C Captain Cutless to Safeway was 90c per loaf.  From 12 September 1994 Sunicrust’s net net price of 680g Code C Captain Cutless to Safeway was 82c a loaf on a no returns basis.  At the time that Captain Cutless was first introduced, Safeway was able to acquire 680g Code C Budget Family Fresh from Buttercup at a net net price of 86c per loaf no returns or 90.6c per loaf with returns. 

473               Mr Cooper did not take any steps in relation to the sale of Black & Gold bread at Cheapa Food Barn after he had the conversation with either Mr Jones or Ms Austin.  In his witness statement Mr Cooper said that in October 1994 he was informed by the Buttercup area representative that Cheapa Food Barn had changed its promotional activity and was selling Vardar bread for 99c a loaf.  In examination‑in‑chief Mr Cooper said that he found out that Cheapa Food Barn had ceased discounting Black & Gold when he went shopping one Sunday with his wife and the Black & Gold had been scribbled off Cheapa Food Barn’s advertising board and replaced with Vardar at 99c. 

474               When Mr Cooper was asked in cross‑examination which version of his evidence as to how he found out that Cheapa Food Barn had ceased discounting Black & Gold bread was true, he answered “They both could be true”.  He then assented to the proposition that he was unable to say one way or the other whether he found out from going shopping or from a field representative.

475               Mr Cooper said he telephoned either Mr Jones or Ms Austin (he could not identify who) and said:

“We don’t have the problem in the Vermont store any more.  There’s another brand in there.  Can I go back in with my proprietary brands?”

 

and was told – yes, he could.

476               This incident demonstrated the difficulties which arise when the evidence of the critical aspects of the incident is attended with doubt.  The only direct evidence of the circumstances that brought about the deletion of Buttercup products came from Mr Cooper.  There were significant variations in his evidence.  The conversation was as short as “You’re out of Vermont”.  There was no reference to the identity of the competitor, or to the price at which that competitor was selling bread.

477               Mr Cooper was not firm in his recollection.  Not only could he not recall whether it was Mr Jones or Ms Austin who called, but he acknowledged that his recollection was not clear.  Although he did not accept the proposition that he had very little recollection of the Vermont incident one way or the other, shortly after he agreed with the suggestion that he had only the vaguest recollection of the matters about which he had given evidence, that is to say the strategy conversations in which Safeway had outlined its bread policy in April 1994 and the three deletions at Frankston, Cheltenham and Forest Hill.  Mr Jones denied any knowledge of, or involvement in, the deletion.

478               On Mr Cooper’s evidence it was equally possible that he spoke to Mr Jones or Ms Austin but he was not prepared to say that it was probable that he spoke to Ms Austin.  It is also relevant to an assessment of the reliability of Mr Cooper’s evidence that his resolution of the two differing accounts of how he found out that Cheapa Food Barn had ceased discounting Black & Gold bread was “They both could be true”. 

479               The evidence is insufficient to satisfy me that I can make a finding that either Mr Jones or Ms Austin told Mr Cooper that Buttercup bread was to be deleted from Safeway Vermont and a finding as to which person made the statement.  More particularly is this so when I have regard to the Briginshaw principle, which requires that my reasonable level of satisfaction “should not be produced by inexact proofs, indefinite testimony or indirect inferences”.  The deletion occurred; of that there is no doubt.  But the evidence does not enable me to be satisfied as to who authorised the deletion or who gave the instruction for it.

480               The Commission submitted that although no penalties were being sought to be imposed on Safeway for breaches of the Act in relation to the Tip Top deletion from Safeway Vermont in June to July 1994, the evidence was still relevant to, and probative of the Buttercup deletion pleaded and the Safeway policy for which it contended.  Consistently with my earlier ruling on the admissibility of the Tip Top invoices relating to deliveries of bread to Cheapa Food Barn for the weeks ended 10 and 17 July 1994:  Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd [1999] FCA 1269, I consider that the evidence in relation to the Tip Top deletion could rationally affect the assessment of the probability that the Safeway policy on bread was that for which the Commission contended and was implemented consistently with the policy.

481               Mr Hanna’s evidence as to his June conversation with Mr Jones does not strengthen that evidentiary basis.  As I have found earlier, I am prepared to accept that Mr Hanna had a conversation with Mr Jones along the lines of his evidence, except that I do not accept that the conversation related to Buttercup bread; rather it related to Tip Top bread.  On that occasion there was an over‑deletion of Tip Top bread.  But I am left in the dark as to what, if anything, any Tip Top representative was told about the deletion or the reason for it.  I draw no inference adverse to the Commission from this fact as the issue of there being a deletion of Tip Top bread at Safeway Vermont shortly prior to the deletion of Buttercup bread only emerged after Mr Hanna’s supplementary statement was filed on 20 July 1999, well after the Commission had closed its case.

482               Mr Hanna’s evidence does not enable me to make a finding that a case deal was sought by Safeway before the Buttercup deletion.  Mr Hanna said that Mr Jones told him that they could not get the same deal from Buttercup.  Assuming, as I have found, that Mr Jones could not have referred to Buttercup at the time Mr Hanna said the telephone conversation occurred, this evidence at the most, establishes not that Mr Jones had asked Tip Top for a case deal and had been refused, but that he had a belief that Safeway could not get a case deal from Tip Top.

483               Mr Cooper did not say that he was asked for a case deal.  But I am not satisfied that Mr Cooper’s account of the conversation with Mr Jones or Ms Austin is reliable or a complete account of what was said.  I am not satisfied on the evidence as to which of Ms Austin or Mr Jones spoke to Mr Cooper.  I therefore am not able to be satisfied that the purpose of the deletion was to induce Buttercup to get Cheapa Food Barn to increase the price of its bread or to punish Buttercup for enabling Cheapa Food Barn to sell bread cheaply.  If it was Ms Austin who spoke to Mr Cooper I am not satisfied (as I have already found) that she had an intention or purpose to induce or attempt to induce plant bakers to get Safeway’s competitors to increase the price of their bread (par 313 above).

484               There was no evidence as to what was the Safeway store communication which led to the deletion of Buttercup bread.  Ms Spears took over as store manager when Mr Hanna went on leave on 11 July 1994.  At the time of the hearing she was still employed by Safeway but was not called as a witness.  The Commission submitted that I should apply the principle in Jones v Dunkel (1959) 101 CLR 298 and infer that her evidence would not have assisted, or been favourable to, Safeway and Mr Jones.  But in what sense would her evidence not have assisted or not been favourable?  It would not determine whether Mr Jones or Ms Austin had the telephone conversation with Mr Cooper; nor would it provide any content for that conversation.  When telephone calls were made by stores to Mr Jones’ office in relation to bread issues, the calls were taken by Mr Jones’ CMA in the first instance.

485               The only issue on which Ms Spears’ evidence may have had some bearing was the information she passed on to the CMA, in this case Ms Austin, about the bread being sold by Cheapa Food Barn in respect of which Safeway was uncompetitive.  Having regard to Mr Hanna’s concern that Cheapa Food Barn was selling Code C bread for 99c a loaf, that he regarded it as imperative that his store have an identically priced Code C bread to compete properly and that he gave instructions for the monitoring of the price of Code C bread at the Cheapa Food Barn, I am prepared to infer that such communication as was made to Mr Jones’ office related to cheap Black & Gold Code C bread.

486               I am also prepared to infer that the reason for the deletion of Buttercup bread from Safeway Vermont was because Safeway was not competitive with Cheapa Food Barn in respect of its 99c bread, but I am not prepared to find that the purpose of the deletion was to punish Buttercup or to get it, or attempt to get it, to induce Cheapa Food Barn to raise the price of its bread, or to get it, or attempt to get it, to cease supplying Cheapa Food Barn unless it raised the price of its bread.

487               There were some aspects of the deletion of Buttercup bread from Safeway Vermont that raised questions as to the reason for, and the purpose of, the deletion.  There was an over‑deletion of products having regard to what Safeway said was its policy.  Indeed, according to Mr Jones, as Cheapa Food Barn was not a nominated competitor in respect of bread, there should not have been any deletion.  The deletion ended only when Cheapa Food Barn ceased selling Black & Gold bread for 99c a loaf.  However, Cheapa Food Barn continued to offer for sale bread at 99c a loaf through the sale of Vardar bread.  The price‑fighting bread that Safeway introduced was Captain Cutless manufactured by Sunicrust and not Budget Family Fresh manufactured by Buttercup.

488               The Commission submitted that these aspects showed that Safeway’s policy was to do more than simply bring in Captain Cutless to compete by selling cheap generic bread, like it did when Cheapa Food Barn changed from Black & Gold to Vardar bread.  These aspects, said the Commission, showed that the policy was to compete by deterring the sale of discounted bread through pressuring Buttercup to cease supply to Cheapa Food Barn, to engage in resale price maintenance, or to increase the wholesale cost of the generic bread being discounted by Cheapa Food Barn.  The pressure was applied, it was said, by the deletion of Buttercup’s products until Cheapa Food Barn ceased discounting Black & Gold bread.

489               The difficulty in accepting these submissions is that they require a substantial number of inferences to be drawn from conduct that is either equivocal or open to competing inferences and require assumptions to be made as to conduct where there is little, or no direct, evidence of that conduct.

490               As I have noted earlier, Mr Brookes’ motivation for creating the policy was for Safeway to be competitive in its bread sales.  As the policy was implemented it became apparent that the concern of store managers was not so much to be competitive in a particular plant baker’s bread as to be competitive in bread generally, and in particular, to be able to compete effectively with particularly cheap bread, such as bread sold for 99c a loaf.  Mr Hanna’s attitude and concern is a good example of the attitude and concern of the Safeway store managers.  He was concerned about the effect the competitor’s cheap bread would have on his sales of bread generally, and not on the sale of a particular brand of bread.

491               I have reached the conclusion that the policy was created to respond to the situation that arose when a competitor of Safeway was selling cheap bread in respect of which Safeway did not have a competitive product to offer for sale.  Mr Brookes’ purpose in creating the policy was to enable Safeway to be competitive in bread.  Although one of the factors which he took into account and acted upon was the “same bread different wrapper” situation, the policy was not intended to be limited to that situation.  Rather it covered any situation where a competitor was selling discounted or cheap bread and the store manager was concerned that such sales were a threat to, or had an effect on, Safeway’s sales, not of a particular brand of bread, but on sales of bread generally.  Although Mr Jones maintained that the policy should only be applied where the store selling the discounted or cheap bread was a nominated competitor, that was not in fact how the policy was carried into effect.

492               Safeway responded to the impact or threat of discounted or cheap bread on its bread sales by choosing to try and get a case deal on the proprietary bread of the plant baker who was supplying the discounted or cheap bread, and if it could not do so by bringing in a price‑fighting bread.  Alternative responses were available – discounting Home Brand bread, which Mr Brookes did not want to do for reasons already referred to.  Another response could have been to seek the supply of the bread that was being discounted or sold cheaply.  That last response was not available in relation to the Safeway Vermont deletion because the Black & Gold brand was only available to those stores trading under, or with, the banner groups to whom Buttercup was contractually bound to supply bread under the Black & Gold brand.

493               There was considerable evidence led as to whether Black & Gold bread was seen by Safeway as, or was to be regarded as, a manufacturer’s proprietary branded bread.  Initially Mr Brookes and Mr Jones regarded the policy as applicable to Black & Gold bread but they subsequently changed their view, and the policy was not applied where Buttercup sold Black & Gold bread to Safeway’s competitors.  Mr Jones said that the change occurred because Mr Cooper’s statement that Black & Gold bread was compared by consumers with Safeway’s generic Home Brand eventually persuaded him that Black & Gold was not comparable with Buttercup branded products.

494               The Commission submitted that I should not accept this explanation and that rather I should find that the policy changed in relation to Black & Gold bread because Mr Brookes and Mr Jones accepted that Buttercup, because of its contractual obligations, could not refuse to supply Black & Gold bread at the contractual prices.  Although Mr Brookes’ and Mr Jones’ evidence is unsatisfactory on the Black & Gold bread issue, I am not satisfied that the policy changed for the reason submitted by the Commission.

495               Mr Brookes’ evidence that in early 1994 he thought that the Black & Gold brand of bread was proprietary bread (by which he meant bread manufactured by a plant baker where the plant baker owned the brand on the wrapper) is not credible.  He knew that a group of wholesalers had the brand Black & Gold but he said that he did not know whether it was a house brand, a generic brand or a price‑fighting bread.  He also knew that it was to be developed as a national brand in a range of products other than bread by four wholesalers, QIW, Davids, Composite Buyers and Foodland, for sale only in their stores.

496               Mr Brookes, to use his words, “miscued on Black & Gold bread”.  When it was put to him that if he knew or had an understanding in 1993‑1994 that Black & Gold was a label applied to a number of grocery items it would have been apparent that the Black & Gold label was not owned by the bread manufacturer, he replied, “I mean, it defies logic to say no.  Yes it is logical that that’s the case”.  He expanded on this evidence in the following exchange:

“Can I ask you this:  if in 1993‑94 you were aware that Black and Gold was a label that applied to a number of grocery products of the type to which I have referred, there would be no basis for thinking at that time that Black and Gold was a small ‘p’ proprietary bread owned by a plant baker, would there?---I certainly acknowledged that, your Honour.  When I wrote the statement I was of the belief that in 93‑94 I thought Black and Gold was a proprietary branded bread.

 

Small ‘p’?---Small ‘p’.  Now that I’ve had all this pointed out to me, I’m uncertain whether my thinking in 1993‑94 was where Black and Gold would fit into, because I would have read Retail World, I did see the Black and Gold brand available in Queensland, as I’ve highlighted, and I’m uncertain.  I’m trying to give the most accurate evidence possible.

 

I think what’s being put to you is that in 93‑94 there would have been no basis for being uncertain if you were aware that Black and Gold was a label applied to ice‑cream and cat food, for example?---Inarguable.  If I had seen it, I would have known in 93‑94.  But when I wrote the statement I was under the impression that I thought Black and Gold was a proprietary branded bread.  I could suppose why I thought that, because the independents were going through a series of brand name changes.  They had IGA that they were launching as a brand name.  There was a Black and Gold.  Some of them stocked Fabulous brand.  There was a potpourri of different brands and I just didn’t know where they fit in.  I plead, as I said, dumbness, if you like.”

 

Mr Jones did not say that in early 1994, or indeed at any time, he thought that Black & Gold was proprietary bread.  Rather he appeared to rely on Mr Brookes’ view, although he said he became aware around May or June 1994 that Black & Gold was sold exclusively through stores who purchased it at a contractual price from Davids and Composite Buyers.

 

497               The significance of the Black & Gold issue is that the Commission submitted that bread was deleted by Safeway to bring pressure to bear on Buttercup to cease supply to an independent such as Cheapa Food Barn, or to engage in resale price maintenance in accordance with its policy.  It supported this submission by showing that when Mr Brookes and Mr Jones realised that Buttercup had a contractual obligation to supply the bread at a particular price and that it could not refuse to supply the bread at that price, they accepted that position.

498               Mr Brookes must have been wrong in his evidence as to his understanding in 1993/1994 of Black & Gold bread but it does not follow that he changed his mind about applying the policy where Buttercup sold Black & Gold bread to competitors of Safeway for reasons relating to an inability of Buttercup to engage in resale price maintenance or to cease supplying bread under a contract.  I am not prepared to make that finding on the evidence.

499               That does not mean that I accept Mr Jones’ evidence that he was eventually persuaded that Black & Gold was not comparable with Buttercup branded products and that he passed this on to Mr Brookes.  Mr Brookes would have known of that fact at the time.  Further, Mr Jones could give no substantive reason why he changed his view that Safeway regarded Black & Gold bread as comparable to Buttercup branded bread.  When asked why he changed his mind he responded, “I just believed Mr Cooper was probably right”.  When asked why he believed this, he answered “I don’t know”.

500               Mr Brookes said he changed his view because Mr Jones told him that Mr Cooper had said that Black & Gold was a house brand used by the Davids banner group, rather than a proprietary brand.  This led him to be satisfied that it was a generic bread and not a direct competitor with Buttercup branded bread.  But as I have found earlier, he must have known it was a generic bread all the time.

501               I do not accept that Mr Brookes and Mr Jones were entitled to have the view that Black & Gold bread was seen by consumers as comparable with proprietary branded bread.  Although Mr Cooper acknowledged that Black & Gold bread was promoted as good bread, he rejected the view that it was being presented as a comparable product to proprietary brands of bread.  He saw Black & Gold bread as being sold as a value for money option rather than in competition with a proprietary brand.  I accept this evidence, particularly when it is remembered that Black & Gold was a brand that extended over many disparate products.

502               Safeway submitted that on the basis of Mr Cooper’s evidence that Mr Jones never asked him to control retail pricing and Mr Jones’ denial of having any such purpose, the allegations of attempting to induce Buttercup to engage in resale price maintenance of making an anti‑competitive contract, arrangement or understanding (or attempting to do so) and of giving effect to a provision of any anti‑competitive contract, arrangement or understanding (or attempting to) could not be sustained. 

503               The findings of fact I have made provide an inadequate basis for a finding that there was an attempt by Safeway to induce Buttercup to cause or compel Cheapa Food Barn at Forest Hill to increase the retail price at which Black & Gold was sold, or to cause or compel Buttercup to cease the supply of Black & Gold bread to Cheapa Food Barn and that in the absence of such steps Safeway Vermont would delete all Buttercup products.  Mr Cooper’s evidence as to the conversation he said he had with Mr Jones or Ms Austin is too unreliable to provide a factual basis for such finding.  It requires the drawing of inferences which are indirect and the factual basis for the drawing of those inferences is based on “inexact proofs” and “indefinite testimony”, to adopt the language of Dixon J in Briginshaw at 362.  The conversation relating to the reintroduction of Buttercup bread into Safeway Vermont is to be viewed similarly. 

504               Even if I were to accept Mr Cooper’s evidence of the two conversations as reliable and consider them in the context of the introduction of Captain Cutless and what has been called the over‑deletion of Buttercup products, the evidence does not satisfy me that there was an attempt to induce Buttercup to cause or compel Cheapa Food Barn to raise its bread prices, or to cause or compel Buttercup to cease supplying bread to Cheapa Food Barn. 

505               The Commission submitted that the attempt to induce Buttercup to engage in resale price maintenance was to be found in the telephone call from either Mr Jones or Ms Austin to the effect that – “you are out of the Vermont store”, coupled with the deletion.  That is an inadequate evidentiary basis for a finding that Safeway attempted to induce Buttercup to engage in any of the acts referred to in s 96(3) of the Act.  The Commission submitted that Safeway sought to have Buttercup get Cheapa Food Barn to sell bread at a price not less than Safeway’s retail price for its cheapest grocery bread at that time.  That was not the case which was pleaded but, in any event, the evidence does not support a finding that such action as Safeway took involved attempting to get Buttercup to specify any price at which Buttercup bread should be sold or below which Buttercup bread should not be sold.

506               I reach the same conclusion in relation to the allegations that Safeway has made or given effect to, or attempted to give effect to, an agreement or arrangement with Buttercup.  The evidence is quite inadequate to justify any such conclusion.

507               The allegations of exclusive dealing by Safeway in contravention of s 47 of the Act cannot be sustained for the same reasons; the evidence is inadequate to support a finding of any contravention of s 47.

508               I elaborate on these conclusions later in these reasons and I also consider later the allegation of a contravention of s 46 of the Act.

the TRARALGON INCIDENT

Background

509               The fourth incident alleged by the Commission, and the first involving a baker other than Buttercup, occurred in Traralgon when Sunicrust bread was deleted from the Safeway Traralgon store between 5 August 1994 and 25 October 1994. 

510               The Commission alleged against Safeway and Mr Jones that they attempted to induce Sunicrust to engage in acts in contravention of s 96(a)‑(f) of the Act, attempted to make a contract or arrangement with Sunicrust or arrived or attempted to arrive at and/or give effect to or attempted to give effect to an understanding with Sunicrust, which had the purpose of substantially hindering, preventing or otherwise lessening competition in the retail market or markets in which Safeway and West End Foodtown participated (s 45(2)(a) & (b)) and engaged or attempted to engage in the practice of exclusive dealing contrary to s 47(1) of the Act.  The Commission also alleged that Safeway took advantage of its market power in contravention of s 46 of the Act.

511               The principal witnesses who gave evidence about this incident were Messrs Albert Connor (the Manager of the Traralgon West End Village Foodtown supermarket) McLeish and McDowall for the Commission and Mr Brookes, Mr Jones, Mr Neville White (a Safeway Area Manager), and Mr Berry (the Manager of the Safeway Traralgon supermarket) for Safeway and Mr Jones.

512               The West End Village Foodtown supermarket (“West End”) was an independent supermarket in Grey Street, Traralgon.  West End was not a nominated competitor of Safeway Traralgon in bread or in any other category.  In late June 1994, in an attempt to draw the public to its store to increase sales of other commodities and to have customers recognise it as a competitive store for grocery items, it discounted the price of its generic Code C white sandwich, white toast and wholemeal sandwich bread to $1.19 per loaf.  Sunicrust supplied the bread to West End in bags labelled “West End Supermarket” at a wholesale price of $1.00 or $1.02 per loaf.  West End purchased all bread on a returns basis.

513               Although West End bread was manufactured by Sunicrust at its factory in Moe and the mark “West End” was owned by Sunicrust, Sunicrust did not provide any advertising or financial support for the discounted bread it supplied to West End.  Sunicrust regarded it as generic bread.

514               Mr Brookes said that he was advised by Mr Jones that the West End bag bore the notation “packed by Sunicrust”.  However the bread bag tendered in evidence did not bear any such notation.  Instead it had the words “Packed for West End Supermarket” followed by the address of West End in Traralgon.  Mr McDowall said that the bread bag tendered in evidence was the wrapper that was used in 1994.  When shown this bread bag Mr Jones agreed that it was a generic product because it said on the bag that it was packed for West End Supermarket rather than “made by Sunicrust”.  He said that it was comparable to Safeway’s Home Brand.  However there is no evidence as to how, or in what circumstances, Mr Jones came to know or be told (if he ever knew or was told) about the West End bag at the time of the Traralgon incident.  If Mr Brookes was told by Mr Jones that the West End bag bore the notation “packed by Sunicrust” it may have been that Mr Jones made that assumption because he had learned (probably through his CMA) that the Safeway Traralgon store was uncompetitive on Sunicrust bread.  However that is a matter of speculation.  I am not disposed to draw an inference adverse to Safeway or Mr Jones from the statement made by Mr Brookes.

515               Mr Connor agreed it was generally known by customers of his store that the West End bread which it was selling was manufactured by Sunicrust.  If a customer asked, he would reply that the West End bread came from Sunicrust Moe.

516               About two or three weeks after beginning to sell the West End bread at $1.19 per loaf, Mr Connor discounted the bread further to 99c per loaf.  At the end of August or early September 1994 Mr Connor offered a loaf of bread and a litre of milk to customers for $2.00.  On other occasions the bread was retailed at two loaves for $1.00 and on one occasion, due to a large quantity of left‑over bread, the price was reduced to 89c per loaf.

517               Sunicrust also supplied proprietary bread to the Safeway Traralgon store which was located less than two kilometres away from West End in Seymour Street.   Safeway’s Home Brand bread was also supplied to it by Sunicrust.  The net cost of 680g Code C Home Brand to Safeway (on a returns basis) on 4 December 1993 was 89.93c per loaf, from 12 September 1994 it was 85c per loaf and from 22 October 1994 it was 90c per loaf.

518               In June 1994 Safeway Traralgon’s normal retail price for proprietary Code C bread was $1.75 per loaf and for Home Brand bread $1.50 per loaf.  When West End lowered its prices Safeway and Coles (which was also located nearby) lowered their retail price and a price war developed.  At the height of the price war West End was selling 4,000 loaves of discounted bread each week when it had previously sold 1,200 loaves per week when the bread was sold at $1.19.  Mr Connor said that these sales of West End bread were at the expense of proprietary bread sales because the low prices of West End bread would have attracted buyers who would otherwise have bought either Code C or Code D proprietary breads.  Mr Connor said that the more West End bread his store sold the less proprietary bread it sold.  At the time of the price war West End was virtually selling only the discounted West End bread.

519               The price war captured the local media’s attention and an article appeared in the Traralgon Journal on 19 October 1994.  In part the article said:

“… the month long price war between Westend Village supermarket in Grey Street and Safeway supermarket had made it impossible for Traralgon Hot Bread to compete.

 

Westend Village supermarket is currently selling two loaves of bread for 79 cents and Safeway sells two loaves for 99 cents. 

…

Westend Village supermarket manager Rob Connor confirmed there is no immediate likelihood of a truce in the price war, but conceded ‘anything could happen’.

…

Mr Connor said that when Safeway dropped its price down to 79 cents, his store offered a deal of two loaves for 79 cents.

…

Meanwhile, Safeway general manager Ralph Mead claimed Safeway had dropped its bread price in response to the competition.

Safeway has to ‘remain competitive’, Mr Mead said.  He conceded cutting the prices could create a downward spiral in prices. 

‘It is not our intention to perpetuate price wars.’  Mr Mead said.

He claimed Safeway would not lower its bread price less than 99 cents for two loaves of Buttercup bread, ‘unless the competition changes’.”

520               Mr Berry said that West End’s sales of discounted bread were having an adverse effect on sales at Safeway Traralgon.  Mr Connor described it as an “intense competition” between West End and Safeway.  Messrs McLeish, McDowall and Berry agreed that Traralgon was a particularly price sensitive area. 

521               The price war lasted for some time until eventually no one could commercially keep it up and the discounting ceased.  On a date that Mr Connor did not recall, West End increased the retail price at which it was selling West End bread to about $1.19 or $1.25 per loaf and the price war ceased.  Given that the newspaper article was printed on 19 October 1994, this price rise was likely to have occurred in late October 1994.

522               The evidence was not clear as to how Mr Jones became aware of the deletion or as to what were the communications between Safeway Traralgon and Mr Jones’ office.  In his witness statement Mr Jones said that he became aware (but he could not recall how) Safeway Traralgon had indicated that it was uncompetitive on bread supplied by Sunicrust to an independent store.  However, in oral evidence‑in‑chief Mr Jones said that he believed the Safeway store phoned (he was not sure if the person spoke to him or his assistant) and advised that they were uncompetitive on Sunicrust bread and that he became aware that they wanted a competitive bread.

523               During cross‑examination, Mr Jones said he was advised by his CMA that the Traralgon store had phoned and said it was uncompetitive on Sunicrust bread.  He did not know what bread the competitor was selling and he did not make any enquiries.  Later in cross‑examination he appeared to rely upon his general practice.  He said that the way they normally were advised of uncompetitiveness was when the store manager contacted the CMA and the CMA then forwarded it on to him.  On this occasion, in cross‑examination he recalled that the bread in respect of which Safeway was uncompetitive was 680g bread.

524               Mr Jones was also unclear on whether or not he knew that Safeway Traralgon’s competitor was an independent store.  In cross‑examination Mr Jones said that he would not have known that the competitor was an independent store but when he was referred to his witness statement and it was put to him that he did know it was an independent store he said:

“What I’m saying to you is I can’t recall at this point in time.  Obviously when I did that [the witness statement] I could.  I can’t recall now.  I’m sorry, I’m trying the best I can.  It’s a long time ago and I’m trying to recall it the best I can.” 

 

Mr Jones said that he could not recall whether or not the independent store was selling Sunicrust proprietary bread or generic bread but that it was a bread made by Sunicrust.

 

525               Mr Berry learned from customers, staff and bread representatives that West End was discounting a cheap generic bread at 99c at a time when the cheapest bread being sold by Safeway Traralgon was Home Brand for about $1.20 per loaf.  He learned through a Sunicrust representative that it was Sunicrust who was supplying West End with its discounted bread.  His concern was lost sales  “across bread in general” and not just the bread of any one particular brand or line of bread. 

526               All Mr Berry knew at that stage was that there was heavily discounted generic bread at the independent store, and he arranged for the buying office to be telephoned to let them know what was happening and to see what action they needed to take.  Mr Berry said that Mr Jones’ office was a subset of the buying office.

527               On the day Mr Berry found out about the West End bread he was heading off to a store manager’s meeting so he delegated the contact with the buying office to his Assistant Store Manager, Karen Healy.  He told Mrs Healy that West End was selling bread for 99c and that she should telephone the buying office and see what action they needed to take.  Mrs Healey was not called as a witness and there is no direct evidence of what she told the person to whom she spoke or what instruction she was given.  Ms Austin was Mr Jones’ CMA at the time but she did not give any evidence in respect of the Traralgon incident.  Having regard to the instruction given by Mr Berry to Mrs Healey and what she told him of the buying office’s response, I infer that all Mrs Healey passed on to the buying office was that a competitor was selling bread for 99c a loaf, the store was losing sales and the supplier of the bread was Sunicrust.  I am not disposed to infer that Mrs Healey passed on any further information or that she was asked any questions designed to elicit further information from her, having regard to the direction given to Mrs Healey by Mr Berry and the response she communicated to him.

528               Mr Berry said that when Mrs Healy told the buying office the details about West End discounting bread they “were instructed to remove Sunicrust from the racks and to obtain a price matching bread from Buttercup called Family Fresh or something similar” and that they removed all Sunicrust bread from the racks and displayed Family Fresh in its place.  This statement became the subject of significant cross‑examination and re‑examination.  Notwithstanding the inconsistencies that emerged in cross‑examination, I am satisfied that Mrs Healey told Mr Berry that she was instructed by the buying office to remove all Sunicrust bread from the racks.  That was Mr Berry’s evidence‑in‑chief and in re‑examination.  It was also what in fact occurred.

529               I refer to some of the cross‑examination to show how the inconsistencies in Mr Berry’s evidence were resolved.

530               When asked in cross‑examination by counsel for Mr Jones what he recalled of the conversation with Mrs Healy about the instruction, Mr Berry said that his recollection was “we were told to remove Code C bread”, and it was that to which he was referring when he said “Sunicrust” in his statement.  Further, he said that insofar as it came about that all the Sunicrust bread, more extensive than the Code C bread was removed, he could “only assume Karen [Healy] misunderstood the instruction and she’s issued the instruction to remove” all Sunicrust bread.  The evidence does not enable me to make a finding as to who gave Mrs Healey the instruction, that is to say, whether it was Mr Jones, Ms Austin or possibly Mr Bray.  Mrs Healey did not tell Mr Berry who was the person at the buying office to whom she spoke.

531               When cross‑examined further by counsel for the Commission, Mr Berry agreed that at the time of the deletion he thought head office had given an instruction to remove not only Code C but basically the whole Sunicrust range.  He said that he first knew the whole range had been deleted as soon as they took it out.  He did not give an instruction to remove all Sunicrust bread nor did he instruct Mrs Healey to remove all Sunicrust bread from the racks. Mr Berry said that Mrs Healy received the instruction regarding the removal of bread and would have known the instruction better than him and that it was her responsibility to carry out the instruction.  Mr Berry said that he trusted Mrs Healy 100 per cent and that his recollection of what Mrs Healey had told him was that they were told to remove Sunicrust bread which included Code C bread.  His understanding was that they were to remove all the Sunicrust bread.

532               When Mr Berry was asked to explain his answer to counsel for Mr Jones that they were told to remove Code C bread, he said that he only referred to Code C in his answer because “we were referring to the competitive bread at the time”.  This answer is not easy to understand having regard to the context in which it was asked.  However Mr Berry made it clear in his answers to counsel for the Commission that his understanding from what Mrs Healey had told him was that the instruction was to remove all Sunicrust bread.

533               In re‑examination, when asked whether the answers he gave in cross‑examination by counsel for Mr Jones were correct, Mr Berry answered “I’d say Karen was told to remove all the bread” and said that his explanation for answering counsel for Mr Jones the way that he did was that he was “surprised that we removed all the bread and alarmed because of the Code Ds  and what have you that the customers would want.”  I am satisfied that Mr Berry was told by Mrs Healey that she had been instructed to remove all Sunicrust bread.  In his supplementary statement, Mr White, the Safeway area manager, said that he understood Mr Berry indicated to him that the instruction from head office was in relation to Code D 680g bread.  There is no foundation for this understanding, it is inconsistent with Mr Berry’s evidence and I reject it.

534               Mr Berry was surprised that more bread than Code C bread was deleted and he spoke to his area manager, Mr White, about it.  He wanted to question, and if possible have reversed, the decision to remove Sunicrust bread from Safeway Traralgon.  He did not want any of the Sunicrust bread removed and wanted it all back in because he and his staff were getting a barrage of complaints from customers that they could not buy their particular favourite loaf of bread and wanted it back and because he wanted to protect his business. During the period of the deletion Mr Berry spoke to Mr White on a number of occasions and told him that customers were complaining that they could not buy Sunicrust bread and could he put it back on display.  Mr Berry asked Mr White “What can I do?”  Mr White told him to follow instructions.  At the time Mr Berry spoke to Mr White, Mr Berry knew that virtually the whole range of Sunicrust bread had been deleted.  After a number of these complaints by Mr Berry to Mr White, Mr White told Mr Berry to forget what head office had told him, to stop matching West End prices and to get Sunicrust into the store. 

535               In par 17 of his statement Mr White said:

“I recall that in response to Peter Berry’s comments I rang Mark Jones on at least 2 occasions.  On each occasion I said to him words to the effect:  ‘Peter Berry wants to put (the bread supplier’s) products back on display.  He has had customers complaining.  What is happening, why can’t he put it back on the shelves?’  On at least one of the occasions on which I spoke to Mark Jones he said to me words to the following effect:  ‘Neville, I’m still negotiating with [the supplier] trying to get them to give us bread at the same cost price as they are giving it to [the competitor].  We can’t afford to be uncompetitive, I need your support to keep the product off the shelves until successful discussions have been completed.’”

 

536               In a supplementary statement signed 16 July 1999, six months after his first statement and almost five years after the deletion, Mr White said that when he prepared par 17 of his statement he believed that he spoke to Mr Jones because he was responsible for proprietary bread but that he had no precise recollection of speaking to Mr Jones.  He said he believed that he did speak with him because he was the “usual point of contact when advising on a competitive situation” but that it was possible that he spoke with someone other than Mr Jones.  Mr Jones denied having the conversation with Mr White. 

537               Mr Brookes became aware of the Traralgon incident by two means – he was unsure in which order.  On about 27 October 1994 he received a copy of the Traralgon Journal article (dated 19 October 1994) from Mr Mead.  Mr Brookes said that between August and October 1994 Mr White contacted him by telephone or voicemail and said:

“Bernie, I would like you to look at the decision that Mark has made to delete Sunicrust bread at Traralgon.  We are getting a lot of customer complaints.”

 

This message must have been received towards the end of October 1994 because Mr Brookes said he received a copy of the Traralgon Journal article from Mr White via Mr Mead around 27 October 1994 before he received the message from Mr White.  Mr White had no immediate recollection of that message or conversation.  Mr Brookes said that Mr White was the most experienced retailer Safeway had at that stage in Victoria and that when he raised a concern he listened to what he had to say.  Mr Brookes understood Mr White to be saying that the implementation of the policy was doing Safeway damage and that it was upsetting customers.  Mr Brookes formed the view that he “didn’t have any doubt that the policy had been wrong in the sense that it had upset more customers than [he] thought at Traralgon and therefore we needed to reinstate” the deleted Sunicrust bread.

 

538               Mr Brookes said that he either sent a copy of the voicemail to Mr Jones or spoke to him and told him that Mr White had contacted him and said he was concerned about Sunicrust bread being deleted from Safeway Traralgon and asked him “Can you review your decision?”.  He did not recall asking Mr Jones why he had made the decision.  Mr Brookes said that later Mr Jones told him that Sunicrust bread had been returned to the store.

539               Mr Jones recalled Mr Brookes saying to him that Mr White had complained and that Sunicrust had already been reinstated and Budget Family Fresh withdrawn from Safeway Traralgon.  Mr Jones did not recall speaking to Mr White about the Traralgon store. 

The deletion

540               This issue was the subject of conflicting evidence from Mr McLeish from Sunicrust and Mr Jones.  Mr McLeish was the Metropolitan Sales Manager for Sunicrust in August 1994.  In his witness statement he said that in or about August 1994 he received a telephone call from Mr Jones who told him that West End in Traralgon was selling generic bread supplied by Sunicrust at a cheap retail price below Safeway and that they were “out of Safeway Traralgon”.

541               There was no reference in Mr McLeish’s witness statement to any request by Mr Jones for a case deal.  However, in cross‑examination, Mr McLeish in response to a question in relation to the Traralgon incident whether he accepted that Mr Jones said to him words to the effect:

“Is Safeway buying the Sunicrust bread at the same cost price as Sunicrust is supplying the bread to the independent?”

 

answered:

“Yes, well it happened so many times it could have happened on that occasion”. 

 

He agreed that it was Mr Jones’ invariable practice, on numerous occasions in conversations about discounting prices, to ask whether:

 

“Safeway was buying the Sunicrust bread at the same cost price as it appeared to be supplied to the competitor”

 

When it was put to Mr McLeish again that the first conversation he had with Mr Jones about Traralgon involved Mr Jones saying words to the effect:

“Is Safeway buying the Sunicrust bread at the same cost price as Sunicrust is supplying the bread to the independent?”

 

he replied:

“Yes, that could have been the conversation”.

542               In re‑examination Mr McLeish said that “it would have been Mr Jones” who, during the Traralgon deletion, asked Sunicrust to supply to Safeway Sunicrust branded products at the same price as it was supplying West End bread to West End.  Mr McLeish added:

“He did it on a number of occasions so I don’t see why the Westend market would be excluded from that request”.

 

However Mr McLeish did not recollect the exact conversation.

543               Mr McLeish said that in each of those conversations when Mr Jones asked him to sell proprietary bread at the same price as generic bread was being sold to the independent store, he told Mr Jones that it was Sunicrust’s company policy, handed down by the Divisional General Manager, Mr John Kimber, that they were not to discount heavily proprietary bread “because it would bring the whole market down, hence putting a huge hole in our profitability”.  Mr McLeish said that Mr Jones usually accepted his detailed explanation.

544               Mr Jones denied Mr McLeish’s version of the conversation.  In evidence‑in‑chief he said that he telephoned Mr McLeish and said that they had been advised that they were uncompetitive in Traralgon, that they wanted to buy bread at the same cost price as their competitor and asked if Safeway was buying Sunicrust bread at the same cost price as its competitor.  He could not recall Mr McLeish making any reply. 

545               In cross‑examination Mr Jones was unable to recall much of the detail of the conversation.  The following passage records his recollection:

“Mr Jones, your evidence is, if I’ve understood correctly, you had this phone conversation with Charlie McLeish before the deletion was organised?---Yes, that’s right.

 

I suggested to you that’s not true.  The first conversation that you had with Charlie McLeish was after the deletion in which you told him that Sunicrust was out of Traralgon?---No, that is not true.

 

Mr Jones, you say you can’t recall what Charlie McLeish said in response to your request and you can’t recall what happened thereafter but a deletion was effected?---I believe so.

 

How did the deletion come about?  Were you involved in making the decision?---As I said, Mr Fajgenbaum, I can’t recall but all I can guess is that Mr McLeish came back to us and said he couldn’t give us the deal and at that point in time we would’ve had to withdraw what we believed to be the uncompetitive bread or what the store manager believed to be uncompetitive bread.

 

You can’t recall coming to the conclusion, can you – because you can’t recall what Charlie said in reply to you, you can’t recall coming to a decision that Safeway Traralgon should delete the Sunicrust product?--- I must admit I don’t recall Charlie McLeish coming back to me but my practice always was, your Honour, that we would only withdraw the product if we were uncompetitive, that is, that we couldn’t sell the Sunicrust bread at a price which would allow us to make a reasonable profit or we wouldn’t sell it below cost.

 

But, Mr Jones, you have no recollection of the particular decision in this case?---No, I’m sorry, I don’t.”

 

Mr Jones had no recollection of what occurred after his conversation with Mr McLeish, although he assumed because the deletion occurred, that Mr McLeish got back to him and said that Sunicrust was not prepared to offer Safeway a deal.  He made that assumption on the basis of his invariable practice only to withdraw a product if Safeway was uncompetitive.

 

546               It was admitted by Safeway and Mr Jones in their defences that Sunicrust products were not purchased by, or sold from, Safeway Traralgon between 5 August 1994 and 25 October 1994. 

547               The scan data from Safeway Traralgon showed that the bread that was deleted from Safeway Traralgon during this period was all proprietary bread products usually supplied by Sunicrust.  Sunicrust still made deliveries of in store bakery products and Home Brand bread to Safeway Traralgon throughout the deletion period.  As a result, Safeway Traralgon deleted the following Sunicrust bread products on 5 August 1994:  Suni Sandwich White 680g, Suni Toast White 680g, Suni Sandwich Meal 680g, Suni Toast Meal 680g, White Hyfibe 680g, Suni Toast Hyfibe 680g, Suni Wholegrain 680g, Suni 7 Grains 680g, Suni 7 Grains Toast 680g, Jumbo Sunisand White 900g, Jumbo Suni Toast White 900g, Jumbo Sunisand Meal 900g, Raisin Bread 520g, Old Fashion Wholemeal 900g, Helga’s Wholemeal Grain 680g, Helga’s Dark Rye 680g and Helga’s Light Rye 680g.

548               Mr Jones said if the West End wrapper tendered in evidence was the wrapper in use at the time of the deletion, no Sunicrust bread should have been deleted as the wrapper meant that the bread was a generic product as it did not identify Sunicrust as the manufacturer.  I am satisfied that the wrapper tendered in evidence was the wrapper in use at the time of the deletion.  Mr Jones was also asked what should have been deleted if the store manager had said the store was uncompetitive on Sunicrust Code C bread.  His response was that only the first six of the products deleted should have been deleted if the policy had been applied.  Mr Brookes agreed that there were more deletions than the policy required.

549               There was no evidence that established that either Mr Jones or Mr Brookes were aware at the time of the deletion that the competitive West End bread was a generic bread or that the whole Sunicrust range had been deleted.  However there was evidence that in the course of the period of the deletion Mr Jones and Mr Brookes became aware that all Sunicrust products had been deleted.

550               Mr White made two witness statements.  In his first witness statement dated 18 December 1998, he referred to the two conversations with Mr Jones set out in par 535 above.  In his second witness statement dated 16 July 1999, Mr White said: 

“In paragraph 17 I refer to discussions I had with Mr Jones.  When I prepared paragraph 17 of my statement I believed that I spoke to Mr Jones because he was responsible for proprietary bread.  I had no precise recollection of speaking to Mr Jones but believed that I did speak with him because he was the usual point of contact when advising on a competitive situation.  It is possible that I spoke to someone other than Mr Jones”.

 

In cross‑examination Mr White said he believed at the time he made the first statement that the person to whom he spoke was Mr Jones although he added the rider that he was not totally sure.  It was put to Mr White that he still believed that it was Mr Jones to whom he spoke, and he answered: 

 

“I believed it was at the time of writing the first statement because Mark is always the first point of contact.”

 

Mr White explained his second witness statement on the basis that when he knew he was coming to Court he read his first statement and realised it was written in a language he called “Safeway‑speak or Safeway language”, and he wanted certain points clarified.  Mr White said that his first statement:

 

“was put together in a language which I would understand but perhaps others may not understand.”

 

He accepted that there was no “Safeway-speak” in par 17 of his first witness statement and he explained par 7 of his second statement on the basis that par 17 of his first statement was his recall at the time he made the statement but he may, or may not have, spoken to Mr Jones.

 

551               Mr Jones denied that when he learned about the Traralgon deletion he knew that all Sunicrust products had been deleted.  He could not recall having a conversation with Mr White about the deletion, or about Mr Berry’s concerns about the deletion.  He denied discussing the deletion with Mr White in the terms given by Mr White.  Mr Jones explained that traditionally area managers normally went through another line of communication and not directly through buyers, although he acknowledged that Mr White spoke to him about the Ferntree Gully incident.

552               I am satisfied that Mr White had a conversation with Mr Jones in the terms set out in par 17 of his first witness statement (par 535 above).  It was his initial recollection and although he was later not totally sure of his initial recollection he did not attempt to change his evidence.  The probability is that after Mr Berry spoke to him on a number of occasions about the customer complaints he had received, he spoke to Mr Jones about Mr Berry’s concerns to find out if anything could be done.  Further, Mr Jones’ reply to Mr White was consistent with his evidence that he tried to get bread from the plant bakers at the same cost price as they were charging Safeway’s competitors.  Acceptance of Mr White’s evidence carries with it the finding that Mr Jones knew that all Sunicrust products had been deleted but did not take any immediate steps to correct or restore the over‑deletion.

553               Safeway and Mr Jones admitted in their defences that from 5 August 1994 to 22 October 1994 Safeway sold 680g Budget Family Fresh at prices that successively matched the retail prices charged by West End for West End bread and that from 28 September 1994 to 22 October 1994 Safeway sold 900g Sunicrust Captain Cutless bread at $1.29.  However, scan data showed that the average retail price of the 900g Captain Cutless bread at Safeway Traralgon during this period was generally 99c.

554               Safeway was able to acquire 680g Code C Budget Family Fresh bread from Buttercup at a net net price of 86c per loaf, no returns, or 90.6c per loaf with returns.  As from 12 September 1994 Sunicrust’s net net price of Captain Cutless to Safeway was on a no returns basis, 82c per Code C loaf and $1.05 per Code D loaf.  The net net price before 12 September 1994 was less. 

555               Sunicrust’s Captain Cutless was always available, including on 5 August 1994, to be supplied to Safeway on the terms of its tender.  The terms of the tender provided for Sunicrust to supply and deliver Captain Cutless within 24 hours of being ordered by Safeway.  As can be seen from the descriptions of the deletion of Buttercup products from Frankston, Cheltenham and Vermont Safeway stores, Captain Cutless was used by Safeway in previous deletions. 

556               Mr Jones’ recollection was that Budget Family Fresh was cheaper than the 680g Captain Cutless, that there was a price war on bread in Traralgon, and because the prices were very low Safeway decided to use the cheapest bread available to it, which was Budget Family Fresh.  He did not say that he made the decision himself.  Mr Jones said that he would have introduced Budget Family Fresh in any event because his opinion was that it was stupid to ask a supplier (in this case Sunicrust who made Captain Cutless) which had already refused to provide a case deal, to provide a competitive bread and that he did not believe that the same manufacturer would service the store.

557               The deletion of Sunicrust products came to an end on 26 October 1994.  Mr Jones was advised that Sunicrust was back in the store and that Budget Family Fresh was out of Safeway Traralgon but he did not know who made that decision.  According to Mr White and Mr Berry, Mr White approved Mr Berry bringing Sunicrust back in to Safeway Traralgon.  Mr White could not say whether he reported it to Mr Jones, but Mr Berry sent Mr Jones a voicemail to inform him that Sunicrust was back in. 

558               I am satisfied that what concerned Safeway about what West End was doing was that it was selling cheap discounted generic bread.  Mr Berry found that out and said that the discounting was being felt across Safeway’s sales of bread in general.  He was not concerned with the issue of the same bread in a different wrapper, nor was he concerned about the effect on his sales of Sunicrust bread; he was concerned about the sale of bread in general.  He did not tell Mrs Healey that he was concerned about being uncompetitive in Sunicrust bread but rather told her “Westend is selling bread for 99 cents”.  Mr Berry told Mrs Healey to ring the buying office and see what action they needed to take.  There is no evidence as to what Mrs Healey said as Mr Jones received the message from his CMA, and Ms Austin, who was the CMA at the time, did not give evidence of any conversation with Mrs Healey who was not called as a witness.

559               Although Mr Jones said he was told by his CMA that the Traralgon store had telephoned and said it was uncompetitive in Sunicrust bread, I am not satisfied that Mr Jones had an independent recollection of the conversation with his CMA.  His evidence on this issue, to which I have already referred, varied between recollection and reliance on his general practice.  Having regard to what Mr Berry asked Mrs Healey to communicate to Mr Jones’ office, I am satisfied that what Mr Jones was told was that a generic bread was being supplied by Sunicrust, that it was being sold for 99c and that Safeway Traralgon was uncompetitive in relation to it.  Mr McLeish said that Mr Jones’ complaint was that West End was selling generic bread.  He was not told that there was any concern about the same bread being sold in a different wrapper, nor was he told that the bread was identified on the wrapper as Sunicrust bread.  He was told that a competitor was selling generic bread supplied by Sunicrust at 99c.  That was the fact.

560               I am satisfied that was Mr Jones’ concern and what motivated him to telephone Mr McLeish was to see if he could obtain Sunicrust bread at a discounted price so that Safeway could sell bread competitively with West End.  The Commission challenged Mr Jones’ version of his conversation with Mr McLeish.  I have considerable hesitation about accepting Mr Jones’ evidence that he has a recollection of what he said to Mr McLeish.  I have mentioned elsewhere in these reasons that on numerous occasions Mr Jones appeared to be relying upon his general practice or appeared to be reconstructing events when giving evidence of particular conversations or events which had occurred.

561               Nevertheless, Mr Jones’ evidence, at least to the extent that he asked Mr McLeish for a case deal, is supported by Mr McLeish’s evidence, to which I have referred in pars 541 and 542 above.  Although Mr McLeish could not recall the exact conversation about Mr Jones seeking a case deal in respect of Safeway Traralgon, he said that it would have been Mr Jones who asked Sunicrust to supply Safeway Sunicrust branded products at the same price as it was supplying West End bread to West End.  The Commission submitted that this evidence, as with other evidence of Mr McLeish in relation to Mr Jones’ practice of asking for case deals on proprietary bread, was unremarkable as it was an integral part of Mr Jones’ work to ask for promotional deals all the time in a wide range of circumstances that were not relevant to the issues raised in this proceeding.  However, Mr McLeish gave his evidence in the context of being questioned as to when Mr Jones telephoned Mr McLeish in relation to incidents when independent stores were selling bread supplied to them by Sunicrust at a discount.  I am satisfied that on such occasions Mr Jones asked Mr McLeish for a case deal. 

562               I am also satisfied that in the course of his conversation with Mr McLeish, Mr Jones said to Mr McLeish that West End in Traralgon was selling generic bread supplied by Sunicrust at a price below Safeway and that Sunicrust was “out of Safeway Traralgon”.  Although Mr Jones denied this part of the conversation, I accept Mr McLeish’s evidence of it.  Mr Jones had no clear recollection of how the incident first came to his attention or of the conversation.  He could not recall Mr McLeish’s response to his request for a case deal and he had no recollection of the decision to make the deletion.  In such circumstances it is more probable than not that Mr McLeish’s version of the conversation is what occurred. 

563               All the Sunicrust products were deleted and initially Buttercup Budget Family Fresh bread was introduced as the price‑fighting bread.  But for what purpose or reason?  I am satisfied that the instruction which was given from Mr Jones’ office was to delete all Sunicrust products.  That is what in fact occurred and that is what Mr Berry’s understanding had been of the instruction given by Mr Jones’ office to Mrs Healey.  That this was the instruction from Mr Jones’ office is supported by Mr White’s evidence as to his conversation with Mr Jones in which Mr Jones said that he was still negotiating with the supplier trying to get the same cost price as the competitor and that:

“I need your support to keep the product off the shelves until successful discussions have been completed.”

 

564               I do not consider that the planogram system had anything to do with the deletion of all the Sunicrust products.  Neither Mr Berry nor Mr Brookes could remember whether planograms had been introduced into the supermarket at the time of the deletion.

565               Safeway’s principal concern was that it was being confronted with cheap discounted bread, which was having an effect on its overall bread sales.  It was not to the point that West End was not a nominated competitor.  Although the system of nominated competitors was designed to ensure that Safeway remained competitive consistently with its policy to be competitive, it was still appropriate for Safeway to respond to a competitive situation, albeit from a non‑nominated competitor, if its conduct was having an effect on Safeway’s sales.  Although Mr Jones said that the policy required a Safeway store to show that the competitive activity was coming from a nominated competitor before the policy would be implemented, I am satisfied, as happened at Traralgon and in other incidents, that if a store which was not a nominated competitor engaged in sales conduct which affected Safeway’s sales, then the policy would be implemented on the basis that it was Safeway’s intention always to remain competitive and not to lose sales.

566               The principal price‑fighting bread introduced was Buttercup Budget Family Fresh from 5 August 1994 to 22 October 1994, although 900g Captain Cutless was also brought in from 28 September 1994 to 22 October 1994.  Mr Jones said that Budget Family Fresh was used because it was the cheapest bread available to Safeway at the time and that he believed Budget Family Fresh was the cheapest price‑fighting bread Safeway had, but that was not correct as the net net price of Captain Cutless to Safeway during the relevant period was less than the net net price of Budget Family Fresh.  I reject Mr Jones’ evidence that Budget Family Fresh was introduced into Safeway Traralgon because it was the cheapest bread available to Safeway.

567               Mr Jones advanced the reason that Budget Family Fresh was first introduced to Safeway Traralgon was because of the price war at Traralgon but, in cross‑examination, he said he did not know whether the price war had started at that time.  Relevant scan data suggested that the price war did not start until mid‑September 1994.  I am satisfied that the price war was not the reason for the introduction of Budget Family Fresh.

568               Mr Jones made it clear that it was not his practice to introduce the price‑fighting bread of the plant baker whose bread had been deleted because he thought it was stupid to ask the supplier who had refused to supply competitive bread, to supply a price‑fighting bread.

569               Mr Jones said he did not want to take the chance of being in an out of stock situation;  yet both Sunicrust and Buttercup were obliged to supply their price‑fighting bread under the terms of their accepted tenders.  Sunicrust did so at Traralgon from 28 September to 22 October 1994. 

570               Mr Jones denied that he knew that Captain Cutless had been introduced to Safeway Traralgon during the period of the deletion.  This denial does not sit easily with Mr Jones’ evidence that his CMA kept a list of competitive action that had been taken at any Safeway supermarket.  This list showed which price‑fighting bread had been introduced.  Mr Jones looked at the list every two weeks although he qualified this evidence when he said he looked at it from time to time, although he could not give an exact time.  Having regard to the fact that Captain Cutless was introduced late in the deletion, Mr Jones may not have seen that it had been introduced before the deletion ceased and Sunicrust products were brought back.  The fact that Captain Cutless was introduced during the deletion nevertheless demonstrates that Mr Jones’ belief as to how Sunicrust would react if its products were deleted and it was asked to supply Captain Cutless was unwarranted.

571               I am satisfied that Mr Jones gave instructions for the deletion of all the Sunicrust bread from the Traralgon store.  Although he denied doing so, I reach that conclusion having regard to the following facts:  it was Mr Jones’ role to give instructions for deletions and be responsible for those instructions; Mr Jones spoke to Mr McLeish about the West End situation; Mr White’s evidence as to his conversation with Mr Jones (par 535 above); the fact that all the Sunicrust bread was deleted; Mr Berry’s understanding as to the instruction Mrs Healey was given and particularly the fact that Mr Jones said that it was his decision to bring in Budget Family Fresh.  Having regard to the way the policy was implemented, it is likely that the person who made the decision to bring in the price‑fighting bread was the person who made the decision to delete the bread that was deleted.  Mr Jones’ statement to Mr White “I need your support to keep the product off the shelves until successful discussions have been completed” demonstrated that Mr Jones wanted all Sunicrust products off the shelves for the time being.

572               Mrs Healey was still Mr Berry’s assistant at Safeway Traralgon at the time of the hearing.  Although her evidence was relevant to the issue of who gave the instruction to delete Sunicrust products, she was not called to give evidence and no explanation was offered as to why she was not called.  In those circumstances I infer that Mrs Healey’s evidence would not have been favourable to Safeway and Mr Jones on the issue of who directed the deletion and in what terms:  Jones v Dunkel (supra) at 320‑321.

573               The fact that all Sunicrust bread was deleted and Buttercup bread was introduced invited the conclusion, according to the Commission’s submission, that the bread was not deleted for competitive purposes but rather for punitive purposes and to deter Sunicrust from engaging in competitive conduct.  However those facts are counter-balanced by the finding that Mr Jones asked Mr McLeish for a case deal before the deletion occurred.  Notwithstanding the deletion of all the Sunicrust products and the initial introduction of the Buttercup price‑fighting bread, I am not satisfied that the deletion occurred for the purpose of punishing Sunicrust.  I consider that the request for the case deal before the deletion is inconsistent with an intention or purpose to punish Sunicrust by deleting its products.

574               These findings do not result, in my view, in any contraventions of ss 45, 47 or 48 of the Act.  There is no evidence of any agreement, arrangement or understanding entered into or reached between Safeway and Sunicrust, nor is there evidence of an attempt by Safeway to induce Sunicrust to enter into any agreement or arrangement or reach an understanding, in relation to the terms upon which or the prices for which, Sunicrust would supply bread to West End.

575               The Commission submitted that the evidence supported the conclusion that Safeway attempted to induce Sunicrust to engage in resale price maintenance.  I analyse the principles relevant to resale price maintenance later in these reasons.  I am not satisfied that there were any acts sufficient to constitute an attempt by Safeway to induce Sunicrust to engage in resale price maintenance.  Although Mr Jones told Mr McLeish that West End in Traralgon was selling generic bread supplied by Sunicrust at a price below Safeway and that Sunicrust was out of Safeway Traralgon, Mr Jones did not otherwise take any steps to suggest that Sunicrust procure West End to raise its retail price to any particular level.  Nor did he seek to persuade Mr McLeish to take this step.  On Mr McLeish’s evidence, Mr Jones asked for a case deal and when this was refused, he presented Sunicrust with a fait accompli.

576               Mr McLeish said he did not, at any time during 1994 and 1995, take steps to cause any retailer of Sunicrust products to increase its retail prices.  He did not understand that Mr Jones was suggesting in any of his conversations with Mr McLeish that he should attempt to get a retailer, or cause a retailer, of Sunicrust products to increase the retail price of those products.  Mr McDowall gave similar evidence.

577               I elaborate on these conclusions later in these reasons and I also consider later the allegation of a contravention of s 46 of the Act.

THE LALOR & THOMASTOWN INCIDENT

Background

578               The next incident alleged against Safeway and Mr Jones occurred in Lalor and Thomastown in April 1995 when Sunicrust bread was deleted from the Safeway Lalor store between 13 April 1995 and 18 April 1995.

579               The Commission alleged that Safeway and Mr Jones induced or attempted to induce Sunicrust to engage in resale price maintenance (s 48), made or attempted to make a contract or arrangement with Sunicrust or arrived at or attempted to arrive at a contract, arrangement or understanding with Sunicrust, contrary to s 45(2), engaged or attempted to engage in exclusive dealing (s 47) and contravened  s46 of the Act.

580               In 1994 and 1995 Goldy’s Supermarket Pty Ltd owned and operated two supermarkets – one located in McKimmies Road, Lalor and the other in Main Road, Thomastown.  The two stores were located about three to four kilometres apart and were separated by a railway line.  Both stores were operated under the trading name of “Goldy’s Tuckerbag” (“Goldy’s”).  At the relevant time in 1995, Mr Laun Goldberg was a director of the company and Mr Arch Abdelkader was the General Manager of the stores.  The stores have since been sold to Franklins.

581               The Safeway Lalor store was located in High Street, Lalor, less than two kilometres from both Goldy’s stores.  In April 1995, Mr Leslie Stewart was Store Manager of Safeway Lalor and Mr Andrew Campbell was the store’s Grocery Manager.

582               In 1995 the Goldy’s stores stocked Code C and Code D proprietary bread made by Tip Top, Sunicrust and Buttercup as well as generic bread, including Tuckerbag bread made by Tip Top.  Tip Top was the stores’ biggest supplier.

583               In each week of the year the Goldy’s stores had a different bread, either proprietary or generic, on a special sale.  Generic bread was sold on special sale between once a month and once every six weeks.

584               Mr Goldberg considered the promotion of bread sales to be very significant to his turnover because having basic commodities regularly on special sale made people come back to the stores.  During 1994 and 1995 the plant bakers regularly provided Mr Goldberg with promotional discounts and special deals ranging from 20c per loaf for proprietary bread to 30c to 50c per loaf for generic bread.  Usually Mr Goldberg would reduce his margin by 10c to push sales.  Mr Goldberg had a strict policy that his manager would always retail generic bread 10c lower than the price of Safeway and Coles generic bread. 

585               In April 1995 Mr Abdelkader arranged with Mr Giuseppe Nittoli (a sales representative for Sunicrust who, during April and May 1995, was responsible for dealing with Sunicrust’s customers in Lalor and Thomastown) for the Goldy’s stores to conduct a promotion of a 680g Code C plain wrap bread called Local Bake.  Local Bake bread was purchased by Goldy’s on a sale or return basis.

586               The promotion was conducted in the stores during the week before Easter – from Monday 10 April 1995 to Saturday 15 April 1995.  Sunday 16 April 1995 was Easter Sunday.  Local Bake bread was retailed at 99c per loaf with white sliced, toast and wholemeal varieties available for sale.  Goldy’s advertised its promotion in a handbill that was distributed in the local suburbs.  Mr Stewart, the Store Manager of Safeway Lalor, did not see the handbill.  In 1994 and 1995 the retail price for Local Bake bread was $1.39 to $1.59 when not on special.

587               Mr Stewart was told by Mr Campbell that Goldy’s was selling Code C bread manufactured by Sunicrust at Thomastown at 99c a loaf.  On Wednesday 12 April 1995, Mr Stewart visited Goldy’s Thomastown and then telephoned Mr Jones for instructions in accordance with the policy.  Mr Stewart and Mr Jones gave conflicting evidence about this conversation.  In order to understand their evidence, and particularly that of Mr Jones, it is necessary to refer briefly to a conversation between Mr Jones and Mr Gunton of Tip Top that was said to have occurred on Wednesday 12 April 1995.  That conversation also presented conflicting evidence.

588               On Wednesday 12 April 1995, Mr Gunton had a meeting with Mr Jones during which he told Mr Jones that Goldy’s Tuckerbag in Lalor and Thomastown were being supplied by Sunicrust at a cheaper cost than the cost at which Sunicrust was supplying Safeway.  He told Mr Jones that if Tip Top had been involved in selling bread at this cost price then Safeway would have called Tip Top and asked for the same price but it did not seem that Safeway was concerned about what Sunicrust was up to.  Mr Gunton told Mr Jones that both Goldy’s stores were selling Sunicrust bread at 99c a loaf because he wanted him to know about instances of another manufacturer’s bread being sold cheaply so he would take the pressure off Tip Top.  Mr Jones told Mr Gunton that no store had contacted him about Goldy’s Tuckerbag and that the bread being sold may not be Sunicrust bread and could be a product of a hot bread kitchen.  He asked Mr Gunton to provide some facts and told him he would investigate the matter. 

589               As a result of this conversation Mr Gunton arranged for the purchase of a loaf of Local Bake sandwich bread from the two Goldy’s stores and sent a copy of the receipts by facsimile to Mr Jones with a covering letter in the following terms:

“Mark,

Please find attached proof of local bake pricing at Goldy’s Tuckerbag, Lalor and Thomastown.  Can you please advise us of what action will be taken, so we can reconfirm to our sales staff of [sic] the importance of maintain[ing] intelligent pricing in the market place and maintain good trade margins.

 

Regards,

 

Chris Gunton

State Sales Manager” 

590               Mr Gunton said that the expression maintaining “intelligent pricing” came from Mr Jones and had been used by Mr Jones in their conversations and at meetings he had with him (which were held during early 1995).  Mr Gunton said that in meetings with Mr Jones, Mr Jones said he “wanted to maintain intelligent pricing in the marketplace”.  He used the phrase “the importance of maintaining intelligent pricing in the market place” in his facsimile to Mr Jones “because it’s something that Mark had said to me on an occasion”.

591               Mr Gunton was cross‑examined about his claim that Mr Jones had used these words in speaking to him.  He was unable to say when the words were used but said that the context in which Mr Jones had used the words was:

“Basically we were talking about what Tip Top could do to improve the conditions in the market and the relationship with Safeway and it was said ‘basically to maintain intelligent pricing in the market’ … so both – we could maintain good trade margins.”

Mr Jones, in his witness statement, denied using these words in the conversation with Mr Gunton before Mr Gunton sent him the letter by facsimile on 12 April 1995.  It was not put to Mr Jones that he used the words on other occasions.

 

592               A finding on this issue is of little assistance in the making of findings in relation to the Lalor/Thomastown incident.  Mr Jones may have used the words on the occasion of other conversations with Mr Gunton but Mr Gunton did not suggest that Mr Jones used the words in the conversation that preceded him sending the letter in which he used the words himself.  Although Mr Gunton could not recall any particular occasion when Mr Jones used the words, he recalled that the context in which they were spoken involved deletions of bread from stores.  Even if I find that Mr Jones used the words on some occasion or occasions, the absence of a factual context relating to any particular deletion makes the use of the words by Mr Jones of little probative value.  The words, in the abstract, show a desire by Mr Jones that the discounting of bread cease, or be limited, but it is not possible to find, having regard to the appropriate standard of proof that they were used in relation to any of the particular incidents alleged by the Commission to be contraventions of the Act.  More particularly is this so when no plant baker understood, in relation to any of the incidents alleged, that Mr Jones was suggesting to them that they should get the other retailer to raise the price of its bread.

The deletion

593               Mr Stewart and Mr Jones gave differing accounts in respect of the instruction to delete Sunicrust bread from Safeway Lalor.

594               Mr Stewart said that he initiated the telephone call to Mr Jones on 12 April 1995.  He told Mr Jones that Goldy’s Tuckerbag at Thomastown was selling Code C bread, Local Bake supplied by Sunicrust, for 99c a loaf.  He made it clear that Goldy’s was not selling proprietary branded bread.  He said that he asked what action Mr Jones wanted him to take.  Mr Jones said he would check it out and get back to him.  According to Mr Stewart’s witness statement, later that day Mr Jones telephoned him and said to him:

“Tomorrow morning don’t put the Sunicrust bread on show.  Leave it in the storeroom.  Keep doing that until further notice.”

 

Mr Stewart agreed to do so.

595               Mr Stewart understood Mr Jones to be telling him to take all the Sunicrust products off display and was quite adamant about what Mr Jones had told him.  He put it this way:

“There was no instruction given just to stop code C.  The instruction was, ‘Don’t put Sunicrust bread on show,’ and I understood it to mean the whole lot.” 

 

596               When Mr Stewart was asked what his understanding was as to why he was not accepting Sunicrust bread into Safeway on the Thursday and Saturday of the Easter week, he replied:

“Because of what’s happened at Lalor – at Thomastown.  They’re selling cheap bread.

…

Because if I had not made that phone call and said anything about bread nothing would have happened.  Sunicrust would still be on show.”

 

597               Mr Stewart said that no customer had made any comment to him that he or she could buy Local Bake bread at Goldy’s for 99c, and why did not Safeway have 99c bread on sale.  There was no evidence that Safeway Lalor was perceived by anyone as uncompetitive in Sunicrust bread.  Mr Stewart said that there were customers who wanted to buy Sunicrust during the period that it was deleted. 

598               Mr Jones gave a different version of the conversation with Mr Stewart.  He said that after receiving the letter and receipts by facsimile from Mr Gunton he discussed the matter with Mr Brookes who told him that if the Lalor store manager did not believe that Goldy’s was a competitor there was no reason to delete Sunicrust and that Mr Jones should contact the store manager and see whether or not Goldy’s was a nominated competitor. 

599               Mr Jones contacted the store manager at Lalor (whose name he could not remember) and asked him whether Goldy’s was a competitor of the store.  He was informed it was, and he told the manager he thought that he should go and undertake a competitive check.  The manager phoned him back and said that he had checked the prices and that they were uncompetitive and needed a competitive bread.  Mr Jones told the manager that he would organise the competitive bread and get back to him.  At this point Mr Jones spoke to a person at Sunicrust.  I will return to this conversation. 

600               Mr Jones could not recall telephoning the store to tell the store to withdraw bread.  He said that his normal practice was to get his CMA to do so.  Mr Jones denied telling Mr Stewart “[D]on’t put the Sunicrust bread on show.  Leave it in the store room.  Keep doing that until further notice”. 

601               I accept Mr Stewart’s version of the sequence of events that occurred rather than Mr Jones’ version.  I am satisfied that Mr Stewart’s version is more reliable and more probable than Mr Jones’ version.  Mr Stewart had been told by his grocery manager that Goldy’s was selling bread at Thomastown made by Sunicrust for 99c a loaf.  There was, therefore, no need for Mr Stewart to undertake a competitive price check.  Mr Jones could not remember who the Safeway Lalor manager was at the time and said he learned from some source, which he could not recall, that the Local Bake bread sold by Goldy’s was made by Sunicrust.  In cross‑examination he said it was the manager who told him after the manager did a competitive price check.  It is more probable that Mr Stewart told Mr Jones this in the first conversation he had with him, as, consistently with the policy, he would not have reported cheap or discounted bread in the abstract but rather, cheap discounted bread made by a particular manufacturer.  What is perhaps more significant is that Mr Stewart maintained, under persistent cross‑examination, that Mr Jones had told him not to put Sunicrust bread on show the following day.  That is what occurred.  Mr Jones could not recall telephoning Mr Stewart in relation to the withdrawal of bread and said that normally it was the practice of his CMA to do so.  Although Mr Jones could not recall calling the store manager about the withdrawal of bread, when he was asked whether he telephoned him and told him “not to put the Sunicrust bread out on show”, he was prepared to answer, “No, I would have told him not to put the product which he advised us we were uncompetitive on”.  This answer demonstrated the unreliability of Mr Jones’ evidence on the Lalor and Thomastown incident.  He could not recall telephoning the store manager about the withdrawal of bread, yet he was able to say what he would have told him.

602               The next issue that arose was whether or not Mr Jones asked Sunicrust for a case deal prior to the deletion of Sunicrust bread from Safeway Lalor.  If Mr Jones did make such a request, he did not make it to Mr McLeish, although it appears that Mr Jones initially thought he had done so.  The following exchange occurred in the cross‑examination of Mr McLeish:

“Do you deny that before delisting occurred in Lalor Jones rang you and said to you words to this effect, ‘Is Safeway buying bread at the same price as our competitor in Lalor?’---I’m not denying it.  What I’m saying is, going back to the Lalor one, I’m reasonably sure that the Lalor one occurred before I got involved.”

I assume this question was asked on instructions.  In re‑examination Mr McLeish said he was away on business from the Tuesday before Easter until the Tuesday after Easter.

 

603               In evidence‑in‑chief Mr Jones was not sure whether he spoke to Mr McLeish or someone else.  Mr Jones was asked whether he had a conversation with a representative of Sunicrust.  The following exchange occurred:

“I normally speak to Charlie McLeish but I can’t recall if I spoke to Charlie or I spoke to whoever holds that position at that point in time, and I’d said to them, you know, was Safeway buying bread at the same cost price as what the competitor was buying it at Lalor.

Was there any response to your inquiry?‑‑‑They said no, we weren’t.

Did you make any reply?‑‑‑I said that I wanted to buy the bread at the same cost price so we could be competitive.

Was there any response to your request?‑‑‑They said they weren’t going to do it.”

 

604               This uncertainty of Mr Jones as to the identity of the person to whom he spoke carried through into his cross‑examination.  He said he asked “the supplier” for a case deal but could not recall to whom he spoke.

605               In cross‑examination the following exchange occurred: 

“Who did you speak to at Sunicrust?---I’m not sure.

 

Why aren’t you sure, Mr Jones?---I normally speak to Charlie McLeish but I can’t recall whether I spoke to him or not.

 

Mr Jones, you can’t recall who you spoke to but you recall what you said?‑‑‑That’s correct.

 

And what did you say? … ---I asked him if Safeway was buying Sunicrust bread at the same cost price as what our competitor Goldy’s was buying.  They said no.  I said I wanted to buy it at the same price so it would be competitive and I believe they – my recollection of it, they said, ‘No, we’re not prepared to do this.’

 

How come, Mr Jones, you have a specific recollection of this conversation as to what was said, yet you don’t recall with whom the conversation was conducted?---Because it was someone else other than Charlie.

 

Who else is there at Sunicrust other than Charlie with whom you discussed matters such as this?---I normally only speak to Charlie.

 

Can you recall speaking to anybody else other than Charlie about matters such as this?---I may have phoned them up over the period of time and someone answered his phone but I can’t recall who it was.

 

Mr Jones, I suggest to you you did have no conversation with either Charlie McLeish or anyone else at Sunicrust before the Sunicrust product was deleted from the Lalor store?---No, that’s incorrect.

 

I suggest, Mr Jones, that you didn’t speak to Charlie McLeish – that the first time you spoke to Charlie McLeish was after Easter?---It’s true to say that I didn’t speak to Charlie McLeish and the first time I did speak to Charlie, that I recall, was after Easter.”

 

By this stage of the cross‑examination Mr Jones did not recall speaking to Mr McLeish in the week before Easter.  Although Mr Jones maintained that he spoke to a person at Sunicrust and asked for a case deal, he could not recall that person identifying who he or she was.  He said the person gave him an immediate response to his question but he did not recall whether the person knew anything about the Goldy’s stores. 

 

606               If I consider Mr Jones’ evidence alone I find it difficult to be satisfied that Mr Jones asked anyone at Sunicrust for a case deal before instructing Mr Stewart to withdraw Sunicrust bread from show.  His evidence, to which I have referred, is unreliable and savoured of reconstruction rather than recollection.  If it stood alone I would not have been disposed to accept it.  However, Mr Jones’ evidence is supported by Mr Brookes’ evidence.  Mr Jones said that he spoke to Mr Brookes about the Lalor incident before and after he spoke to the person at Sunicrust and that he told Mr Brookes he was going to arrange the deletion after he received the information from Sunicrust that it would not supply Safeway with a case deal.  In par 111 of his witness statement Mr Brookes said:

“In relation to Goldie’s Tuckerbag in Lalor and Thomastown, I recall that Mark Jones said to me:

 

‘Sunicrust are supplying the product to Goldie’s Tuckerbag.  They have refused to provide a deal to us to sell at a price to enable us to compete with Goldie’s.  I am going to withdraw Sunicrust.’

 

I said:                ‘I agree.  We should withdraw their product because we cannot remain competitive and retain a margin in that location.’”

 

In cross‑examination Mr Brookes could not recall whether Mr Jones identified the Sunicrust person with whom he had spoken when he reported to Mr Brookes the Sunicrust refusal to provide the deal.  Mr Brookes could only recall what was in his witness statement.

 

607               The Commission submitted that Mr Brookes’ evidence was not admissible evidence to support the fact that Mr Jones did seek a case deal.  That evidence was not the subject of objection and Mr Brookes’ recollection of what Mr Jones told him was not substantially challenged in cross‑examination.  Although objection might have been made to the admissibility of par 11 pursuant to s 59(1) of the Evidence Act 1995 (Cth) (see also ss 102 and 108(3)) once par 11 was admitted in evidence it might be used “as proof to the extent of whatever rational persuasive power it may have”:  Jones v Sutherland Shire Council [1979] 2 NSWLR 206 at 219 per Samuels JA.  (see also, Ritz Hotel Ltd v Charles of the Ritz Ltd (1988) 15 NSWLR 158 at 170‑171; Cross on Evidence, 6^th Aust ed, 2000, 103‑106; Weinberg, The Consequences Of Failure To Object To Inadmissible Evidence In Criminal Cases(1978) 11 MULR 408 at 412‑415).

608               Although Mr Brookes’ evidence relates to a prior consistent statement of Mr Jones, it is evidence of the fact that at the time Mr Jones told Mr Brookes that Sunicrust had refused to provide a case deal.  I consider that it has a probative effect on the issue whether Mr Jones asked someone at Sunicrust for a case deal in relation to Safeway Lalor, and whether that request was rejected.  At the time Mr Jones made the statement to Mr Brookes there was no issue of threatened court proceedings nor had an attack been made upon Safeway’s policy.  It is not probable that Mr Jones would at that time fabricate a statement that Sunicrust had refused a request for a case deal.  At that time he had no incentive or motivation to do so.  Accordingly, Mr Brookes’ evidence is probative and persuasive of the fact that Mr Jones asked for a case deal and that his request was rejected.

609               Mr McLeish gave evidence of a conversation with Mr Jones in relation to the Lalor incident.  He recalled receiving a telephone call from Mr Jones some time during the week following Easter during which he asked why their bread was “wheeled out the back of Safeway Lalor” and that Mr Jones had replied “You know why”.  Mr McLeish understood Mr Jones to be implying that the reason for the de‑listing was because a retailer (who he presumed was Goldy’s Tuckerbag store in Lalor) had been selling Sunicrust generic bread at a price lower than Safeway’s price for bread.  He based this understanding on his previous experience of the de‑listing of Sunicrust proprietary bread in similar circumstances at the Safeway store at Traralgon.  Mr McLeish said that the reason why Mr Jones said Mr McLeish knew why the bread was wheeled out the back was that he believed that the conversation which Mr Jones said he had with Mr McLeish had already taken place with other persons from Sunicrust.  Mr McLeish was not sure when this conversation took place. 

610               Safeway submitted that Mr McLeish’s evidence corroborated Mr Jones’ evidence that he spoke to someone at Sunicrust but the evidence does not corroborate that a case deal was requested from an unidentified person and was rejected by that person although it does support the proposition that a conversation had occurred between Safeway and Sunicrust representatives about the deletion.

611               Safeway submitted that Mr McLeish accepted that Mr Jones asked Sunicrust to supply proprietary branded bread to Safeway at the same price at which Local Bake was supplied to Goldy’s at the time of the Lalor deletion but the evidence relied upon by Safeway to support that submission does not support it.  The passage relied on was as follows:

“Did anyone from Safeway ask either you or anyone else at Sunicrust to your knowledge to supply proprietary‑branded bread to Safeway at the same prices at which Local Bake was supplied to Goldy’s at around the time of the Lalor deletion?---I’ll give the same answer.

 

[GOLDBERG J]:         Do you mind repeating it again for the record?---Yes, your Honour.  I don’t recollect the exact conversation but Mark Jones usually put that request on me each time there was a cheap generic in the vicinity of a Safeway store.”

 

Mr McLeish denied Mr Jones spoke to him about Safeway Lalor before the deletion and Mr Jones ultimately agreed that he did not do so.  However, Mr Jones maintained that he spoke to a person at Sunicrust and asked for a case deal.

 

612               Notwithstanding the unsatisfactory nature of Mr Jones’ evidence that he asked Sunicrust for a case deal before deleting Sunicrust products from Safeway Lalor, I am persuaded, in particular, by Mr Brookes’ evidence, that Mr Jones did ask a Sunicrust representative for a case deal which request was rejected.  The Commission submitted that Mr Jones’ evidence as to the manner in which he asked for a case deal was not evidence of a request for a case deal but was rather an enquiry as to the bread being sold and an explanation for the deletion and was not the language of negotiation.  I do not accept that submission.  Mr Jones’ evidence was that he said he wanted to buy the bread at the same cost price and I am satisfied that he was seeking to negotiate a case deal. 

613               There were other events which occurred upon which the Commission relied in support of its submission that the Lalor incident constituted contraventions of the Act.  Mr Nittoli, a Sunicrust Sales Representative, said he visited the Safeway Lalor store on Wednesday 12 April 1995, and that he had a conversation with Mr Stewart in which Mr Stewart said:

“If the promotion continues in Goldy’s Lalor and Thomastown, Sunicrust product will not be accepted for delivery by Safeway Lalor.”  

Mr Nittoli said he would have to speak to his supervisor and would get back to him as soon as he could.  Mr Nittoli was told to leave things as they were.  On the next day, Mr Nittoli visited the Safeway Lalor store on two occasions and saw that the Sunicrust bread which had been delivered was stacked in display racks but that the racks were in the storage area at the rear of the store.  He was again told by his supervisor to do nothing and to continue to support Goldy’s promotion.

 

614               Later that day Mr Nittoli visited Mr Abdelkader at one of the Goldy’s stores.  According to Mr Nittoli the following conversation occurred:

“I said:             ‘I’ve been kicked out of the Safeway store at Lalor.’

 

He said:            ‘Why?’

 

I said:                ‘The 99 cent promotion.  They are concerned about the promotion we have organised with you.  I have been told that as long as the promotion continues in your stores our product will not be accepted for delivery by them.  If your price had been $1.19 maybe it would not have upset them.’

 

He said:            ‘We have advertised it.  We have put out handbills.’

 

I said:                ‘No worries.  The promotion will continue and you have our support.’”

 

615               In cross‑examination Mr Nittoli said he did not directly ask Mr Abdelkader to raise his prices.  He said they discussed the possibility that they may not have come to this situation if the price had been higher than 99c and that if the price had been $1.19 maybe Sunicrust would not have been kicked out of the Safeway store.  He said they discussed the fact that the sell price was probably the reason they were not in Safeway Lalor for that duration of time.

616               According to Mr Abdelkader, Mr Nittoli visited him and said:

“You know the deal we did on bread.  Safeway are kicking up a fuss and I’ve copped a lot of flack over it.  They are talking about taking our bread out of Safeway at Lalor.  Is there a chance of you putting your price up to [here I recall that he said the figure of either $1.09 or $1.19]?  Can you do something about it?”

Mr Abdelkader said that he could not as the promotion had already started and had been advertised.

 

617               Mr Abdelkader also said that Mr Nittoli said:

“Sunicrust’s representative who handles the Preston area is happy at the moment.  The same thing has happened to Tip Top and they have been deleted out of the Safeway store at Preston and the rep has got all the extra sales to Safeway Preston.” 

This conversation between Mr Nittoli and Mr Abdelkader was not led to prove the truth of the matters stated against Safeway and Mr Jones.

 

618               Mr Stewart disagreed with both the substance and the timing of the conversation with Mr Nittoli.  Mr Stewart said that Mr Nittoli approached him on Thursday 13 April 1995 after the Sunicrust bread had been placed in the storage area and asked why Sunicrust bread was not on show.  He told Mr Nittoli that the decision had been made by head office and would be revoked by head office and not by him.  He denied saying to Mr Nittoli that if the promotion continued, or while the promotion was on at Goldy’s Lalor and Thomastown, Sunicrust would not be accepted for delivery at Lalor.  Mr Stewart agreed that at the time he spoke to Mr Nittoli he understood that he had been given the direction to put the bread in the storeroom because Sunicrust was selling cheap bread to Goldy’s.  Although he understood that while the promotion continued at Goldy’s Lalor and Thomastown, Sunicrust would not be accepted for delivery at Lalor, he denied he said that to Mr Nittoli.

619               Both Mr Stewart and Mr Nittoli impressed me as credible witnesses who were not prone to vagueness or exaggeration.  Their respective accounts of their conversation cannot be reconciled.  I am satisfied that the probabilities are that Mr Nittoli’s account reflects what occurred.  On the day on which Mr Nittoli said the conversation occurred Mr Stewart had been told by Mr Jones not to put Sunicrust bread on show on the following day and to keep doing that until further notice.  Mr Stewart knew at that time that the reason for the direction was because Sunicrust was selling cheap bread to Goldy’s.  He understood that he was not to accept Sunicrust bread for delivery until further notice from Mr Jones.  What Mr Nittoli said to Mr Stewart was therefore consistent with the facts as they existed at that time.  When Mr Nittoli visited Safeway Lalor next morning he found that what Mr Stewart had predicted had occurred.  The Sunicrust bread was in the storage area and not on display. 

620               It is improbable that if Mr Nittoli had asked Mr Stewart on Thursday 13 April 1995 why Sunicrust bread had been placed in the storage area, that Mr Stewart would have simply told Mr Nittoli that the decision had been made by head office without telling him what that reason was, which he knew.  According to Mr Nittoli’s account, Mr Stewart gave him the reason.  It is also improbable that Mr Nittoli would have accepted, without enquiry, that the decision had been made by head office.  If he had been told this, it is more probable that he would have asked what was the reason for the decision.  According to Mr Stewart’s account he did not do so.

621               However, acceptance of Mr Nittoli’s version of the conversation with Mr Stewart does not mean that Mr Stewart’s statement brought about a contravention of the Act by Safeway.  It was not put to Mr Stewart that by speaking to Mr Nittoli as he did, he was seeking or attempting to have Mr Nittoli get Goldy’s to increase the price of its bread or to get Sunicrust to cease supplying Goldy’s with bread.  I am not prepared to infer that Mr Stewart had such an intention or made such an attempt.  He said that when he was at Lalor he was a junior store manager and he did as he was told.  His attitude was, if he received a direction from a superior, he did not question it.  I am satisfied that in speaking to Mr Nittoli as he did, Mr Stewart was stating what the facts were.  He was not attempting to persuade or induce Sunicrust to adopt any particular course of conduct.  Even accepting the whole of Mr Nittoli’s evidence, Mr Stewart did not attempt to induce Sunicrust, through Mr Nittoli, to cease to supply bread to Goldy’s or to cause or compel Goldy’s to increase the price at which it sold its bread or to tell Goldy’s a price below which it was not to sell its bread.

622               Although the Commission did not rely upon evidence of the conversation between Mr Nittoli and Mr Abdelkader to prove the truth of the matters contained in the conversation as evidence against Safeway and Mr Jones, the Commission sought to use the evidence to show that Sunicrust took action in relation to the independent store to whom it was supplying cheap bread after it became aware that its products had been deleted or were about to be deleted.  The Commission submitted that such evidence was relevant to the allegation of resale price maintenance in contravention of s 48 of the Act.  Whichever version of the conversation I accept, it is of little probative value.  The Commission did not rely on the evidence of Mr Abdelkader to prove the truth of the fact that Mr Nittoli asked him if he could put up his price.  The evidence therefore, as against Safeway and Mr Jones, goes no further than the fact that Sunicrust had a communication with Goldy’s after it became aware of the deletion or the proposed deletion.  To that extent the evidence is of very little probative value in relation to any contravention of the Act by Safeway having regard to the standard of proof to be applied.

623               In any event, although Mr Abdelkader was not cross‑examined I am disposed to accept Mr Nittoli’s version of the conversation as being more probable than Mr Abdelkader’s version.

624               I have accepted Mr Nittoli’s version of his conversation with Mr Stewart.  That conversation involved Mr Nittoli speaking to his supervisor after his conversation with Mr Stewart and being told to leave the Goldy’s promotion where it was.  After Mr Nittoli visited Safeway later the next day and saw that the Sunicrust bread was in its racks in the storage area he spoke again to his supervisor and was told to continue to support the Goldy’s promotion.  It is improbable that Mr Nittoli would be asking Mr Abdelkader if he could raise the price of his bread whilst having these conversations with his supervisor.  It is also unlikely that a bread delivery representative such as Mr Nittoli would take steps to have a retailer increase its prices.  It is more probable that if such an attempt were made it would be made by an area representative or a more senior representative.

625               On Mr Nittoli’s evidence of his conversation with Mr Abdelkader, a case of resale price maintenance is not made out because what Mr Nittoli said could not constitute a communication in which he stated a price that was likely to be understood by Mr Abdelkader as the price at which the bread was not to be sold, particularly because Mr Nittoli told Mr Abdelkader that Sunicrust would continue to support the promotion which involved the bread being offered for sale at 99c a loaf.  Nor could what Mr Nittoli said amount to a statement directing or suggesting that Goldy’s should increase its price to $1.19.

626               It was admitted by Safeway and Mr Jones that Safeway did not on 13 or 15 April 1995 accept any Sunicrust or Helga’s branded bread from Sunicrust for resale at Safeway Lalor.  Proprietary bread and other baked products such as rolls, muffins and crumpets that had been delivered on the morning of 13 April 1995 remained in the storeroom all day.  There was one exception.  Home Brand White Sandwich, White Toast, Jumbo White Sandwich, White Toast and Wholemeal and Multigrain Sandwich were delivered to the store on Thursday 13 April 1995 in the same truck with the other Sunicrust products and were put on display for sale by Safeway.  No other racks were placed in Safeway Lalor on Thursday 13 April 1995 to fill the space left vacant by the Sunicrust racks. 

627               Safeway Lalor did not use a generic price‑fighting bread such as Captain Cutless to compete with Goldy’s Local Bake during the deletion period.  Mr Stewart used the Safeway weekly special.  Safeway reduced the price of Buttercup Super Sandwich White 680g bread.

628               In his supplementary statement dated 18 May 1999, Mr Jones said that it was his recollection that in the week ending 16 April 1995 Buttercup Super Sandwich White was sold at a retail price of 99c for two days and at a normal promotional price for the balance of the week.  However in cross‑examination Mr Jones said that the evidence was not correct, that he had no such recollection and that what he had said was a mistake. He also said in his supplementary statement he was unable to recall whether or not Safeway obtained a deal from Buttercup to reduce the price of Super Sandwich White bread but believed that it may not have occurred because it was the Easter period and the plant bakers were busy with Easter products. 

629               I do not accept that Mr Jones made a mistake in what he said in his supplementary statement.  According to the policy it was for Mr Jones, rather than the store manager, to decide Safeway’s response to a competitive situation.  Mr Jones’ office had been contacted about the Goldy’s promotion, Mr Jones knew about it and had decided that he would delete the Sunicrust products.  It is therefore more probable than not that he would have been involved in the decision as to what Safeway Lalor’s competitive response would be.

630               Although Captain Cutless was available from Sunicrust, Mr Stewart said that it had never been introduced during his time as store manager.  Mr Jones said that his CMA made attempts to bring Captain Cutless and Budget Family Fresh into Safeway Lalor but could not get them in because of Easter.  He could not remember whether his CMA at the time was Ms Miller or Ms Austin.  I am not satisfied that such attempts were made.  Mr Jones did not suggest that he had any recollection of asking his CMA to do so.

631               The Commission submitted that the evidence that Captain Cutless was not available was not supported by surrounding evidence because Safeway stores at Ferntree Gully and Vermont stocked Captain Cutless during that time and that Safeway provided no satisfactory explanation of why Captain Cutless was not used as the price‑fighting bread.  It said that the only conclusion I could draw from this was that Safeway wanted to punish Sunicrust for supplying cheap plain wrap or generic bread to Goldy’s and was not prepared to use Sunicrust bread.  The Commission said that Mr Jones deliberately did not bring in Captain Cutless when Sunicrust was deleted as punitive action, in addition to the deletion, to have Sunicrust take the necessary steps to have Goldy’s cease discounting. 

632               Mr Jones agreed that there had been an over‑deletion of Sunicrust products.  Mr Brookes agreed that the policy should not have been applied because Goldy’s promotion was a weekly special.  He agreed that if the policy was to be applied, a price‑fighter should have been introduced, the price‑fighter should have been a Sunicrust price‑fighter and the Sunicrust racks should not have been allowed to stay empty. 

633               Friday 14 April 1995 was Good Friday and Safeway Lalor was closed.  Sunicrust proprietary bread was deleted on Saturday 15 April 1995 although Sunicrust Home Brand products were supplied.  Monday 17 April 1995 was Easter Monday and no bread was supplied by Sunicrust.  The Goldy’s promotion continued as advertised until Saturday 15 April 1995.

634               Mr Jones gave no evidence about how the deletion at Safeway Lalor came to an end.  However Mr Stewart said that Mr Jones telephoned him early in the morning or mid‑morning on Easter Tuesday 18 April 1995 and told him to put the Sunicrust bread back.  I accept that evidence.  Safeway Lalor resumed purchasing Sunicrust proprietary bread on Tuesday 18 April 1995.

635               Although I am not satisfied that Safeway made attempts to bring in Captain Cutless or Budget Family Fresh and although there was an over‑deletion of Sunicrust products, I am not satisfied that the use of the Safeway weekly special, Buttercup Super Sandwich White 680g bread, and the over‑deletion demonstrated that the purpose of the deletion was to punish Sunicrust for not taking steps to have Goldy’s cease discounting.  I have found that Mr Jones asked for a case deal before the deletion and I consider that what followed the rejection of the case deal was conduct designed to ensure that Safeway remained competitive rather than conduct designed to punish Sunicrust.  I am satisfied that the request for the case deal before the deletion was inconsistent with a punitive purpose in what followed notwithstanding that it occurred in response to a weekly special which was not in accordance with the policy.

636               The Commission submitted that an attempt to induce Sunicrust to undertake acts of resale price maintenance, in contravention of s 96(3) of the Act, was to be found in Mr Jones’ conversation with the Sunicrust representative coupled with the deletion.  I have found that in that conversation Mr Jones asked for a case deal.  That conversation, even when coupled with the deletion, does not provide a factual basis for a conclusion that Safeway attempted to induce any of the acts of resale price maintenance specified in s 96(3) of the Act.  The Commission submitted that Safeway attempted to induce Sunicrust to induce Goldy’s to sell Local Bake bread at a price not less than Safeway’s retail price for the cheapest grocery bread.  That was not the case pleaded but, in any event, the evidence does not support that conclusion.

637               On the findings I have made, and on the conversations I have accepted, no case for inducing or attempting to induce Sunicrust to engage in resale price maintenance or exclusive dealing or a contravention of s 45 of the Act is made out.  None of the conversations constituted the making of, or an attempt to make, a contract, arrangement or reach an understanding within s 45(2)(a) of the Act.  Mr Stewart’s conversation with Mr Nittoli was not the language of an agreement and Mr Jones’ conversation with Mr McLeish occurred after the deletion had terminated.  I elaborate on these conclusions later  in these reasons and I also consider later the allegation of a contravention of s 46 of the Act.

THE GEELONG INCIDENT

Background

638               The third incident involving Sunicrust related to the deletion of Sunicrust bread from Safeway stores in Geelong during May 1995.  The Commission alleged that Safeway and Mr Jones engaged in conduct in contravention of s 45(2)(a) and (b), 46, 47(1), 48 and 96(3)(a)‑(f) of the Act.

639               In May 1995, T. Costa & Co Pty Ltd operated fruit and vegetable stores under the name “Costa’s” in Corio, Geelong West and Highton.  As well as selling fruit and vegetables, the Costa’s stores sold bread purchased from Sunicrust and Tip Top.  In May 1995, Mr Graeme Pilgrim was the Retail Divisional Manager of Costa’s. 

640               In May 1995 Safeway operated seven stores in Geelong – Corio, Waurn Ponds, Market Square, Geelong West, Highton, Newtown and Newcomb.  The Highton store was located directly across the road from the Costa’s Highton store.  In May 1995 Mr Geoffrey Clarke was the store manager at the Newcomb Safeway store and Mr Lee Cleary was his Assistant Manager.

641               Around 8 May 1995 Mr Pilgrim told Mr Matt Eaglesham, a Sunicrust sales representative, that Costa’s would be conducting a promotion on bread and other items the following week and that he would be advertising Thwaites bread manufactured by Sunicrust at 99c a loaf.  Mr Eaglesham agreed to supply Thwaites bread for the promotion at $1.00 a loaf.  Thwaites bread was a Sunicrust secondary brand sold in Geelong as a generic brand, without advertising or financial support.  Because of its origin and heritage in the Colac area, Thwaites bread was supplied in Colac as a proprietary product.  The bag in which it was packed was labelled “Thwaites Bakery”.  The words “Manufactured by Sunicrust Bakeries Pty Ltd” were printed in small print on the side of the bag.

642               On Tuesday 16 May 1995, Costa’s advertised in the Geelong News a number of products for sale at 99c including “Code C bread” for 99c per loaf.  The advertisement did not identify the brand of the bread which was Thwaites bread.  As well as advertising Code C bread in the newspaper, Costa’s placed a large billboard at the front of its stores advertising Code C bread at 99c.  There was no mention of the brand on the billboard.

643               During the week beginning Monday 15 May 1995, Tip Top bread and then Sunicrust bread was deleted by Safeway from the seven Safeway stores in Geelong.  The deletion of the Tip Top bread was a mistake and it occurred because Mr Jones believed that Costa’s was selling Tip Top bread rather than Sunicrust bread at a cheap price.  The evidence did not establish how Mr Jones became aware that Costa’s was selling Code C bread for 99c a loaf.  There was no evidence of any complaint to Mr Jones’ office about Costa’s by the manager, or any other employee, of any of the seven Safeway stores in Geelong. 

644               Mr Jones had little recollection of the circumstances in which bread was deleted from Safeway stores in Geelong in May 1995.  Nevertheless I am satisfied that he ordered the deletion of both Tip Top bread and then Sunicrust bread from the seven Geelong stores.  Mr Jones recalled Mr Brookes telling him that “You’ve deleted the wrong line out of Geelong.  Tip Top wasn’t the supplier”.  Mr Jones did not dissent from this proposition or express surprise about it or lack of knowledge of the fact that Tip Top bread had been deleted from the Safeway Geelong stores.

645               Mr Gunton in evidence‑in‑chief said that he had a telephone conversation with Mr Jones in which he asked Mr Jones what was happening in Geelong because Tip Top bread had been deleted from the Safeway supermarkets.  Mr Jones’ response was that Tip Top was selling a product at Costa’s at a very cheap price that was cheaper than Safeway’s red spot special at the time.  However, in cross‑examination, Mr Gunton said that although he remembered the incident he did not remember any of the conversations with Mr Jones; he just remembered the deletion from the stores.  He appeared to assent to the proposition that he did not have any conversations with Mr Jones but rather, found out about the deletion, visited the stores and then spoke to Mr Brookes.  After he spoke to Mr Brookes and told him that Costa’s was selling Thwaites bread at 99c a loaf and not Tip Top bread, Mr Brookes agreed to the reinstatement of Tip Top bread.  This occurred on Thursday 18 May 1995.

646               The deletion of Tip Top bread at Geelong was not pleaded by the Commission as a contravention of the Act.  Its significance for the Commission was that according to the evidence, the deletion of Tip Top bread from the Geelong stores occurred without Safeway first asking Tip Top for a case deal before the deletion occurred and that the deletion from a number of stores was not authorised by Mr Brookes or by the Safeway policy.  Safeway contested that the Tip Top deletion at Geelong had this significance and submitted that it was not required to give an explanation as to how the Tip Top deletion occurred as it was not pleaded against Safeway as a contravention.

647               I do not consider that the Tip Top deletion at Geelong is of assistance in making findings and reaching conclusions in relation to the contraventions alleged in relation to Costa’s stores at Geelong.  Even if I accept that Mr Jones deleted Tip Top products from seven Safeway stores without first asking for a case deal, such a finding does not bear upon the Sunicrust deletion at or about the same time.  I have already found that Safeway’s policy as formulated by Mr Brookes was not in the terms alleged by the Commission but rather was formulated for competitive and not punitive reasons and included a provision that a case deal was to be sought before a deletion was directed.  Further, the fact that a case deal was not sought by Mr Jones before the Tip Top deletion at Geelong does not mean that he did not seek a case deal from Sunicrust before the Sunicrust deletion.  Indeed, there was evidence to which I shall refer from Mr McLeish of Sunicrust that invited the conclusion that Mr Jones did seek a case deal from Mr McLeish before the Sunicrust deletion.

648               The sequence of events leading to the deletion of Sunicrust products at the Safeway stores in Geelong commenced on Wednesday 17 May 1995.  Although Mr Jones said he had little recollection of the circumstances in which products were deleted from Safeway stores in Geelong in May 1995, he recalled a conversation with Mr McLeish in which he told Mr McLeish that Safeway was uncompetitive, that Costa’s was selling bread at a cheap price and that Safeway wanted to buy at the same cost price so it could be competitive.  Mr McLeish mentioned something about a cost price the same as Home Brand and a promotion.  According to Mr Jones, Mr McLeish said he would get back to him.  Mr Jones said that Mr McLeish did get back to him and advised that Sunicrust was not prepared to offer the same cost price for which it was presently supplying the Sunicrust bread to the competitor.

649               Mr Jones’ version of the conversation did not coincide with Mr McLeish’s evidence although on significant substantive points there was little difference.  Mr McLeish impressed me as a reliable witness with a good recollection of events.  Mr Jones’ evidence on occasions savoured of reconstruction.  I prefer Mr McLeish’s evidence of the conversations with Mr Jones, albeit expanded in cross‑examination, as the more reliable version of what occurred.

650               Mr McLeish said that on 1 May 1995 he received a telephone call from Mr Jones in which Mr Jones said:

“You guys are supplying bread to a fruit market in Geelong that is selling cheap bread in direct competition with us.  What is going on down there?”

 

651               Mr McLeish said he did know what he was talking about and he would get back to him about it.  Mr McLeish telephoned Mr Darryl Pritchard, the General Manager of Sunicrust at its Geelong Bakery Division, who told him that Costa’s was having a promotion on Thwaites bread at 99c a loaf.  Mr Pritchard said that Mr McLeish asked him to find out for how long the promotion was running and that after speaking to Mr Eaglesham he told Mr McLeish it was for the rest of the week.  Nothing turns on whether this occurred in one or two conversations.  Mr McLeish telephoned Mr Jones and told him about the promotion at Costa’s.  Mr Jones said he wanted to sell (or purchase – Mr McLeish was not sure what Mr Jones said) bread the same as the fruit market, and Mr McLeish told him that Safeway could and that it was just a weekly promotion.  Mr McLeish was referring to Home Brand bread which Sunicrust supplied Safeway at less than 99c a loaf.

652               In cross‑examination, Mr McLeish agreed that prior to any de‑listing in the Geelong region, Mr Jones spoke to him and said, “We’re uncompetitive in Geelong.  Are you selling the bread to Costa’s at the same price you’re selling to us at?” and he replied, “We’re having a promotion”, although he was not sure in which conversation this was said.

653               Mr McLeish also agreed that Mr Jones said that Safeway wanted to buy products at the same cost price at which Sunicrust was supplying products to Costa’s and that he told Mr Jones that he would check it out and come back to him, although he said this occurred in one of several conversations.  In short, Mr McLeish agreed in cross‑examination that the conversations put to him had occurred although he could not be precise as to their timing.  Mr McLeish also agreed that at some point after these conversations he telephoned Mr Jones and told him that Sunicrust would not provide Safeway with the same cost price on Sunicrust branded products. 

654               It can therefore be seen that in important respects there was no difference between Mr McLeish and Mr Jones on what was said before the deletion.  Mr Jones told Mr McLeish that Safeway was uncompetitive in Geelong, he asked whether Safeway was getting the same cost price as the competitor, he asked for a case deal and was told in a subsequent conversation that Sunicrust would not give Safeway a case deal.

655               When Mr McLeish spoke to Mr Pritchard, Mr Pritchard said that he would get Mr Eaglesham, a Sunicrust sales representative, to find out the length of Costa’s promotion.  Mr Eaglesham spoke to Mr Pilgrim on Wednesday 17 May 1995 and asked him to stop selling the Thwaites bread at 99c.  He told Mr Pilgrim that if he did not put his bread prices up, Sunicrust would not be able to supply him with bread for the rest of the week.  I will return to this issue, but its present relevance is that Mr Pritchard did not tell Mr Eaglesham to say anything about Costa’s putting up its bread price and Mr McLeish had not made any such suggestion to Mr Pritchard; neither had Mr Jones.  Early in his cross‑examination Mr Pritchard said that Mr McLeish told him that if the price of bread at Costa’s was not up Sunicrust would be out of Safeway the next day and he told Mr McLeish there was nothing he could do about it.  However he did not take any steps to cause Costa’s to increase the retail price of Thwaites bread.  Later in cross‑examination, Mr Pritchard said that Mr McLeish said nothing about fixing prices.  In re‑examination Mr Pritchard clarified his evidence when he said that Mr McLeish did not ask him to get Costa’s to increase its prices.

656               Mr Pritchard’s evidence was confusing as to what Mr Eaglesham told him he had said to Mr Pilgrim.  Mr Eaglesham told Mr Pritchard that the Costa’s promotion was running for the rest of the week but Mr Pritchard’s evidence was irreconcilable in one significant aspect.  He said that Mr Eaglesham told him that he had told someone at Costa’s that they would have to increase the retail price of Thwaites bread.  Shortly after, he said that Mr Eaglesham had not told him that.  I am satisfied from Mr Pilgrim’s evidence and Mr Eaglesham’s evidence that Mr Eaglesham told Mr Pilgrim that if he did not put up the price of Thwaites bread, Sunicrust would not be able to supply Costa’s for the rest of the week.  That Mr Eaglesham said this to Mr Pilgrim makes it more probable than not that he told Mr Pritchard what he had done in the same conversation in which he told Mr Pritchard that the Costa’s promotion was running for the rest of the week.  However, as I found earlier, he was not told by Mr Pritchard to make such a statement to Costa’s, neither had Mr McLeish told Mr Pritchard that any such statement should be made to Costa’s.

657               After Mr Pritchard spoke to Mr Eaglesham he telephoned Mr McLeish and told him that the special at Costa’s had been advertised for the rest of the week.  Mr McLeish said he would call Safeway.  Shortly after Mr McLeish telephoned Mr Pritchard back and told him he had telephoned Safeway and it was going to discontinue purchasing Sunicrust bread from all its Geelong stores and that Sunicrust would be out that day.

658               Following this conversation with Mr McLeish, Mr Pritchard had no other conversation with Mr McLeish about the deletion with the exception of a telephone call from Mr McLeish later that day (Wednesday 17 May 1995) to tell him that Sunicrust was back in the Safeway stores other than Highton from the next day. 

The deletion

659               Initially Sunicrust products were deleted from each of the seven Safeway stores in the Geelong region.  The decision to do so was made by Mr Jones.  Mr Jones’ explanation was that after Mr McLeish told him that the deal would not be given to Safeway, he formed the belief that each of the Costa’s stores in the Geelong area was selling Sunicrust bread but he could not recall how he came to hold that belief.  Mr Jones said his practice was not to delete products from multiple Safeway stores without first speaking to Mr Brookes if he was available.  If Mr Brookes was not available he would give an instruction for deletion from one store and await Mr Brookes’ instruction as to whether the deletion should extend beyond that one store.  Mr Jones said that he understood from his conversation with Mr Brookes, (when he was told he had deleted the wrong line out of Geelong and that Tip Top was not the supplier), that Sunicrust bread was to be deleted from the same Safeway stores as those from which Tip Top had been deleted in the Geelong region and that he gave effect to that understanding.  Mr Jones further explained that Geelong was an area in which consumers would soon find out about Code C bread being available for sale at 99c and that he thought it appropriate to withdraw Sunicrust bread from all Safeway stores in Geelong.

660               I am not satisfied that Mr Jones’ explanation is a credible explanation of why he gave instructions for the deletion in the seven Safeway stores.  I do not accept it having regard to the fact that when Mr Brookes told Mr Jones he had deleted the wrong line out of Geelong and that Tip Top was not the supplier, Mr Jones did not indicate that any other person had been responsible for that deletion.  Mr Jones’ explanation as to how the deletion of Sunicrust products came about is more a matter of reconstruction than recollection and I reject it.  I am supported in this conclusion by Mr Jones’ evidence that he had little recollection of the circumstances in which products were deleted from Safeway stores in Geelong in May 1995.

661               However, I am not satisfied that Mr Jones gave instructions to delete Sunicrust products from the seven Safeway stores for the purpose of punishing Sunicrust.  As Mr McLeish acknowledged, Mr Jones asked for a case deal before the deletion occurred and after Mr McLeish complained to him that the only Safeway store which could be affected by Costa’s pricing was the Highton store, he agreed to Sunicrust products being allowed back into all the stores except Highton.

662               There was some confusion in the evidence as to the point of time at which the deletion was implemented and at what point of time Mr McLeish rejected Mr Jones’ request for a case deal.  Although the issue is not free from doubt, I am satisfied that Mr McLeish rejected Mr Jones’ request for a case deal in the course of Wednesday 17 May 1995 and that the first deletions occurred thereafter.  Costa’s solicitors had sent a letter by facsimile to Mr Pritchard on 17 May 1995 referring to the fact that “this morning” Mr Eaglesham telephoned Mr Pilgrim and told him that Sunicrust would not supply Costa’s if it continued to sell the bread for 99c a loaf.  If the sequence of events started in the morning it is more probable than not that the deletion would have occurred in the course of the same day.  There was also evidence that the deletion of Sunicrust products occurred on 17 May 1995 as well as on the next day.  In fact, the Newcomb store did not follow Mr Jones’ instruction because of the manager’s relationship with Sunicrust representatives and the demand for Sunicrust products.

663               Mr McLeish was informed by Mr Pritchard on either Wednesday 17 May or Thursday 18 May 1995 that Sunicrust products had been removed from display at the Safeway stores in the Geelong region.  Mr McLeish said that he telephoned Mr Jones and said:

“We are out of your Geelong stores.  What’s the story?  How can one fruit market effect [sic] seven stores?”

 

Mr McLeish discussed with Mr Jones the locations of all the Safeway stores in the Geelong region, their proximity to the Costa’s stores and told him that the only Safeway store that Costa’s pricing could impact upon was the store at Highton.  Mr Jones agreed that Mr McLeish spoke to him and convinced him that it was only one store in the area that could be a competitor.  Sunicrust products were reintroduced into the Safeway stores, except for Highton on Thursday 18 May 1995.

 

664               Mr McLeish recalled Mr Jones also saying that he would not allow Sunicrust bread back into Safeway Highton until Costa’s had ceased its promotion.  Mr Jones denied making this statement, although that is what in fact occurred.  I am not satisfied that Mr Jones made the statement having regard to Mr McLeish’s qualification of his evidence in cross‑examination and re‑examination.  When it was put to Mr McLeish in cross‑examination that Mr Jones had not made the statement, Mr McLeish responded:

“That could be my perception and maybe it wasn’t said.  Maybe that’s what I received out of it, okay.”

 

In re‑examination, when he was asked what he meant by his answer he responded:

“Well, what I was saying, that might have been my conclusion, that Sunicrust cannot go back in until we either sell Safeway bread at a price that they could compete with or the promotion concludes.”

 

Mr McLeish was then asked whether he had a recollection of the substance of the conversation and he said he did not.  Sunicrust bread was not allowed back into Safeway Highton until Monday 22 May 1995, after Costa’s finished its promotion. 

 

665               More Sunicrust products were deleted from Safeway Highton from 19 May 1995 than Mr Brookes’ policy required.  Mr Jones agreed that only six 680g brands should have been deleted in accordance with the policy.  In fact of the order of twenty products were deleted.

666               The evidence was not clear as to the extent and duration of the deletions from the other stores but it is not necessary to make any specific findings on those issues.  It is sufficient for present purposes to find that there were some deletions from the other stores, albeit for a short time.

667               During the period of deletion of Sunicrust products from the Safeway Highton store, Mr Jones decided to put Buttercup’s Budget Family Fresh in the store in place of the Sunicrust products.  Safeway sold Budget Family Fresh on 19 and 20 May 1995 at the same price as the retail price of 99c charged by Costa’s for Thwaites 680g bread.  Safeway admitted that its Highton store stocked Captain Cutless 900g bread on Thursday 18 May 1995.

668               Mr Jones’ explanation for introducing Budget Family Fresh rather than Captain Cutless was that he believed that it was “silly to ask the supplier after they’ve said they won’t give you a deal – to think they’ll support you with stock and merchandise to put in Captain Cutless”.  At that time Captain Cutless Code C bread could have been purchased from Sunicrust for less than 99c per loaf.

669               The Commission submitted that the Geelong incident was another example of Safeway applying its bread policy in a manner that punished Sunicrust which was supplying an independent retailer at a cheap price.  Although there are a number of factors and circumstances that tend to support that conclusion, I am not satisfied that I should draw that conclusion.  It was no part of Mr Brookes’ policy that a case deal be sought and if rejected a deletion occur where a Safeway competitor was undertaking a short term promotion.  Yet Mr Jones gave instructions for the deletion notwithstanding that he had been told that Costa’s was having a short term promotion.  There was also a deletion of more Sunicrust products than the policy required, and there was also an initial deletion from more Safeway stores than the policy required.  A Sunicrust price‑fighting bread, Captain Cutless, was not introduced upon the deletion; instead Buttercup Budget Family Fresh bread was introduced.  Although it is difficult to reconcile these circumstances with what Mr Jones and Mr Brookes said was the competitive purpose of the policy, there are other factors which tell against the purpose of the deletion being to punish Sunicrust.  In particular, there is the issue of Mr Jones asking Mr McLeish for a matching case deal on price for Sunicrust branded products before the deletion was implemented.  The Commission submitted that I should not place reliance on Mr Jones’ evidence where it conflicted with other evidence because he had little recollection of the Geelong incident.  However, it is on Mr McLeish’s evidence that I rely to find that Mr Jones sought a case deal before the deletion was implemented.  In determining the purpose for the deletion it is also relevant that when Mr McLeish asked Mr Jones how one fruit market could affect seven stores and discussed the location of the Safeway stores with him, Mr Jones was persuaded that there was only one store at Highton in respect of which there could be an impact from Costa’s pricing.  Mr Jones agreed to accept Sunicrust’s products into the Safeway stores, save for the store at Highton. 

670               If the purpose of the deletion had been to punish Sunicrust, Mr Jones would not have asked for a case deal before deciding upon the deletion.  As I have found earlier in these reasons, I do not accept that Mr Jones knew that asking for a case deal would always be rejected as it would affect the plant bakers’ brand equity and goodwill.  In this respect I refer to Mr McLeish’s evidence that during 1994 and 1995 Sunicrust was prepared to discount its proprietary brand Code C products to levels to enable retailers to sell at prices such as 97c a loaf if at the time Sunicrust strategically thought that it would not have a downward effect on the total market.

671               Although the instruction for the deletion from all seven stores, the excessive deletion of Sunicrust products at Highton and the introduction of the Buttercup brand bread are difficult to explain in terms of a policy seeking to make Safeway competitive, I am not satisfied that a purpose of the Geelong deletion was to punish Sunicrust.

672               There was no attempt by Mr Jones or anyone else on behalf of Safeway to enter into a contract or arrangement or reach an understanding with Sunicrust in relation to any matter.  There was no attempt to reach any consensual situation at all other than that Sunicrust give Safeway a comparable case deal on price.  Nor did Safeway engage in the practice of exclusive dealing in contravention s 47 of the Act.  Rather, it presented Sunicrust with a request for a case deal and did not make it any term or condition of further supply to Safeway that it either sell bread to Costa’s at a particular price or withdraw supply from Costa’s. 

673               The Commission submitted that Safeway induced or attempted to induce Sunicrust to threaten to withdraw Thwaites bread from Costa’s if it did not put up its prices and thereby contravened s 96(3) of the Act.  The Commission submitted that the inducement or attempted inducement was constituted by the telephone call from Mr Jones and the deletion.  It was submitted that the attempt was to induce Sunicrust to induce Costa’s to sell Thwaites bread at a price not less than Safeway’s retail price for its cheapest grocery bread.  That was not the case pleaded against Safeway and there was no evidence that Mr Jones attempted to induce Sunicrust to get Costa’s to sell Thwaites bread for a price no less than Safeway’s retail price for its cheapest grocery bread at that time.  At that time Safeway’s cheapest bread being sold at Highton was Home Brand which was selling for $1.47 a loaf.  The evidence does not establish that Mr Jones sought to induce Sunicrust to get Costa’s to sell its Thwaites bread at no less than that price.

674               The case pleaded was that for the purpose of the resale price maintenance allegations against Safeway, the “price specified” was the then sales price of Costa’s, alternatively that price plus at least one cent per loaf.  The combination of the deletion, coupled with Mr Jones’ telephone call complaining that Sunicrust was supplying bread that was being sold cheaply in competition with Safeway and Mr Jones’ enquiry whether Sunicrust was selling bread to Costa’s at the same price as it was selling bread to Safeway, does not warrant the finding that Safeway or Mr Jones attempted to induce Sunicrust to undertake acts of resale price maintenance as alleged by the Commission in the statement of claim or as it submitted.

675               I am satisfied that Safeway did not engage in any conduct in relation to the Geelong incident which constituted a contravention of ss 45, 47 or 48 of the Act.  I elaborate on these conclusions later in these reasons and I also consider later the allegation of a contravention of s 46 of the Act. 

THE ALBURY May 1995 INCIDENT

Background

676               The seventh incident alleged against Safeway and Mr Jones related to the withdrawal of Tip Top bread from three Safeway stores in the Albury region between 10 and 15 May 1995. 

677               The Commission alleged that Safeway and Mr Jones induced or attempted to induce Tip Top to engage in resale price maintenance contrary to s 48, made or attempted to make, or give effect to, a contract or arrangement with Tip Top, or arrived at, or attempted to arrive at, and give effect to, an understanding with Tip Top contrary to s 45(2), engaged or attempted to engage, in exclusive dealing (s 47) and contravened s 46 of the Act.

678               Mr Hollan Morrell and his wife, Annette, were the directors of and shareholders in Backfox Pty Ltd, which conducted a supermarket under the name of “Bob’s IGA Festival Supermarket” (“Bob’s IGA”), located in David Street, Albury, New South Wales.  The supermarket had been purchased from Davids Distribution Pty Ltd in December 1994.  Previously, from 1987 to 1993, Mr Morrell had worked for Safeway as a store manager.

679               The Safeway Albury store was also located in David Street, diagonally opposite Bob’s IGA.  Two other Safeway stores were involved in this incident.  The Lavington store was three kilometres distant and the third store was in Wodonga.  Bob’s IGA was a nominated competitor of Safeway Albury in relation to bread.

680               In May 1995, the store manager of the Safeway Albury store was Mr Leslie Bocquet and his assistant was Mr Richard Fifield.  Mr Bocquet was called as a witness by Safeway but he had no recollection of the incident involving Bob’s IGA in May 1995.  A witness statement by Mr Fifield was filed on behalf of Safeway but he was not called to give evidence.

681               From 10 December 1994, Bob’s IGA had purchased branded bread, such as Sunblest and Burgen from Tip Top. 

682               In the second half of 1994, Buttercup introduced a new white high fibre bread called “Wonder White”.  At about the same time, Tip Top introduced a white high fibre bread called “Mighty White”.  In early 1995 Mighty White was a 750g loaf sold as a Code D bread.  However it did not sell well and in about March or early April 1995 Safeway ceased ranging it.

683               In March 1995 Tip Top relaunched Mighty White as a 680g loaf although it remained priced as a Code D bread.  As a result of this change, Tip Top was left with a large quantity of surplus 750g bags so it decided to continue making 750g Mighty White bread and to sell the 750g loaf cheaply in job lots in order to dispose of the surplus bags. 

684               Mr Gunton said the 750g Code D bread was offered to every Tip Top customer.  The prices at which the job lots were offered varied but were generally between $1.20 and $1.40 per loaf.  Mr Gunton could not recall whether he personally, or Mr Gerry van Dooren, Tip Top’s accounts manager, offered the 750g bread promotion to Safeway but said that it was offered.  Mr Jones denied that he and Mr Gunton had a conversation in which Mr Gunton offered him a job lot of Mighty White bread at a special price or that anyone else from Tip Top offered Safeway the Mighty White 750g promotion.  Mr Paul Toohey, Tip Top’s Northern Victoria District Manager, said that the Mighty White promotion offered to Mr Morrell was not offered to Safeway, and I accept his evidence.

685               In early May 1995, Mr Morrell wanted to conduct a two day Market Day sale on 10 and 11 May 1995 which was shortly before Mother’s Day.  Mr Morrell discussed with Mr Graham Taylor, a Tip Top area representative, a proposal for the supply of Tip Top Mighty White bread at a special price so that he could discount it at the Market Day sale.  Mr Taylor passed on the enquiry to Mr Toohey who in turn discussed it with Mr Gunton.  They agreed that Tip Top would offer Mighty White to Mr Morrell at $1.20 per loaf.  Mr Gunton told Mr Toohey not to undercut Safeway’s Home Brand.  Mr Toohey told Mr Taylor to offer Mr Morrell the bread at $1.20 and to see if he was happy to retail it at $1.39 per loaf.  Mr Taylor offered Mr Morrell Mighty White at $1.20 per loaf with a suggested sale price of $1.39, which Mr Morrell accepted.

686               Following his conversation with Mr Taylor, Mr Morrell placed an advertisement advertising “The Mother Of All Market Day Sales” in the 10 May 1995 issue of the Border Mail, a newspaper circulating in the Albury area.  The advertisement displayed pictures of numerous supermarket products with their description and price.  The advertisement included “TIP TOP CODE D BREAD MIGHTY WHITE ‘Yummy Mum’”.  The advertised price was $1.29 per loaf.  The picture accompanying the advertisement was incorrect.  It showed a loaf of Tip Top Hyfibe and a loaf of Tip Top Toast and not a loaf of Mighty White.  The text of the advertisement stated that the sale was to last for Wednesday (10 May) and Thursday (11 May) only.  Mr Morrell agreed that $1.29 was an attractive price to customers and that in advertising Mighty White Code D at $1.29 he was hoping to persuade customers who might otherwise have bought bread at Safeway to go to Bob’s IGA and buy Mighty White bread. 

687               On 9 May 1995, the day before Bob’s IGA sale was to commence, Mr Gunton telephoned Mr Toohey who happened to be in his car with Mr Taylor.  They spoke to Mr Gunton on the hands‑free mobile telephone so both Mr Toohey and Mr Taylor could hear what Mr Gunton said.  Mr Gunton asked at what price Bob’s IGA would be selling Mighty White on the following day and Mr Toohey replied “$1.39”.

688               Either Mr Toohey or Mr Taylor (it matters not who called) called Mr Morrell from the car phone and asked him at what price the bread was to be sold during his two day promotion.  Mr Morrell said he had advertised it at $1.29.  Mr Toohey and Mr Taylor each said that he told Mr Morrell that would cause a problem with Safeway and asked Mr Morrell to see if he could alter the advertisement and raise the price to $1.39.  Mr Morrell said he would try.  There was no evidence that he did so.

689               Mr Toohey telephoned Mr Gunton and told him that Mighty White had been advertised at $1.29.  Mr Gunton said that Safeway or Mark Jones would not be happy.

690               On 10 May 1995 Mr Gunton received a copy of the advertisement from Mr Toohey by facsimile.  After receiving the facsimile and seeing that the products pictured were Hyfibe and Sunblest Toast instead of Mighty White and that the price was $1.29, Mr Gunton decided to ascertain the facts.  Mighty White bread was the only bread that was on special and White Hyfibe and Sunblest Toast were being sold at their normal prices. 

691               There was an issue as to the means by which Mr Jones became aware of the Bob’s IGA promotion.  The Commission submitted that Mr Jones received a facsimile transmission from Mr McDowall of Sunicrust on the first day of the promotion, 10 May 1995, which included a copy of the advertisement.  Mr Jones said he received the fax in the mail around the Monday following the end of the promotion and that he heard about the promotion of Sunblest and Hyfibe bread from his CMA.  He was not told about the promotion by the store manager.  He denied he learned about the promotion from the advertisement.

692               For the reasons to which I shall refer, I am satisfied that Mr Jones’ received the facsimile and the attached advertisement on the date the facsimile bears, 10 May 1995.  I am satisfied Mr Jones was incorrect when he said he received it in the mail after the promotion ended.  However, the issue does not have a consequence beyond the issue itself so far as Mr Jones’ credit is concerned.  He was mistaken but I do not consider he was telling a deliberate untruth when he said he received the fax in the mail. 

693               A copy of the Border Mail advertisement was received by the Sunicrust office.  Mr Andrew Roberts of Sunicrust faxed a copy of it to Mr McLeish on 10 May 1995.  The fax came to the attention of Mr McDowall.  Mr McDowall did not give any evidence as to his sending the facsimile either by facsimile transmission or by mail to Mr Jones.  The copy of the facsimile tendered by the Commission was on facsimile paper and showed the addressee readdressed to “Mark Jones Safeway” and it included the Safeway facsimile number.  At the end of the facsimile there was also a handwritten note:

“MARK

I am in Wodonga today if you need to talk with me. 

Regards

Simon McDowall”

 

That note also included a mobile telephone number.  The date on the facsimile remained unaltered as 10 May 1995.  The facsimile tendered did not have a header at the top of the page identifying the sender.

 

694               There is no doubt that Mr Jones received the fax; it had the words “Elissa, please file” written on it, this being a reference to Ms Miller, Mr Jones’ CMA in May 1995.  Ms Miller had no recollection of the facsimile or the May Albury deletion.  Mr Jones said that he received the facsimile but took no action on it as he only acted on reports from stores.  The issue became when Mr Jones received the facsimile.

695               Although Mr McDowall did not give any evidence in respect of the sending of the facsimile, I am satisfied that it is more probable than not that Mr Jones received the redirected facsimile from Mr McDowall on 10 May 1995 rather than in the ordinary mail.  It is improbable that Mr McDowall would alter the addressee of the facsimile, put the Safeway facsimile number on the fax and then put it in the ordinary mail on facsimile paper.  It is improbable that Mr McDowall would have put a note on the facsimile personally addressed to Mr Jones that he would be “in Wodonga today if you need to talk with me” if he sent it by ordinary mail as he would not be able to determine when Mr Jones would receive the note. 

696               After receiving the information that Toast and Hyfibe were being discounted, Mr Jones said that he assumed that the whole range of Tip Top bread was being discounted and that accordingly, Safeway was uncompetitive across all Code C and Code D breads and that he spoke to Mr Gunton.  It was at this point that the evidence of Mr Gunton and Mr Jones diverged.

Mr Jones’ evidence

697               Mr Jones said that he told Mr Gunton that he had received information that a competitor of Safeway Albury was selling Tip Top and Hyfibe at $1.29 and asked whether Safeway was buying bread at the same cost price as this competitor.  At the time of this conversation Mr Jones did not know that the Bob’s IGA sale was being advertised but learned that in the course of his conversation with Mr Gunton.  I do not accept that this was an accurate recollection having regard to the facsimile that Mr Jones had received from Mr McDowall.  Mr Jones said that Mr Gunton told him that it had been a mistake that the wrong products had been advertised and that it should have been Mighty White.  Safeway did not range Mighty White bread at that time.

698               Mr Jones asked Mr Gunton if Tip Top was funding a deal on Hyfibe and Tip Top Toast and Mr Gunton said that because the lines had been advertised Tip Top had agreed to fund the deal.  Mr Jones told Mr Gunton that Safeway wanted to be competitive and that he wanted the same deal for the Albury store and Mr Gunton told him that he would look into it and get back to him.  Mr Gunton did get back to him and refused the deal.

699               Mr Jones did not have any recollection of what happened after that, but he followed his normal practice, which was to instruct his CMA to instruct the Safeway stores to withdraw the products on which the store was uncompetitive and to bring in Captain Cutless or Family Fresh to compete.  He accepted that he directed the deletion of Tip Top products at Safeway Albury but denied that he had directed the deletion of Tip Top products at the Safeway Lavington and Wodonga stores.

Mr Gunton’s evidence

700               Mr Gunton said that Mr Jones telephoned him and told him that Tip Top had been deleted from the Safeway stores in Albury, Lavington and Wodonga for selling Tip Top branded products at a lower price than the red spot products in the Safeway supermarkets in the area.  At the time the red spot products were being retailed at more than $1.29 a loaf.  (I took the reference to Tip Top selling branded products at a lower price to be a reference to Bob’s IGA selling the bread.)  Mr Gunton told Mr Jones that the advertisement was incorrect, that the wrong brands had been put in the advertisement and that the product being discounted was Mighty White.  Mr Gunton said that Mr Jones did not speak to him before this conversation about Safeway purchasing either Tip Top Hyfibe or Mighty White bread at prices that enabled Safeway to be competitive with Bob’s IGA advertised price.

701               During cross‑examination, Mr Gunton said that he did not recall, and denied, that in the conversation with Mr Jones, Mr Jones said that he had received information that a competitor of Safeway Albury was selling Sunblest and Hyfibe at a retail price of $1.29 and asked if Safeway was receiving the same cost price as the cost price at which the competitor was being supplied.  This denial was watered down in a subsequent exchange in which he said that Mr Jones could have said that he had received information that a competitor of Safeway Albury was selling Sunblest and Hyfibe at $1.29 a loaf and that he did not recall and could not deny that at the outset of the conversation Mr Jones asked if Safeway was receiving the same cost price as the cost price at which the competitor was being supplied or that Mr Jones said that they wanted the same deal to be competitive with the competitor.  For the reasons to which I shall refer, I am not satisfied Mr Jones asked if Safeway was receiving the same cost price as the competitor or that Mr Jones asked for the same deal.  I do not accept that Mr Jones asked for the same deal or that Mr Gunton said that Tip Top would not give Safeway the same deal.

702               A number of objective facts do not support Mr Jones’ version of the conversation and I am satisfied that Mr Gunton’s version is to be preferred as it is more probable than Mr Jones’ version.  The starting point is the incorrect advertisement.  I am satisfied that on 10 May 1995 Mr Jones became aware that Bob’s IGA was advertising two bread products at $1.29 a loaf. 

703               I am satisfied Mr Jones became aware of this from the facsimile sent to him that day by Mr McDowall.  Even if he first became aware of the advertisement, or the fact of the offering for sale of the two Tip Top products, from his CMA, his starting point was the fact that two Tip Top products were being sold at $1.29 a loaf.  The advertisement was a mistake.  The two products, Toast and Hyfibe, were not being sold at a discounted price but rather at their normal prices.  It is therefore not probable that if Mr Jones had asked Mr Gunton whether Tip Top was funding a deal on Hyfibe and Toast Mr Gunton would have told him that Tip Top had agreed to fund the deal.  Tip Top was not in fact funding such a deal.  The deal that had been funded by Tip Top related to Mighty White.  Further, Safeway submitted that Mr Gunton agreed that he told Mr Jones that Tip Top was funding the deal only because it had been advertised.  Mr Gunton did not give evidence to this effect.  I am not satisfied that the passage relied upon by Safeway bears that interpretation.

704               On Mr Jones’ version of the conversation, he asked for a deal on Hyfibe and Toast but there was no promotional deal being offered by Tip Top on those products at the time so that Safeway was uncompetitive with those products at that time. 

705               There are some further aspects of Mr Jones’ evidence that are unreliable and that lead me to the conclusion that I should not rely on his evidence in relation to the deletion on 10 May 1995 at Albury.  Although Mr Jones said his practice was only to delete the products in respect of which Safeway was uncompetitive, on this occasion he deleted or directed the deletion of the whole range of Tip Top products.  I do not accept his explanation that he assumed that Safeway was uncompetitive across the board in respect of Code C and Code D bread products.  Even on his version of what he was told, he knew that it was only the two advertised products which were advertised as being discounted.  In any event, he had been told by Mr Gunton that only Mighty White was in fact being discounted.

706               Mr Jones’ evidence was also unreliable on the issue of the deletion of Tip Top bread from the three Safeway stores.  In his written statement he said that in May 1995 he had no knowledge of any withdrawal of Tip Top products from those stores and that he gave no instruction to withdraw products from Safeway Lavington and Safeway Wodonga.  However, on 12 May 1995 he received a letter by facsimile transmission from Mr van Dooren of Tip Top in relation to Bob’s IGA Albury.  Mr Jones initialled the letter with a note to his CMA to file it.  It is apparent from that letter that Tip Top products had been deleted from the three Safeway stores:  Albury, Lavington and Wodonga.

707               That letter was sent as a result of a meeting the previous day, 11 May 1995, between Mr van Dooren and Mr Jones in the course of which Mr Jones asked Mr van Dooren whether the promotion by Bob’s IGA in Albury was still continuing.  Mr van Dooren said he would make enquiries.  In the course of the conversation Mr Jones said that the managers of the Albury stores did not want Tip Top in their stores and they were not happy with Tip Top’s service and stock levels.  Mr van Dooren made enquiries and ascertained that the promotion had ceased on 11 May 1995. 

708               The responsibility for directing the deletion of products in uncompetitive situations rested with Mr Jones.  That was provided for by Mr Brookes’ bread policy.  The decision was not left to store managers.  Mr Jones obviously knew on the date of Mr van Dooren’s facsimile that there had been a deletion of Tip Top products from Safeway Lavington and Wodonga as well as Safeway Albury.  Those deletions were not reversed until 15 May 1995.  Although Mr Jones said it was his practice to check first with Mr Brookes before giving instructions for withdrawal of bread products from multiple stores, he gave no explanation for his lack of response to Mr van Dooren’s facsimile.  If Mr Jones had not directed the deletion from the three Safeway stores, as he claimed, he should have raised Mr van Dooren’s facsimile with Mr Brookes as soon as he received it.  There is no evidence that he did so.  When shown the facsimile in cross‑examination, he could not recall it, nor could he recall taking any action in relation to it.  Although he opined that the facsimile might have been referring to poor stock levels as the reason why the products were withdrawn, there was no evidence that that was the reason for the deletion of Tip Top products from any of the three stores.  Mr Jones acknowledged that the only withdrawal of which he was aware at Albury in May 1995 was for competitive reasons.  However, when he was asked about the first two lines of the facsimile, nothing came back to him.  Those two lines read:

“The promotion at the above account [Bob’s IGA Festival Albury] ceased on Thursday, 11^th May 1995.  This was checked today by our Area Manager – Graham Taylor and confirmed.”

 

If Mr Jones had not been involved in the instruction to delete Tip Top products from the three Safeway stores, he would have taken some steps to find out what had occurred and he would have spoken to Mr Brookes about it.  He did not take any such steps.  I am satisfied that he gave instructions for the deletion of Tip Top products from the three Safeway stores. 

 

709               It follows from my findings in relation to the conversation between Mr Gunton and Mr Jones that Mr Jones had given instructions for the deletion before that conversation occurred.

The deletion

710               The Safeway stores at Albury, Lavington and Wodonga accepted the usual deliveries of bread from Tip Top on 10 May 1995.  Later in the day Tip Top products were removed from display in the stores’ racks at Safeway Albury and Safeway Lavington.  Those two stores did not accept deliveries of Tip Top proprietary branded bread on 11, 12, 13 or 14 May 1995.  Safeway Wodonga accepted deliveries of Tip Top proprietary branded bread on 11 May 1995 but not on 12, 13 or 14 May 1995, apart from Spicy Fruit loaf which was accepted on 12 May 1995.  Bob’s IGA’s two day promotion ended at the close of business on Thursday 11 May 1995.

711               Notwithstanding the conclusion of Bob’s IGA’s promotion on 11 May 1995 and Mr Jones becoming aware of that fact on 12 May 1995 through Mr van Dooren’s facsimile, Tip Top bread was not accepted into the three stores until 15 May 1995.  To that extent, Safeway’s response to Bob’s IGA’s promotion went beyond responding to competition.

712               Safeway submitted that the deletion in Albury was a reasonable competitive response to the discounting of Mighty White bread by Bob’s IGA.  However, Safeway’s response was not in accordance with, or consistent with, Mr Brookes’ bread policy.  Bob’s IGA’s promotion was a two day special and was advertised as such.  Mr Jones knew that the price advertised was not an every day low price but was a special promotional price.  It was part of the policy that Safeway did not match special promotions.  He did not ask for a case deal before giving instructions for the deletion.  The range of Tip Top products deleted was wider than was necessary to meet the competition and was wider than the policy required. 

713               A price‑fighting brand was not introduced; Buttercup Wonder White bread was discounted but there was no evidence that Captain Cutless was unavailable.  Mr Jones had no recollection of Wonder White bread being discounted but he was the person who had the authority and responsibility for approving such discounting.  If he was the person who gave the instruction to delete Tip Top bread from the Safeway Albury store, and he accepted that he was, it was part of the deletion procedure to arrange a price‑fighting brand.  I am satisfied that it was Mr Jones who gave instructions, or approval, for the discounting of Buttercup Wonder White bread.

714               The deletion was implemented for longer than was required for a competitive response, that is to say Tip Top bread was not accepted into the three Safeway stores until four days after the Bob’s IGA promotion had ceased.

715               All these factors lead me to the conclusion that Mr Jones’ reason and, that of Safeway, for implementing the deletion was because Tip Top had sold bread to Bob’s IGA at a price that enabled Bob’s IGA to sell the bread at a price lower than the price at which Safeway was then selling its red spot bread products.  The purpose of the deletion was not to enable Safeway to be competitive but rather to demonstrate to Tip Top its disapproval for Tip Top allowing this situation to occur.  I do not accept that the purpose of the deletion was to enable Safeway to be competitive or to enable it to respond to a perception that it was not competitive.  The purpose of Mr Brookes’ bread policy may have been to enable Safeway to be competitive but the bread policy was not implemented in the critical respects to which I have referred.  No case deal was sought before the deletion, more products were deleted than the policy required, it was not an occasion for the implementation of a deletion, a price‑fighting brand was not introduced and the deletion lasted longer than the policy required.  In short, Safeway’s policy was not implemented.  It was not a case of a change in the policy, rather it was a case where Mr Jones did not seek to implement the policy.

716               As with the Frankston incident in acting as he did, Mr Jones’ action and intention is to be attributed to Safeway.  It was within the scope of his actual authority as Category Manager to make decisions as to the deletion of a plant baker’s products where Safeway was not competitive with its competitors in relation to those products and to decide how Safeway would respond to a competitive situation.  Consistently with the authorities and principles to which I have referred in considering Mr Feldgen’s authority in relation to the Preston Market incident (pars 804‑818 post), I am satisfied that Mr Jones was acting within the scope of his actual and apparent authority in making the decision to delete the Buttercup products from the Safeway stores at Albury, Lavington and Wodonga, notwithstanding that he did not ask for a case deal before the deletion.

717               I am satisfied that the purpose of the deletion was to deter Tip Top from, or influence it against, selling bread to Bob’s IGA at a price that enabled Bob’s IGA to sell bread at retail prices less than the prices for which Safeway Albury was selling bread.  That finding gives rise to a consideration whether such conduct resulted in a contravention of s 46 of the Act.  I will consider that issue later in these reasons.

718               I do not consider that the findings I have made and the conclusions I have reached result in Safeway or Mr Jones having contravened any other provision of the Act.  Mr Jones presented Mr Gunton with a fait accompli; he did not offer or suggest an alternative to the deletion which had occurred.  Although Tip Top, through Mr Toohey and Mr Taylor, attempted to induce or persuade Mr Morrell to raise the price of Mighty White bread from $1.29 to $1.39 a loaf, neither Mr Jones nor any other person on behalf of Safeway was involved in that sequence of events.  Such attempts as were made to induce or persuade Mr Morrell to raise the price of the bread occurred before Safeway became aware of the advertised price.  Neither Safeway nor Mr Jones induced or attempted to induce Tip Top to engage in any of the acts of resale price maintenance specified in s 96 of the Act.

719               The Commission submitted that the telephone call from Mr Jones to Mr Gunton, coupled with the deletion, constituted an inducement for the purposes of s 96.  The Commission submitted further that the inducement was to induce Tip Top to induce Bob’s IGA to stop selling plain wrap or generic bread at prices less than Safeway’s red spot special.  That was not the case pleaded.  The allegation in the statement of claim was that Tip Top induced, or attempted to induce, Bob’s IGA not to sell or advertise Tip Top branded bread at less than $1.39 a loaf.  There was no evidence that Mr Jones sought to induce Tip Top to induce Bob’s IGA to sell bread at less than $1.39 a loaf.  I have found that Mr Jones told Mr Gunton that Tip Top had been deleted from the Albury, Lavington and Wodonga stores for selling branded products at a lower price than red spot products in the Safeway stores.  But there was no evidence that $1.39 a loaf was Safeway’s red spot special price in Albury at the time.  During the week ending 14 May 1995, at Safeway Albury Home Brand bread was sold for $1.47 a loaf and Sunicrust bread was sold for $1.59 a loaf.  During the same week Buttercup and Tip Top branded bread was sold for $2.00 a loaf.  I assume that the Sunicrust bread was the red spot special for that week.

720               A contravention of s 96(3) will be established even though no monetary price is specified.  It is sufficient if a price is within a range or has an element of approximation or is specified by reference to a formula or standard that is well‑known:  Trade Practices Commission v Bata Shoe Company of Australia Pty Ltd (No 2) (1980) 44 FLR 149 at 159; Trade Practices Commission v Mobil Oil Australia Ltd (1984) 3 FCR 168 at 183.  However the allegation which was made was not that Safeway induced, or attempted to induce, Tip Top to induce Bob’s IGA to stop selling bread for less than Safeway’s red spot special which, at the time, appeared to be $1.59 a loaf, but rather, that the inducement was to have Bob’s IGA sell Tip Top branded bread for no less than $1.39 a loaf.  The case, as pleaded, is not made out on the evidence. 

721               I reach the same conclusions in relation to the allegations of contraventions of ss 45 and 47 of the Act.  There was no attempt made by Mr Jones, or any other person on behalf of Safeway, to make or give effect to a contract or arrangement with Tip Top, nor was there an attempt to arrive at, or give effect to, an understanding with Tip Top in contravention of s 45(2) of the Act.  Mr Jones did not indicate in any way to Mr Gunton that he would consider an understanding or arrangement to the effect that he would allow Tip Top bread to be put back into the three Safeway stores.  Although it might be thought that there was a strong commercial incentive for Tip Top to increase the prices at which it sold bread to Bob’s IGA, or not to sell bread to Bob’s IGA at prices less than the prices at which it sold comparable bread to Safeway, Mr Jones did not offer or suggest that course of conduct as a way to terminate the deletion.  He presented Mr Gunton with a unilateral decision which Safeway had already commenced to implement.  He did not seek a response.

722               A contravention of s 47 is also not made out.  Mr Jones did not indicate or suggest that Safeway would only acquire Tip Top bread thereafter on terms that Bob’s IGA would only be supplied bread by Tip Top at particular prices.  Again, there was a commercial incentive for Tip Top not to discount its prices to other stores if it wanted to retain Safeway’s business but there was nothing in Mr Jones’ conversation with Mr Gunton which suggested or inferred that such would be the terms on which Safeway was prepared to do business with Tip Top in the future.  On Mr Gunton’s version of his conversation with Mr Jones, which I accept, Mr Jones had deleted Tip Top bread peremptorily, upon becoming aware of the sale price of bread at Bob’s IGA.  The deletion, in short, was to register disapproval for what Tip Top had done, it was not done for the purpose of negotiating future terms of trade.

723               I elaborate on these conclusions in relation to the allegations of contraventions of ss 45, 47 and 96 of the Act later in these reasons.

THE PRESTON MARKET INCIDENT

Introduction

724               The Preston Market incident was unusual because the retailer whose bread sales were the catalyst for the incident was one of the plant bakers, Tip Top.  The bread involved was Tip Top proprietary branded bread and not plain wrap, generic or secondary branded bread.  The other feature of the incident which distinguished it from the other incidents in the proceeding was that the principal allegation against Safeway was that it entered into an agreement with Tip Top in relation to the prices it would charge and the bread it would sell whereas the other incidents involved allegations that Safeway procured, or attempted to procure, a plant baker to take action in relation to the supply of bread to, or the prices charged by, a third party independent retailer. 

725               Prior to 1995 Tip Top had, for many years, operated a stall at the Preston Market called the “Tip Top Bread Shop”.  Tip Top sold fresh and day old bread at the stall.  The stall was only a short walking distance from the Safeway Preston store.  Mr Feldgen, who became Store Manager at Safeway Preston in April 1995, treated the Tip Top stall as a main competitor of Safeway Preston for the sale of bread. 

726               Central to the Preston Market incident was the Commission’s allegation that Safeway and Tip Top made a contract or arrangement or entered into an understanding (or Safeway attempted to do so) whereby Tip Top would not sell bread at its Preston Market stall for prices less than Safeway charged at its Preston store and whereby Tip Top would not sell branded bread at the stall but would sell only plain wrap bread.  Safeway and Mr Jones denied the allegation and submitted that the case advanced by the Commission in its statement of claim was not made out on the evidence.  In particular, it was submitted that there was no evidence that any such contract, arrangement or understanding was entered into.  The Commission’s case as to who entered into the contract, agreement or understanding changed during the hearing in a number of respects. 

727               In order to obtain a full appreciation of the evidentiary issues it is necessary to understand the case as pleaded.  It was also amended after the hearing commenced in relation to the place at which an important conversation took place.  The Commission’s particulars of the contract, arrangement, understanding or attempt alleged in par 7 of the statement of claim were in the following terms:

“The agreement, arrangement or understanding or the attempt to make the same is partly oral and partly to be implied.  Insofar as it is oral, it is constituted by the conversations herein set out.  Insofar as it is to be implied, it is to be implied from the conduct herein set out.

 

(i)                 Until about 1993, Tip Top, at its Preston Market stall, sold both fresh and day old bread.  From 1993, it ceased selling day old bread and sold only fresh branded bread.

 

(ii)       Prior to, and during March 1995, Tip Top at its Preston Market stall was retailing fresh branded Code C bread at $1.40 per loaf.  Tip Top’s usual practice at its Preston Market stall was to reduce the prices of bread towards the end of the day’s trading.  The Code C bread was often reduced to $1.30 or $1.20 by the end of the day.  At that time Safeway at its Preston supermarket was selling its home brand Code C bread at $1.47 per loaf.

 

(iia)     On or about Friday 24 March 1995, Mark Jones (personally or through his assistant) instructed the manager of the Safeway Preston supermarket by telephone or voicemail not to accept deliveries of Tip Top’s products until further notice.

 

(iii)      On the morning of Friday 24 March 1995, Safeway at its Preston supermarket refused to accept its usual delivery of Tip Top products (‘deletion’).

 

Safeway refused to accept delivery of Tip Top products at its Preston supermarket until on or about 1 May 1995.

 

(iv)      On either the same day of the deletion or within the next day or so, Christopher Gunton, the State Sales Manager for Tip Top at the time, had a telephone conversation with Mark Jones of Safeway.  Jones said words to the effect:  ‘You’ve been deleted out of Safeway Preston because your price is lower than our [here he said either ‘Red Spot’ or ‘house brand’] bread.  Don’t bullshit about selling day old bread in there.  We know its fresh bread.  You won’t be allowed to go back into the Safeway store until you have done something about the price you are selling at and the proprietary bread you are stocking.’

 

(v)       During the first few weeks after the deletion of Tip Top bread from Safeway Preston, and at least once a week Gunton spoke with Mark Jones about the matter.  On at least, two occasions Gunton had conversations in words to the following effect:-

Gunton:          ‘What’s going on with the Preston Market?’

Jones:              ‘I will discuss it with Bernie Brookes.’

 

Brookes was the State Merchandising Manager of Safeway and Jones’ superior.  During one such conversation with Jones, Jones said to Gunton ‘You are selling proprietary branded bread that we don’t carry at our Preston store.  I don’t want to see proprietary bread in your store’.

 

(vi)             Gunton understood from the conversations that he had with Jones and Jones intended Gunton to so understand that Jones did not want Tip Top to be a competitor with Safeway Preston for the sale of proprietary branded bread products at competitive prices.

 

(vii)           On a date in about April 1995, during the deletion Mr Bernie Brookes and Mr Jones and Guthridge had a conversation at Safeway’s office at Mulgrave to the following effect:-

Brookes:         ‘Why is Tip Top involved in the Preston Market?  Why is Tip Top specialling bread in competition with local retailers such as Safeway?  What are you going to do about it?’

Guthridge:      ‘I have only just found out about the existence of the Preston Market stall.  Tip Top has no need to be a retailer.  However, it may be necessary to retail trialed products.  I do not believe in selling fresh branded bread and day old bread and I am looking into the activities of the Tip Top Preston Market stall.’”

 

[This conversation was initially said to have occurred at Tip Top’s premises at Dandenong but the particular was amended after evidence was given by Commission witnesses]

 

(viii)         In April 1995, during the deletion, Guthridge met with Jones and Gunton at Jones’ office at Mulgrave.  Guthridge and Jones had a conversation to the following effect:-

Guthridge:      ‘Can you explain what Safeway’s policy is regarding the delisting of our product from Safeway stores?’

Jones:             ‘It is the policy of Safeway that if bread is being specialled by another retailer, other than Coles or Franklins, at a price which is under the price being charged by Safeway, then that manufacturer’s product will be delisted while their bread is on special at that store.’

Guthridge:      ‘That policy is not appropriate and I want to talk to Bernie Brookes about it.’

 

Guthridge as Jones intended, understood the policy as expressed by Jones to mean that if Tip Top sold bread to a retailer other than Coles or Franklins and any such retailer then discounted the retail price to a point below the retail prices being charged by Safeway, then Safeway would cease accepting deliveries of bread from Tip Top until that retailer ceased discounting.

 

(ix)             On either 24 April 1995 or 26 April 1995, Leslie Lovett a Sales Manager employed by Tip Top, was advised by Christopher Gunton that Safeway would resume supplies if Tip Top’s Preston store sold only plain label bread, and if this bread was 2 or 3 cents dearer than the Safeway house brand.  Gunton instructed Lovett to meet with the Safeway Preston Store Manager, Raynor Feldgen, and advised him that Feldgen would look at what products Tip Top were selling and the prices at which they were being sold, and if satisfied would give Tip Top the approval to recommence supply to Safeway Preston.

 

(ixa)    On or shortly prior to 27 April 1995, Jones (either personally or through his assistant) instructed Feldgen by telephone to visit Tip Top’s Preston Market stall with Lovett and check that proprietary branded bread was not on sale and that plain wrap bread was not on sale at prices lower than Safeway’s price for Home Brand bread.

 

(x)               On the morning of 27 April 1995, Lovett went to visit the Manager of Preston Safeway, Raynor Feldgen, and together they visited the premises of Tip Top’s Preston Market stall.  During the visit to the Tip Top store, Feldgen noticed that there was branded bread in the store, and told Lovett to remove the bread and take down the price board indicating prices for this branded bread.  Feldgen then asked Lovett about the prices at which Tip Top was selling its plain wrap bread, and it was agreed, as determined by Feldgen that the prices were to be $1.50 for Code C, and $1.90 for Code D.

 

(xa)     Immediately following this visit to Tip Top’s Preston Market stall with Lovett, Feldgen reported to Jones (either personally or through his assistant) by telephone what had occurred and informed Jones (either personally or through his assistant) that he would be visiting the stall with Lovett the following day.

 

(xi)             After the meeting on 27 April 1995 with Feldgen, Lovett instructed his Area Manager, Brian Nicholson, to go to the Tip Top Preston Market stall and change the price board and to make sure that in future no more proprietary bread was sent to the store for sale.

 

(xii)           On the morning of Friday 28 April 1995, Lovett again met with Raynor Feldgen and they went together to the Tip Top Preston Market stall.  Feldgen inspected the premises to his satisfaction, and then told Lovett that he could start delivering bread to Safeway on Monday 1 May 1995.

 

(xiia)   Immediately following his visit to Tip Top’s Preston Market stall with Lovett on 28 April 1995, Feldgen reported to Jones (either personally or through his assistant) by telephone what had occurred on that visit.

 

(xiii)         On a date during the deletion, Guthridge telephoned Brookes and had a conversation to the following effect:-

Guthridge:      ‘I have revisited the Tip Top stall at the Preston Market and we have repositioned the activities of the stall as a pseudo hot bread outlet.  We are trialing different types of specialty breads.  We have stopped selling day old and fresh branded bread.  We are using it to assist in developing the concept of having Brunswick as a boutique bakery and the stall will assist in trialing bread.  I have prepared a list of the products that will be sold and the prices at which they will be sold.  I will drop it in to you now if you like.’

Brookes:         ‘Ok.  Thank you.’

 

Guthridge then visited Brookes at his office in Mulgrave and handed him a copy of the revised product and price list which he had referred to during the telephone conversation.  Brookes accepted the list and said ‘Thanks’.

 

(xiv)         At the conclusion of the meeting with Brookes, Guthridge had formed the belief that the products to be sold by Tip Top at the Preston Market stall at the prices detailed in the price list, were acceptable to Brookes and that as a consequence Tip Top would be permitted to recommence supplying Safeway at Preston.

 

(xv)           Tip Top then recommenced its supply of bread products to Safeway at Preston.

 

(xvi)         Tip Top subsequently commenced retailing bread at the Preston Market stall at the prices which had been agreed with Safeway and at no less than the Safeway price.”

 

Subsequent paragraphs alleged that each of Mr Jones, Mr Feldgen and Mr Brookes intended to make the contract or arrangement or reach the understanding and that it was carried out and given effect.  The same particulars were relied upon for the carrying out of, and giving effect to, the contract, arrangement and understanding.

 

728               The evidence to support the Commission’s case as to the existence of the contract, arrangement or understanding was elusive.  The Commission’s case was opened on the basis that:

·                    Mr Brookes was a party to the making of the contract or arrangement and that at a meeting on 19 April 1995, Mr Brookes had asked Mr Guthridge to stop specialling bread at the Preston Market in competition with Safeway.

 

·                    Mr Jones told Mr Gunton that Tip Top would not be allowed back into the Safeway Preston store until Tip Top stopped selling proprietary bread at its Preston Market stall and raised the prices of its plain wrap bread to match Safeway’s prices.

 

Neither Mr Guthridge nor Mr Gunton gave evidence along these lines.

729               In final submissions the Commission’s case as to the making of the contract, arrangement or understanding was initially that the agreement was made by Mr Jones, that Mr Brookes was involved in some way and that it was not made by Mr Feldgen, although he oversaw its implementation.  In the course of final submissions, counsel for the Commission, when pressed as to the identity of the person who made the contract or arrangement, submitted that Mr Feldgen was told by “somebody from Safeway with authority to tell him and somebody from Safeway who had authority to make such an agreement”.  When counsel was asked who was the “somebody”, the answer was that it was probably Mr Jones but it could also have been Mr Brookes, but that it did not matter as Mr Jones passed on to Mr Feldgen that Safeway had made the agreement with Tip Top, and he was to make sure it was implemented.

730               Counsel for the Commission accepted that there was no direct evidence of an agreement being made with Mr Jones and that the evidence, at its highest, was to the effect that Mr Jones told Mr Feldgen that an agreement had been made.

731               The significance of the Preston Market incident lay not so much in the circumstances in which Tip Top bread was deleted from Safeway Preston but rather in the circumstances in which Tip Top bread was reintroduced into Safeway Preston.  The Commission’s contention was that the reintroduction occurred as a result of an agreement being entered into between Tip Top and Safeway as to what bread Tip Top would offer for sale at its Preston Market stall and the prices at which it would offer such bread for sale. 

732               Safeway led evidence that Tip Top was selling fresh bread from the Preston Market stall and that it was concealing this fact from Safeway.  I am satisfied that Tip Top had been selling both fresh bread and day old bread from the stall for some considerable time and that this fact was not concealed from any Safeway employees.  Even if Tip Top was concealing the sale of fresh bread from Safeway, it is not relevant to any issue raised in the proceeding and in particular whether there was any contravention of the Act by Safeway.

Background

733               Between March 1994 and up to 20 March 1995, Mr Errol Ryan was the manager at Safeway Preston.  Around February 1995 Mr Ryan became aware that the Preston Market stall was selling fresh bread.  Prior to that time he believed it was only selling day old bread.  He telephoned Mr Jones and told him that the Tip Top stall was selling fresh bread at a price that he could not recall in evidence but that was significantly less than the price at which Safeway Preston was selling Tip Top bread.  The Preston Market stall was selling over twenty varieties of branded bread.  The price for Tip Top Sunblest Code C was $1.20 or $1.30 a loaf and for Code D was $1.40 per loaf.

734               Mr Jones told Mr Ryan that he would investigate the matter and come back to him, which he did within a day.  The evidence does not disclose the precise terms of what Mr Jones said but the result was that Captain Cutless bread was introduced into the store and Mr Jones told Mr Ryan to sell it for 99c a loaf.  Mr Ryan left Safeway Preston at the end of the week commencing Monday, 13 March 1995, and commenced at Safeway Moonee Ponds on 20 March 1995.  Up to that point of time no Tip Top bread had been withdrawn from Safeway Preston.  Withdrawal of Tip Top first occurred when the delivery that Tip Top made to Safeway Preston on 24 March 1995 was not accepted.  Tip Top bread was reintroduced on 1 May 1995.

735               A number of conversations occurred between Safeway representatives and Tip Top representatives after 26 March 1995, which ultimately led to the reintroduction of Tip Top bread into Safeway Preston.  The evidence as to those conversations is controversial and complex and it is necessary to set out the competing versions so that the submissions made by the parties may be understood.  The evidence of Tip Top witnesses differs from the evidence of Safeway witnesses and there are also differences between respective Safeway witnesses and Tip Top witnesses.

736               Critical conversations occurred between Mr Gunton, Tip Top’s Victorian State Sales Manager, and Mr Jones, between Mr Gunton and Mr Leslie Lovett, Tip Top’s Bakery Sales Manager at its Brunswick premises and between Mr Feldgen, who became manager at Safeway Preston in early April 1995, and Mr Jones and Mr Lovett. 

Mr Gunton’s evidence

737               Mr Gunton first became aware of the deletion after it occurred when he was told by Mr Lovett.  Mr Gunton telephoned Mr Jones and asked him why Tip Top had been deleted from the Preston store.  Mr Jones said that Tip Top was selling proprietary bread and items in the Preston Market stall that Safeway did not range, which were at a more competitive price than Safeway’s red spot special or Home Brand bread at the time.  In the course of the conversation Mr Jones said “Don’t bullshit about selling day old bread in the Preston Market”.  Mr Gunton denied that he told Mr Jones that Tip Top used the Preston Market stall to sell bread returned from other stores but acknowledged that the stall was used to sell what he called “overbakes”, that is bread that had been baked and that was in excess of Tip Top’s sales requirements.  It was in that context that he did not deny telling Mr Jones that the stall was selling one day old bread. 

738               Thereafter, Mr Gunton had regular weekly meetings with Mr Jones in which he would ask Mr Jones what was happening with the Preston Market stall.  At one of these meetings Mr Jones spoke to Mr Gunton about the Tip Top stall being a competitor to Safeway and selling like products at its stall.  On one occasion Mr Jones told Mr Gunton he would discuss the matter with Mr Brookes.  At or about this time Mr Gunton passed the matter over to Mr Guthridge, Tip Top’s Victorian General Manager.

739               It was significant that in cross‑examination Mr Gunton remembered another conversation in which Mr Jones complained that Tip Top was selling fresh bread at the Preston Market stall and said that it was difficult to deal with someone who would tell lies.  Mr Jones said that Safeway wanted to buy Tip Top bread at the same cost price as Tip Top was supplying the Preston Market stall and Mr Gunton said he would get back to Mr Jones.  However, he could not recall telling Mr Jones that Tip Top was not prepared to supply Safeway with bread at the same cost as it was supplying the Preston Market stall.  (Mr Jones said that this conversation occurred before the deletion.)  Mr Gunton’s recollection of this conversation meant that he must be wrong in his evidence that he did not have any conversation with Mr Jones in relation to the Preston Market stall until after the deletion.  There would be no point in Mr Jones asking for a case deal after the deletion.  It is also apparent from Mr Lovett’s evidence that when he telephoned Mr Gunton on 24 March 1995 and asked why Tip Top had been deleted from Safeway Preston, Mr Gunton was able immediately to tell him the reason.  Safeway was not happy with Tip Top selling fresh branded bread at prices cheaper than Safeway’s specials.  I am satisfied that Mr Gunton had discussed the Preston Market stall with Mr Jones before the deletion and knew the reason for the deletion when it occurred.

740               Mr Gunton could not remember Mr Jones asking him to set a particular price for any product and denied he reached any agreement or arrangement with Mr Jones as to the prices for which bread was to be sold at the Preston Market stall, although he remembered Mr Jones was concerned about the proprietary products sold at the Preston Market stall.  Mr Gunton could not remember the substance of the conversation in which this concern was expressed.  What is more significant is that Mr Gunton did not give evidence, as particularised in sub‑par (iv) under par 7 of the statement of claim that “You won’t be allowed to go back into the Safeway store until you have done something about the price you are selling at and the proprietary bread you are stocking”.  Nor did he give evidence in accordance with sub‑par (v) of the particulars that during the first few weeks after the deletion Mr Jones said “You are selling proprietary branded bread that we don’t carry at our Preston store.  I don’t want to see proprietary bread in your store.”

741               Mr Gunton did give evidence of a conversation with Mr Jones in which Mr Jones said he did not want a particular proprietary brand in the stall but according to Mr Gunton this conversation occurred within the week after Tip Top bread was reintroduced into Safeway Preston.  It appeared from Mr Gunton’s evidence that the particular bread was a Mighty White product.  Mr Gunton agreed that whatever was said in the conversation, nothing further came of the matter.  I am not satisfied that it was as a consequence of that conversation that Tip Top ceased selling proprietary branded bread at the Preston Market stall, nor am I satisfied that in that conversation Mr Jones told Mr Gunton that he did not want to see any proprietary bread in the Preston Market stall.

Mr Jones’ evidence

742               Mr Jones said he had three telephone conversations with Mr Gunton.  In the first conversation he told Mr Gunton that he had been advised by the Safeway Preston store that it was uncompetitive on the Tip Top bread that Tip Top had in its Preston Market stall, and he asked if it was fresh bread.  Mr Gunton told him it was one day old bread, which was returns from the previous day that they were clearing.  In the second conversation he told Mr Gunton they had purchased fresh bread from the Preston Market stall, that Mr Gunton had lied to him and that he asked for Safeway to be given the same cost price as the price at which Tip Top was supplying the Preston Market stall so that Safeway Preston could be competitive.  Mr Gunton said he would look into it.  In the third conversation Mr Gunton said that Tip Top was not prepared to sell the bread to Safeway at the same cost.  After discussing the matter with Mr Brookes, Mr Jones told his CMA to advise Tip Top that its bread was to be withdrawn from the Safeway Preston store.

743               Mr Jones denied that Mr Gunton telephoned him and that he had the conversation in the terms given by Mr Gunton, that he had regular weekly meetings with Mr Gunton, or that he told Mr Gunton that he would discuss the matter with Mr Brookes.

744               Although Mr Jones and Mr Gunton’s versions of their respective conversations cannot be easily reconciled, I am satisfied that Mr Jones was concerned about the prices Tip Top was charging for bread at its Preston Market stall and the range it was selling and that before the deletion ended he told Mr Gunton that he would discuss the matter with Mr Brookes.  Although Mr Jones denied saying this to Mr Gunton, I accept Mr Gunton’s evidence.  Mr Jones had discussed the matter with Mr Brookes before the deletion, and it is, therefore, probable that he would have discussed it again before changing the direction of the deletion.  Mr Jones’ concern about the prices of Tip Top bread at the Preston Market stall was confirmed by Mr Feldgen who was told by Mr Jones to monitor the stall’s volumes and prices.

745               During the deletion, conversations occurred between other persons that bear upon the circumstances under which the deletion ended.  A principal participant was Mr Feldgen, the store manager at Safeway Preston.  Safeway submitted that Mr Feldgen’s evidence was unreliable and not probative.  I am satisfied that Mr Feldgen was a careful witness who made a conscientious effort to recall past events and conversations truthfully.  At times he was quite hesitant in responding to questions, but I attribute that hesitancy to his concern to be accurate in his recollection.  There are issues as to whether Mr Feldgen’s evidence supported the propositions or submissions for which the Commission contended.  But those issues do not arise from any doubts about Mr Feldgen’s truthfulness, but rather, from his inability to have an adequate recollection of conversations long since past.  As I will demonstrate shortly, I reject the submission that he was not candid or truthful when speaking to Mr Bill Pratt, a Safeway director, and Mr Mead, Safeway’s General Manager, and that he misled them.

746               When Mr Feldgen commenced at Safeway Preston, the store was not displaying Tip Top bread for sale, and it was monitoring bread prices at the Tip Top Preston Market stall.  Mr Feldgen reported the prices to Mr Jones or somebody in his office.  He was told by Mr Jones to check on the volume of bread sold and the prices at the stall.  I will return to Mr Feldgen’s evidence.

Mr Guthridge’s evidence

747               A significant conversation, upon which the Commission relied, occurred between Mr Brookes and Mr Guthridge on 19 April 1995.  However, on close examination Mr Guthridge’s evidence of his meeting did not support the contract, arrangement or understanding for which the Commission contended.  Mr Guthridge’s evidence must, in any event, be considered with care as Mr Guthridge maintained that the discussion about the Preston Market stall took place at Tip Top’s Dandenong premises.  Mr Guthridge agreed that the meeting at the Dandenong premises occurred on 6 December 1994 and maintained that the Preston Market stall was discussed at that meeting.  His recollection was obviously incorrect as the issue over the Preston Market stall did not arise until March 1995.  The Commission accepted that Mr Guthridge was mistaken as to the venue of the discussion with Mr Brookes about the Preston Market stall, but submitted that the substance of the discussion recounted by Mr Guthridge and Mr Brookes was similar.  The Commission accepted that Mr Brookes’ evidence as to the place and date of the conversation was correct.

748               Although the Commission relied on Mr Guthridge’s evidence of his conversations with Mr Brookes, the Commission consented on 17 March 1999 to the dismissal of the proceeding against Mr Brookes.  The only case that the Commission had sought to make against Mr Brookes was in relation to the Preston Market stall incident.  According to Mr Guthridge, at the meeting he had with Mr Brookes (albeit at a different time and place), Mr Brookes asked Mr Guthridge what he thought about Tip Top’s participation in the Preston Market stall and Mr Guthridge said he would look into it and get back to him.  Mr Brookes said he felt it was inappropriate for Tip Top to compete with its customers directly with Tip Top branded bread at prices under Safeway’s prices at its store nearby.

749               Mr Guthridge said that some weeks later he telephoned Mr Brookes and told him that he wanted to use the stall as a pseudo‑hot bread shop to trial particular types of bread and that Tip Top would only sell unbranded bread.  Mr Guthridge told Mr Brookes he had prepared a list of products Tip Top was offering for sale in the store and their prices which he would give him.  He delivered the list to Mr Brookes.  He did not keep a copy of the list but said another list was kept by Mr Lovett at the Brunswick bakery.

Mr Brookes’ evidence

750               Mr Brookes recalled that at the meeting on 19 April 1995 Mr Guthridge asked why Tip Top was out of the Preston store.  Mr Brookes said that Safeway Preston had been unable to sell its bread at a satisfactory margin and be competitive and that Tip Top had been given an opportunity to provide a deal but had declined.  When asked what Tip Top had to do to get back into the Safeway Preston store, Mr Brookes responded by saying that, as Mr Jones had explained to Mr Gunton, Tip Top had to provide Safeway with a case deal to be competitive.  Mr Guthridge then said that Tip Top was looking at alternative uses for the Preston Market stall and would use it to retail specialty products.  Mr Brookes denied that Mr Guthridge told him that he had prepared a price list of the products to be sold at the Preston Market stall and denied receiving any list from Mr Guthridge.  Mr Brookes was not challenged on these denials.

751               Mr Brookes and Mr Guthridge differed as to the content of their conversations.  I am disposed to accept Mr Brookes’ evidence and recollection particularly having regard to Mr Guthridge’s error as to the date and place of the first meeting.  However, even if I accept Mr Guthridge’s version of the conversations, it does not substantially advance the Commission’s case.  Mr Guthridge agreed that in the first conversation Mr Brookes did not suggest that he should take any course of action, nor did he indicate that he expected Mr Guthridge to take any course of action.  Mr Guthridge said he did not reach any agreement or arrangement with Mr Brookes as to what he was going to do in relation to the Preston Market stall and agreed that the matter was left for his commercial decision.  I did not find in Mr Guthridge’s evidence any proposal or suggestion by Mr Brookes that either he and Mr Guthridge or Safeway and Tip Top should enter into a contract, arrangement or reach an understanding to the effect that Tip Top should sell bread at its Preston Market stall at any particular price or that Tip Top would not sell branded bread at the stall.

752               Although the delivery of a price list by Mr Guthridge to Mr Brookes gives rise to the opportunity to draw an inference of an arrangement or understanding in relation to the prices to be charged at the Preston Market stall, there was nothing in the prior communications between Mr Brookes and Mr Guthridge that had suggested that Mr Guthridge should or would respond with such a price list.  Although Mr Brookes had raised his concerns about a supplier competing with its customer at the retail level and had asked Mr Guthridge what he thought of that situation, it does not follow that he was thereby seeking to enter into a contract or arrangement or reach an understanding in relation to the bread to be sold at the Preston Market stall, or the prices at which it was to be sold.

753               I am satisfied that the repositioning of the activities of the stall as a pseudo‑hot bread outlet, the determination of the level of prices of the products to be sold and the delivery of the price list to Mr Brookes occurred as a result of a decision taken by Tip Top, but not as part of an understanding reached between Mr Guthridge and Mr Brookes or a contract or arrangement entered into between them or between Tip Top and Safeway.

754               Although Mr Brookes had raised the issue of the Preston Market stall with Mr Guthridge and said it was inappropriate for Tip Top to compete directly with its customers, he did not invite Mr Guthridge to do anything about it in terms that indicated that there would be a consequence for Tip Top in relation to the deletion of its bread at Safeway Preston.  Mr Guthridge had only found out about the stall recently and said he would look into it as he believed Tip Top should not be engaged in retailing against its customers.

755               At the time Mr Guthridge delivered the price list to Mr Brookes there was no discussion about the deletion of Tip Top bread at Safeway Preston.  Mr Brookes just accepted the list.  The list was not produced.

756               Mr Guthridge said that after he delivered the price list to Mr Brookes he believed that Tip Top would shortly be recommencing the supply of bread to Safeway Preston.  But the evidence does not go so far as to show that Mr Brookes had, at the least, reached an understanding with Mr Guthridge to that effect, which could be attributed to Safeway.  The highest the evidence could be put was, as Mr Guthridge said, that he “gained the impression” that Mr Brookes felt comfortable with what Mr Guthridge had proposed and that “as a result of that comfort he would allow our products to be relisted”.

757               I am not satisfied that Mr Brookes was a party to, or was otherwise involved in, the agreement, arrangement or understanding alleged by the Commission.

The meetings between Mr Feldgen and Mr Lovett

758               The sequence of events that occurred after Mr Guthridge told Mr Brookes of the proposed changes to the Preston Market stall is more enigmatic.  The sequence involved the coming together of Mr Feldgen and Tip Top’s Brunswick Sales Manager, Mr Lovett, and two visits by them to the Preston Market stall to look at the bread being sold and the prices at which it was being sold.

759               The Commission’s case was that each was instructed to meet the other, Mr Feldgen by Mr Jones and Mr Lovett by Mr Gunton.  They were instructed to inspect the stall so that Mr Feldgen could see it was selling only plain wrap and not branded bread, and at prices for 680g and 900g bread, a little above Safeway’s Home Brand price.  They met on 27 April 1995, went to the stall and found that some branded bread was on sale.  Code C plain wrap was priced 3c above Home Brand bread but Mr Feldgen asked Mr Lovett to increase the price of Code D plain wrap bread and agreed to Mr Lovett’s suggestion of a 10c increase, taking the price to $1.90, 7c above Home Brand.  Mr Feldgen asked Mr Lovett to come back the following day to show him that the prices and products were as agreed.  Each reported these matters to his superior, Mr Jones and Mr Gunton, they met the following day, went to the stall and saw the bread on sale and its prices.  Mr Lovett asked Mr Feldgen if Tip Top could go back into Safeway Preston, and Mr Feldgen said deliveries could start on Monday 1 May 1995, which they did.

760               A substantial attack was made by Safeway on the credit and reliability of both Mr Feldgen and Mr Lovett.  I am satisfied that both were honest witnesses, although they demonstrated an imperfect recollection of significant events.  In particular, Mr Feldgen was a careful witness who frequently hesitated and paused to reflect on the question asked before giving an answer.  I did not discern in his hesitation and pauses any attempt at prevarication but rather an attempt to be quite sure he was giving an accurate answer as best he could.

761               On a date unidentified, Mr Feldgen received a telephone call from Mr Jones’ office.  Mr Feldgen assumed the call was from Mr Jones, although he could not recall whether it was from Mr Jones or someone else at his office.  He was told in the telephone call that he would receive a visit from someone at Tip Top.  He had learned about the conditions upon which Tip Top would be allowed to deliver bread into the Safeway Preston store although he could not recall how or when he learned or from whom.  His best recollection, albeit vague, was that he learned from someone at Safeway but he did not have a clear recollection.  When he was asked whether it was somebody within the Safeway organisation or an outsider who had told him the conditions, he answered “Again I can’t be absolutely certain”.  Although Mr Feldgen said in examination‑in‑chief that his best recollection was that the information as to the conditions came from someone at Safeway, he agreed in cross‑examination that he could not recall whether he was told about the conditions by Mr Jones or by a representative who visited him from Tip Top.  Mr Feldgen’s recollection was that he was told that Tip Top bread would be re‑ranged and restocked at the Safeway Preston store if the Tip Top stall stopped ranging national or branded bread and replaced it with plain label bread priced the same as Home Brand bread or Safeway generic Code C and Code D bread.

762               Mr Feldgen said his dealings in relation to the Preston Market incident were normally with Mr Jones and someone in his office but he did not, in evidence‑in‑chief, go so far as to say that either Mr Jones or someone from his office told him about these conditions.  Mr Feldgen agreed in cross‑examination that he was not certain who told him the conditions on which Tip Top would be re‑ranged at Safeway Preston.  When pressed that he did not have a conversation with Mr Jones in which Mr Jones told him of the conditions, he reflected for some moments and said he was not clear where the proposal or arrangement originated but he discussed it with Mr Jones, although he did not know when he did so.  However Mr Feldgen acknowledged that he could not be sure that Mr Jones told him to tell Tip Top representatives to remove branded bread from the stall or take down the price board and agreed that he had no recollection of Mr Jones giving him instructions to tell the Tip Top representatives the prices were to be $1.50 for Code C bread and $1.90 for Code D bread.

763               Although Mr Feldgen said that he was instructed, he believed, by Mr Jones, to check that an agreement was being met, he was not prepared to say that Mr Jones instructed him to discuss prices with anyone outside Safeway.  The following exchange was illuminating:

“Are you prepared to swear on your oath that Mr Jones instructed you to discuss prices with anyone outside the Safeway organisation?---Could I just take a moment before I answer that question?

 

Yes, sure, take as long as you like? [At this point Mr Feldgen paused for a considerable number of seconds.]---My recollection of the events simply isn’t good enough to be able to do that.

 

You simply, it’s fair to say, are unsure of what occurred in 1995, at least so far as discussions between you and Mr Jones are concerned?---I am not crystal clear on it, no.

 

And your recollection is such that you are unable to swear that Jones told you to go and discuss prices?---Yes, as per the answer I gave you previously.

 

Although you are able to swear that as part of your initial instructions, Jones told you not to discuss prices with anyone at the Tip Top market stall?---That was conveyed to me, either directly by Mark Jones, or by the person that I had communicated to upon arriving at the store.  Whether or not Mark reinforced that, I just can’t remember.

 

It was certainly conveyed to you may we take it, in the clearest possible terms?---Yes.

 

Indeed it’s fair to say it’s one of the few matters that you have got a clear recollection about?---Yes.”

 

Mr Jones denied having any conversation with Mr Feldgen in which he told him of the conditions on which Tip Top bread would be reintroduced into Safeway Preston.

 

764               Having regard to the appropriate standard of proof that I should apply in these circumstances:  see Briginshaw v Briginshaw (supra), I am not satisfied that Mr Jones told Mr Feldgen of the conditions on which Tip Top bread would be reintroduced into Safeway Preston.  Although I am satisfied that someone from Safeway informed Mr Feldgen that an arrangement had been entered into with Tip Top in relation to the reintroduction of Tip Top bread into Safeway Preston, the evidence does not enable me to make a finding as to who that person was who made the arrangement on behalf of Safeway, what was the level of authority of that person or as to who were the persons who made the arrangement.  I therefore do not accept the Commission’s submission that Mr Feldgen had given evidence of an admission by someone with relevant authority to make an admission that an agreement had been made.

765               I am satisfied that someone within Safeway told Mr Feldgen to meet with Mr Lovett but the evidence is not sufficient to enable me to find that that person was Mr Jones.  Mr Feldgen believed it was Mr Jones but conceded that that belief was based upon an assumption he made because it was a ranging decision that fell under the responsibility of Mr Jones.  Although there is a logical attraction in concluding that it must have been Mr Jones, having regard to his position and role and the procedure in place for store managers to refer bread pricing issues to Mr Jones, the required standard of proof does not enable me to be satisfied to the required degree of satisfaction that it was Mr Jones who told Mr Feldgen to meet Mr Lovett.  I cannot exclude the possibility that Mr Feldgen received the instruction from someone else within the Safeway organisation. 

766               I reject the submission that Mr Feldgen was acting on a frolic of his own without instructions in meeting Mr Lovett.  This proposition was not put to him directly in cross‑examination, and I accept his evidence that he received the instruction from someone within the Safeway organisation.  Around the time of the Preston Market incident, the area manager who covered Preston at the time, Mr Leo Fournaris, was told by Mr Feldgen that he had reported the discounting of bread at the Preston Market stall to the category manager and Mr Fournaris did not suggest that Mr Feldgen had done anything other than what he was supposed to do or had exceeded his authority. 

767               Mr Lovett met with Mr Feldgen as a result of an instruction from Mr Gunton.  Mr Gunton did not recall giving such an instruction.  Mr Lovett understood that Tip Top bread had been deleted from Safeway Preston as Safeway was not happy with Tip Top selling fresh bread at the Preston Market stall at prices cheaper than Safeway’s specials.  Mr Gunton told Mr Lovett on either Monday 24 April 1995 or Wednesday 26 April 1995, to go to Safeway Preston and meet with the store manager.  Mr Gunton told Mr Lovett that Tip Top could go back into Safeway Preston if it sold plain label bread, 2c or 3c dearer than Safeway’s house brand and that Mr Lovett should go to the Preston Market stall with the store manager who would look at the products being sold and the prices and would give Mr Lovett “the OK” for Tip Top to go back into Safeway Preston.  Mr Lovett’s understanding was that if the store manager was happy with the prices at the stall then Tip Top would be allowed back into Safeway Preston.

768               Mr Lovett and Mr Feldgen had not met beforehand but each of them was aware that they were meeting because of the Preston Market stall.  Each of them had received an instruction to meet with the other about the Preston Market stall.  Their versions of what occurred thereafter differ in a number of respects.  What is clear is that they visited the Preston Market stall together and discussed the bread on sale and its prices.  According to Mr Lovett, when they reached the stall Mr Feldgen pointed to some Tip Top Sunblest branded bread and asked what it was doing there.  Mr Lovett said that there had been a mistake and that it would not happen again.  Mr Lovett had been told not to send proprietary bread to the stall.  Mr Feldgen then referred to the price list that was displayed and said that he did not want to see the branded bread prices on the list and then asked Mr Lovett what were the prices for plain label bread.  Mr Lovett told him that plain label Code C bread was $1.50 a loaf and Code D was $1.80.  Mr Feldgen said he would like to see the Code D price “a bit higher” and agreed to Mr Lovett’s suggestion of $1.90.  Mr Feldgen told Mr Lovett to come back and see him on the following day.

769               Mr Feldgen’s recollection of the events which occurred was vague.  Nevertheless, he recalled a discussion about a price board and that branded bread was on sale.  What is significant is that Mr Feldgen did not dispute Mr Lovett’s version of the meeting but rather corroborated it when he said that he checked on the bread and the type of bread being sold at the stall and the prices at which the bread was being sold.  Mr Feldgen did not dispute Mr Lovett’s version of the conversation and I accept Mr Lovett’s evidence in this respect.  Mr Lovett had given evidence about the prices of Code C and Code D plain label bread in his witness statement but could not recall in cross‑examination what those prices were, although he said he knew at the time of his visit what they were.  He was clear that the price board was a discussion point.  Mr Lovett was strongly challenged on his evidence in cross‑examination but I am satisfied that he was a truthful witness and that his recollection was correct to the extent that he recalled a discussion about proprietary bread being on sale, about the prices on the board and Mr Feldgen wanting the price of Code D bread to be higher.  There was some confusion in some of his answers but I accept his evidence in relation to the instructions received from Mr Gunton and what occurred on his visit with Mr Feldgen to the Preston Market stall.

770               Mr Feldgen said that after the visit to the Preston Market stall he contacted Mr Jones although he did not have a clear recollection of what was discussed.  Although Mr Jones denied having such a conversation, I am satisfied that it occurred.  This is confirmed by Mr Gunton’s evidence of a subsequent conversation with Mr Jones.  Having regard to the bread policy which was in place, and the role of the bread category manager, it is not probable that Mr Feldgen would not have reported the result of his meeting with Mr Lovett to the appropriate person.  That appropriate person was Mr Jones.  I am satisfied that Mr Jones knew about the visit as a result of Mr Feldgen speaking to him after it.  This was confirmed by Mr Gunton’s evidence, which I accept, that after the visit Mr Jones called him about some particular proprietary bread in the stall, and there was discussion about the price at which the bread was being sold.  Mr Gunton could not recall the details.  Although Mr Gunton said that he had a conversation with Mr Lovett and Mr Jones once Tip Top products were reintroduced into Safeway Preston, he is obviously mistaken about the timing of those conversations as his conversation with Mr Lovett was to the effect that Mr Lovett had to arrange a visit to the Preston Market stall with the Safeway Preston store manager.  Such conversations must have occurred between Mr Lovett’s first and second visit to the Preston Market stall with Mr Feldgen.  There was some support for this conclusion in Mr Lovett’s evidence that on the day of the first visit to the Preston Market stall with Mr Feldgen he had a telephone conversation with Mr Gunton in which Mr Gunton informed him that he had had a call from Safeway regarding “what happened at Preston this morning”.

771               I am satisfied that the sequence of events was as follows – after the visit, Mr Feldgen telephoned Mr Jones and reported what had occurred.  Mr Jones telephoned Mr Gunton and then Mr Gunton telephoned Mr Lovett.

772               On the following day, Friday 20 April 1995, Mr Feldgen and Mr Lovett visited the Preston Market stall for the second time.  The stall was displaying Code C plain wrap bread at $1.50 and Code D plain wrap at $1.90.  Mr Feldgen gave his approval.  According to Mr Lovett, he said “that’s fine”; Mr Lovett asked whether Tip Top could go back into his store and Mr Feldgen said he would inform the other suppliers to cut back on stock and that Tip Top could start delivering on Monday, which in fact occurred.  Mr Lovett was not challenged with his account of this meeting.

773               Mr Feldgen had little memory of the meetings.  However, he said that after a change had been made to the type of bread being sold he reported to Mr Jones that plain label bread was being sold at the stall at $1.60 for Code C bread and $1.90 for Code D bread.  Mr Feldgen did not have a clear recollection of the conversation but recalled that at a point in time Mr Jones gave approval before the go‑ahead was given to re‑range Tip Top bread.  Although Mr Feldgen was not able to say who arranged for the reintroduction of Tip Top bread, Safeway’s bread policy required that decision to be made by the bread category manager.  I am satisfied that Mr Jones gave his approval to Mr Feldgen for the reintroduction of Tip Top bread in Safeway Preston. 

774               A substantial attack was made on Mr Feldgen’s credit in relation to a discussion he had with Mr Bill Pratt, a director of Safeway, in July 1995.  The date is important as it is apparent that the conversation occurred some two and a half months after Tip Top bread had been reintroduced into Safeway Preston.  The date of the conversation demonstrated that the attack on Mr Feldgen’s credit was misconceived.  Mr Pratt attended a Coburg Rotary Club meeting on or about 14 July 1995.  He was approached by Mrs Heather Gray, who told him that a little stall holder at the Preston Market was being run out of business by Safeway.  Mrs Gray referred to Safeway and not the Safeway store manager.

775               Mr Pratt was concerned about what he had been told and called into the Safeway Preston store on his way home from the meeting.  He met the store manager, whose name he could not remember (it was Mr Feldgen), and raised what Mrs Gray had said with him.  Mr Pratt’s initial account of the conversation in his witness statement was that Mr Feldgen told him that Tip Top had been selling day old bread at the Preston Market, which had been impacting on Safeway’s sales, that he spoke to head office about the matter, that head office was trying to get a better cost deal from Tip Top in order that Safeway could compete but Tip Top refused and that as a result the store was no longer carrying the Tip Top range.  According to Mr Pratt’s witness statement, Mr Feldgen said that he had been over to the market to observe Tip Top’s prices.

776               In cross‑examination, Mr Pratt recounted the conversation again and said that when he asked Mr Feldgen what he did when he went over to the stall Mr Feldgen told him that he just looked to see how many customers the stall had and did price checks.  Mr Pratt was unaware that the problems that had existed had been resolved at the end of April 1995.  He acknowledged that he may have misunderstood Mr Feldgen in relation to whether the stall was selling Tip Top bread. 

777               It was put by Safeway that by telling Mr Pratt that he was only doing price checks he was not being truthful because he had had discussions with Mr Lovett about prices.  However, at the time of the discussion with Mr Pratt, Mr Feldgen’s conversations with Mr Lovett were long since past, and I am satisfied that he was truthful when he told Mr Pratt that he was doing price checks.  Mr Pratt’s discussion with him did not call for an explanation by Mr Feldgen of his discussions with Mr Lovett at the end of April 1995. 

778               Mrs Gray followed up her conversation with Mr Pratt by a letter dated 14 July 1995 and Mr Mead, Safeway’s General Manager, drafted a reply, which Mr Pratt sent to Mrs Gray on 21 July 1995. 

779               Mrs Gray’s complaint in her letter was that the Preston Market stall “is being pressured” by the manager at Safeway Preston to sell bread in a plain wrap wrapper at a higher price than Safeway and that Safeway would not accept Tip Top bread in its stores until these conditions were accepted.

780               Mr Feldgen recalled the conversation with Mr Pratt but very little of the detail of it.  He agreed that he had not told Mr Pratt about the agreement he had been told to check.  Mr Feldgen was attacked in cross‑examination for not telling Mr Pratt about the agreement but, in my view, the issues raised by Mr Pratt at the time did not call upon Mr Feldgen to mention the agreement.  Mr Feldgen believed Mr Pratt was concerned about how Safeway was seen to conduct itself with carrying out price checks, and I accept his evidence on this point.  Mr Feldgen said, as was the fact, that he was not asked about any agreement concerning prices, and I consider that to be quite a different matter from the subject that Mr Pratt raised with Mr Feldgen.  I am satisfied that Mr Feldgen did not mislead Mr Pratt in any way.  Mr Pratt believed he was referring to an issue current at the time which was unresolved whereas Mr Feldgen was addressing the practice he was carrying out in July 1995.  Further, there is a clear distinction between checking on the implementation of an agreement entered into by others (as Mr Feldgen did at the end of April 1995), and checking on the prices of the competitor (which Mr Feldgen was doing in July 1995).

781               Safeway attacked Mr Feldgen’s credit also on the basis that he had misled Mr Mead.  Mr Pratt had asked Mr Mead to follow up Mrs Gray’s complaint to him.  It was again submitted by Safeway that Mr Feldgen had not been truthful or candid in the way in which he responded to Mr Mead.  Mr Mead said that he telephoned Mr Feldgen in July 1995, raised Mrs Gray’s complaint with him and said that there had been a complaint that he was pressuring the Tip Top stall to sell bread at a higher price than Safeway and that it must be plain wrap bread.  Mr Feldgen replied that that was not correct, that he had not done or said anything like that and he had done no more than carry out the normal competition checks.  Mr Mead said that the focus of his question and his concern was Mr Feldgen’s actions in trying to intimidate staff from a competitor’s stall whereas Mr Feldgen did not recollect Mr Mead directing any comments to Mr Feldgen’s actions. 

782               As with Mr Pratt, Mr Mead and Mr Feldgen were operating on different assumptions.  Mr Mead was not aware at the time that he spoke to Mr Feldgen that Tip Top bread had been reinstated in Safeway Preston for several months.  According to Mr Mead, Mr Feldgen told him that the only matter that was going on was normal competitive checks which, at the time of the conversation, was correct.  It is somewhat curious that Mr Mead, having received a letter from Mrs Gray that indicated that Tip Top bread was not accepted in Safeway stores, did not ask Mr Feldgen why that was so.  It is also not credible that Mr Mead would have had a conversation with Mr Feldgen in which the issue was raised that Tip Top was not being accepted in Safeway Preston, without Mr Feldgen telling Mr Mead, as was the fact, that Tip Top products had been reinstated for some months.

783               Mr Pratt wrote a letter in reply to Mrs Gray on 21 July 1995.  The letter was drafted by Mr Mead.  The reply stated that an explanation in relation to Mrs Gray’s complaint had been sought “from the Victorian Management of Woolworths/Safeway”.  Mr Mead said that he did not speak to Mr Jones, or Mr Brookes, or anybody else at head office about the matter.  In Mrs Gray’s letter, which Mr Mead saw, it was said that “the manager at Safeway has said that he has direction from head office regarding this situation”.  Mr Mead did not follow that matter up.  Mr Mead agreed that any person receiving the letter in reply would understand from it that Mr Mead had made enquiries within the Safeway head office as well as from the store manager.  Although Mr Mead said that that was not an impression he deliberately sought to give, it does reflect on the credibility of his evidence.

784               To the extent to which there are inconsistencies between Mr Mead’s evidence and Mr Feldgen’s evidence, I consider Mr Feldgen’s evidence more credible.  The attack which was made upon Mr Feldgen was that he was not truthful or candid.  For the reasons to which I have referred, I do not accept that Mr Feldgen was less than truthful and candid in his conversations with Mr Pratt and Mr Mead, nor do I accept that he misled them or was not frank with them in any way.

785               In April 1997 Mr Feldgen signed a draft statement prepared by Safeway’s solicitors in which he set out an account of his involvement in relation to Tip Top’s Preston Market stall.  Although there are some inconsistencies between the contents of that document and his evidence, I do not consider that those inconsistencies reflect upon his credit or my findings in relation to the evidence that involved him.  Safeway submitted that the document was inconsistent with his evidence of his discussion with Mr Lovett at the time of their first meeting.  In the statement he said:

“I have no clear recollection of the detail of the discussion about the reinstatement of Tip Top product in Safeway’s Preston store.”

 

It is fair to say that his evidence was not given as a clear recollection but rather, in a somewhat hesitant manner.  That is not to say that he did not have a recollection about the matter.

 

786               Mr Jones denied any involvement in the events leading to the reintroduction of Tip Top bread to Safeway Preston.  In particular, he denied participating in any of the conversations attributed to him by Mr Gunton, Mr Guthridge and Mr Feldgen.  Mr Jones denied that he instructed Mr Feldgen to meet with the Tip Top representative to ensure that no branded bread was on sale at the Preston Market stall and that the prices for Code C and Code D were the same as Safeway’s Home Brand bread. 

787               Mr Jones did recall two conversations with Mr Feldgen during 1995.  According to Mr Jones, in the first conversation Mr Feldgen said that Mr Pratt had called into the Safeway Preston store and had asked him why the store was not stocking Tip Top bread.  Mr Jones said that he told Mr Feldgen that he would pass on his comments to Mr Brookes.  Mr Brookes told Mr Jones that he would contact Mr Mead about the response that should be made.  In the second conversation that Mr Jones recalled, which was a little time after the first, Mr Feldgen telephoned and asked what was happening with the de‑listing of Tip Top products so that he could tell Mr Pratt if he visited the store again.  Mr Jones said he replied that Mr Pratt should be told that Mr Feldgen was following head office policy, that Safeway could not be competitive on the sale of Tip Top products and the products had, in those circumstances, been withdrawn. 

788               It is not credible that Mr Jones had a conversation with Mr Feldgen after Mr Pratt had spoken to Mr Feldgen, in which Mr Feldgen asked what was happening with the de‑listing of Tip Top bread.  Mr Feldgen knew that Tip Top bread had been reinstated at the end of April 1995.

789               These conversations could not have occurred in these terms, and I do not accept that they occurred.  There is no doubt that Mr Pratt visited Safeway Preston around the middle of July 1995.  By that time Tip Top bread had been reinstated in Safeway Preston for two and a half months.  It is also improbable that Mr Jones did not know by mid‑July 1995 that Tip Top bread had been reinstated at Safeway Preston.  He had been personally involved with its deletion in conversations with Mr Gunton in March, and it is improbable either that he would not take any further interest in the matter or would not be aware, having regard to Safeway’s procedures, that Tip Top bread had been reinstated at Safeway Preston at the end of April 1995. 

790               I reject Mr Jones’ evidence that he was not involved in the reinstating of Tip Top bread at Safeway Preston.  Although I am not satisfied that it was Mr Jones who passed on to Mr Feldgen the conditions on which Tip Top bread would be reinstated at Safeway Preston, I am satisfied that Mr Feldgen reported to Mr Jones the results of his visits with Mr Lovett to the Preston Market stall.

791               The evidence is elusive as to whether, and with whom, Mr Jones entered into a contract or arrangement, or reached an understanding in relation to the fixing of prices, or the removal from sale of proprietary branded bread at the Preston Market stall.  Mr Gunton denied that he reached any arrangement or understanding with Mr Jones in relation to the price of bread at the Preston Market stall.  Mr Gunton referred to a conversation with Mr Jones in which there was a discussion about the price of a particular proprietary bread sold by Tip Top which Safeway did not sell.  In evidence‑in‑chief, Mr Gunton said that Mr Jones raised the subject after Mr Lovett’s visit to the Preston Market stall with Mr Feldgen but his evidence was vague and general.  All Mr Gunton could recall was that there were some proprietary lines in the stall and that there was some discussion of the price at which they were being sold.  Mr Gunton could not recall any details of the discussion and was not sure which products were the subject of the discussion. 

792               In cross‑examination Mr Gunton could not recall when the conversation occurred although he was able to say that it occurred after Mr Lovett’s visit to the stall with Mr Feldgen.  Mr Gunton recalled that Mr Jones said he did not want a particular proprietary brand in the stall but, again, he could not recall which brand, although he thought it was Mighty White.  Mr Gunton agreed that whatever was said in the conversation, nothing came of it.  Although I am satisfied that this conversation occurred, the evidence is insufficient to enable me to be satisfied that it formed any part of any arrangement or understanding reached between Mr Gunton and Mr Jones as to the type of bread to be sold, or the price at which bread was to be sold, at the Preston Market stall.  It is an insufficient basis on which to find that Mr Jones said to Mr Gunton, as alleged in the particulars, that “You are selling proprietary branded bread that we don’t carry at our Preston store.  I don’t want to see proprietary branded bread in your store.”

Is the case pleaded in relation to the Preston Market stall made out?

793               The case pleaded against Safeway and Mr Jones is not made out on the evidence.  The evidence does not enable me to be satisfied that the contract, arrangement or understanding alleged was entered into between any particular identified persons.  This is a matter that has substantive consequences and is not to be regarded as a technicality.  The case against Safeway and Mr Jones is that each of them intended to make the contract or arrangement, or reach the understanding alleged.

794               The relevant intention alleged against Safeway and Mr Jones was pleaded as follows:

“8.       At the time of the making of the said contract, arrangement or understanding, alternatively the attempt, referred to in paragraph 7 hereof:-

 

(a)       The Third Respondent intended on behalf of Safeway to so make the said contract or arrangement or reach the said understanding referred to in paragraph 7 hereof;

 

PARTICULARS

The said intent is to be inferred from the fact that the Third Respondent participated in the conversations and stated the matters set out in:-

(i)         sub-paragraph (iv) of the particulars to paragraph 7;

(ii)        sub-paragraph (v) of the particulars to paragraph 7;

(iii)       sub-paragraph (vii) of the particulars to paragraph 7;

(iv)       sub-paragraph (viii) of the particulars to paragraph 7.

 

(b)        Raynor Feldgen intended on behalf of Safeway to so make the said contract or arrangement or reach the said understanding referred to in paragraph 7 hereof;

 

PARTICULARS

The said intent is to be inferred from the fact that Raynor Feldgen:-

(a)        participated in the meeting and gave the direction set out in sub‑paragraph (x) of the particulars to paragraph 7;

(b)        participated in the meeting and gave the direction set out in sub‑paragraph (xii) of the particulars to paragraph 7;

 

Raynor Feldgen at all material times:-

(i)         was employed by Safeway as a manager of its Preston supermarket;

(ii)        acted on behalf of Safeway in relation to the said matters:-

A.         as its servant or agent within the scope of his actual or apparent authority;

B.         further or in the alternative, at the direction or with the consent of the Third and Fourth Respondents where the giving of such direction or consent was within their apparent authority.

 

(c)        The Fourth Respondent intended on behalf of Safeway to so make the said contract or arrangement or reach the said understanding referred to in paragraph 7 hereof;

 

PARTICULARS

The said intent is to be inferred from the fact that the Fourth Respondent participated in the conversations and stated the matters set out in:-

(a)        sub-paragraph (vii) of the particulars to paragraph 7;

(b)        sub-paragraph (xiii) of the particulars to paragraph 7.

 

9.         By reason of the matters in paragraphs 4, 5, 7 & 8 hereof:-

(a)        each of the intentions of the Third and Fourth Respondents and Raynor Feldgen is to be aggregated and imputed to Safeway;

 

(b)        accordingly, at the time of the making of the said contract, arrangement or understanding, alternatively, the attempt, referred to in paragraph 7 hereof, Safeway intended to so make the said contract, arrangement or reach the said understanding referred to in paragraph 7 hereof.”

 

795               The intention alleged against Mr Brookes is not made out on the evidence relied upon by the Commission.  Mr Feldgen did not intend to make any contract or arrangement, or reach any understanding.  He had no authority to do so and to the extent that he was a participant in the relevant chain of events, he was acting on instructions and doing what he was told.  He was carrying into effect a sequence of events initiated by others.  Although he was employed as a store manager, his authority did not extend to reaching an agreement with competitors as to the prices they would charge for their products.  The bread policy implemented by Mr Brookes had removed any authority from store managers to enter into particular transactions when faced with competitive issues.  I will return to the issue of Mr Feldgen’s authority.

796               More significantly, the intention alleged against Mr Jones is not made out on the evidence.  That this is so is demonstrated by the difficulty counsel for the Commission had in final submissions in identifying the person who had made the contract or arrangement, or reached the understanding and in identifying the evidence that supported that conclusion.

797               It is also significant that two of the critical statements relied on as having been said by Mr Jones were not the subject of evidence.  In particular (iv), Mr Jones was alleged to have told Mr Gunton: 

“You won’t be allowed to go back into the Safeway store until you have done something about the price you are selling at and the proprietary brand bread you are stocking.”

 

In particular (v), Mr Jones was alleged to have told Mr Gunton:

“You are selling proprietary branded bread that we don’t carry at our Preston store.  I don’t want to see proprietary bread in your store.”

 

Mr Gunton did not give evidence of any statements by Mr Jones along these lines. 

798               In final submissions, counsel for the Commission put differing cases as to the person who made the contract or arrangement, or reached the understanding.  It was put that Safeway made the agreement.  But it was necessary to identify which person or persons for, or on behalf of, Safeway made the agreement, and had the intention to do so, or made component parts of it.  Counsel for the Commission submitted variously that:

·                    the agreement was not made by Mr Feldgen;

 

·                    the agreement was made by either Mr Jones or Mr Brookes who was involved in some way;

 

·                    the agreement was made probably by Mr Jones, but it could also have been Mr Brookes;

 

·                    the agreement was made by Mr Jones but one can only speculate whether it was made with Mr Gunton, Mr Guthridge or whoever;

 

·                    there was no evidence of an agreement but a process being put in train, a discussion about the Preston Market stall;

 

·                    there was evidence of a meeting of minds from which inferences can be drawn.

These submissions highlighted the evidentiary difficulties faced by the Commission.

799               In order to find that a contract or arrangement was entered into, or that an understanding was reached, it is not necessary for there to be documents or explicit conversations in such terms that it can be said that a contract or arrangement has been entered into, or that an understanding has been reached.  A contract or arrangement can be entered into without the parties to it acknowledging that they have made a contract or an arrangement.  It is also in the nature of an understanding that it may be inferred from conduct to be gathered from a number of circumstances.  But it is still necessary to find a meeting of the minds of the relevant participants authorised to enter into the contract, arrangement or understanding underlying such a contract, arrangement or understanding:  Top Performance Motors Pty Ltd v Ira Berk (Queensland) Pty Ltd (1975) 24 FLR 286 at 291; Trade Practices Commission v Email Ltd (1980) 43 FLR 383 at 385.

800               The Commission alleged that the contract, arrangement or understanding was partly oral and partly to be implied, (see par 727 above) and it put its case in the alternative.  The Commission’s primary case was that an arrangement, including price fixing and exclusionary provisions, was made between Mr Brookes on behalf of Safeway and Mr Guthridge on behalf of Tip Top.  The arrangement ultimately consisted of an offer by Mr Guthridge to alter the operations of the Preston Market stall in certain ways if Safeway would let Tip Top back into its Preston store.  The Court should infer that the offer was accepted by Mr Brookes’ conduct in instructing Mr Jones to re‑range Tip Top bread at Safeway Preston upon him ascertaining that Tip Top was acting in accordance with its offer.  For the reasons to which I have already referred, I am not satisfied that the evidence supported such an arrangement, nor do I draw the inference suggested.

801               The Commission put an alternative case, that Mr Feldgen and Mr Lovett made the agreement at their first meeting and the agreement was ratified by Mr Jones on behalf of Safeway and Mr Gunton and Mr Guthridge on behalf of Tip Top.  For the reasons to which I have referred, I am not satisfied that the evidence supported such an agreement, arrangement or understanding.  In particular, I am not satisfied that the evidence supported a finding that Mr Jones entered into any agreement, or arrangement or reached an understanding with Mr Gunton.  Mr Gunton denied that he entered into any such agreement or arrangement or reached any such understanding with Mr Jones and I accept his denial.  Further, to find such an agreement is not open on the pleadings.

802               The Commission put a further alternative case that Messrs Brookes, Jones and Feldgen all made known, at different times, to Messrs Guthridge, Gunton and Lovett, what it was that Safeway regarded as constituting the reasons for the deletion, and the Tip Top personnel all made it known to Safeway that Tip Top was prepared to remove those concerns in a particular way and that Mr Jones and Mr Feldgen (acting with the authority of Mr Jones) accepted this offer by agreeing to re‑range Tip Top bread and doing so. 

803               The intention of Safeway is not to be determined by reference to only one of the Safeway participants.  As the majority of the High Court pointed out in Krakowski v Eurolynx Properties Ltd (1995) 183 CLR 563 at 583:

“A division of function among officers of a corporation responsible for different aspects of the one transaction does not relieve the corporation from responsibility determined by reference to the knowledge possessed by each of them.”

 

However, it is still necessary to make findings that each of the Safeway participants possessed the relevant intention, at the least, to reach the understanding in the terms alleged.  For the reasons to which I have referred, I am not satisfied that Mr Brookes, Mr Jones or Mr Feldgen had that intention.  I am not satisfied that the agreement, arrangement or understanding alleged has been made out, whether made or entered into or reached in whole or in part, by Mr Brookes, Mr Jones or Mr Feldgen.  Further, the evidence is insufficient to establish a meeting of the minds of particular participants from which an inference of an agreement, arrangement or understanding can be inferred.

 

804               Even if Mr Feldgen had the relevant intention, I do not consider that he had the authority to enter into the contract or arrangement or reach the understanding on behalf of Safeway, nor did he have the authority to implement such a contract, arrangement or understanding.  Although the issue that arose related to competition from a competitor of Safeway, it was no part of the function of a store manager to decide how Safeway would respond to that competition.  Such matters had to be referred to, and resolved by, the category manager.  Even if a store manager had authority to determine when bread could be reintroduced into the store, a store manager had no authority to discuss prices at which bread would be sold by a competitor or to agree on such prices on behalf of Safeway.

805               Not all the acts and knowledge of employees of a company are attributable to a company so as to make it directly liable for those acts and affixed directly with that knowledge.  Whether the acts and knowledge of an employee are to be attributed directly to a company depends upon a number of factors such as the position of the employee, the scope of the employee’s employment and the reason why the question arises.  If it arises because it is alleged that the company has contravened a statute, it will be necessary to determine the extent to which the statute resolves the issue of the attribution of the acts and knowledge of employees directly to the company. 

806               Until recently the approach of the courts was to ask whether the relevant employee was part of the directing mind and will of the company.  This approach is exemplified by Tesco Supermarkets Ltd v Nattrass [1972] AC 153 where the House of Lords was concerned to identify who was the directing mind and will of the company and whether the manager of the store involved functioned as part of that directing mind and will.  The House of Lords concluded that the manager, who had been guilty of neglect or default, was not part of the directing mind and will of the company so that his default was not to be attributed to the company.  Lord Reid described the person who is the directing mind and will of the company and how that person may be ascertained at 170‑171:

“A living person has a mind which can have knowledge or intention or be negligent and he has hands to carry out his intentions.  A corporation has none of these:  it must act through living persons, though not always one or the same person.  Then the person who acts is not speaking or acting for the company.  He is acting as the company and his mind which directs his acts is the mind of the company.  There is no question of the company being vicariously liable.  He is not acting as a servant, representative, agent or delegate.  He is an embodiment of the company or, one could say, he hears and speaks through the persona of the company, within his appropriate sphere, and his mind is the mind of the company.  If it is a guilty mind then that guilt is the guilt of the company.  It must be a question of law whether, once the facts have been ascertained, a person in doing particular things is to be regarded as the company or merely as the company’s servant or agent. …

…

Normally the board of directors, the managing director and perhaps other superior officers of a company carry out the functions of management and speak and act as the company.  Their subordinates do not.  They carry out orders from above and it can make no difference that they are given some measure of discretion.  But the board of directors may delegate some part of their functions of management giving to their delegate full discretion to act independently of instructions from them.  I see no difficulty in holding that they have thereby put such a delegate in their place so that within the scope of the delegation he can act as the company.”

 

807               Lord Morris explained how he reached the conclusion that the manager was not part of the directing mind and will of the company at 180‑181:

“My Lords, with respect I do not think that there was any feature of delegation in the present case.  The company had its responsibilities in regard to taking all reasonable precautions and exercising all due diligence.  The careful and effective discharge of those responsibilities required the directing mind and will of the company.  A system had to be created which could rationally be said to be so designed that the commission of offences would be avoided.  There was no delegation of the duty of taking precautions and exercising diligence.  There was no such delegation to the manager of a particular store.  He did not function as the directing mind or will of the company.  His duties as the manager of one store did not involve managing the company.  He was one who was being directed.  He was one who was employed but he was not a delegate to whom the company passed on its responsibilities.  He had certain duties which were the result of the taking by the company of all reasonable precautions and of the exercising by the company of all due diligence  He was a person under the control of the company and on the assumption that there could be proceedings against him, the company would by section 24(1)(b) be absolved if the company had taken all proper steps to avoid the commission of an offence by him.  To make the company automatically liable for an offence committed by him would be to ignore the subsection.  He was, so to speak, a cog in the machine which was devised:  it was not left to him to devise it.  Nor was he within what has been called the ‘brain area’ of the company.”

 

The reasoning in Tesco (supra) was implicitly approved by the High Court, albeit by reference only to the judgment of Lord Reid, in Hamilton v Whitehead (1988) 166 CLR 121 at 127.

 

808               When the principles adopted by the House of Lords in Tesco are applied to the Preston Market incident, it is apparent that Mr Feldgen was not part of the directing mind and will of Safeway.  To adopt and apply the words of Lord Morris (at 180):

“He did not function as the directing mind or will of the company.  His duties as the manager of one store did not involve managing the company.  He was one who was being directed.  He was one who was employed but he was not a delegate to whom the company passed on its responsibilities.”

 

809               A different approach was taken in Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500.  The question arose whether the knowledge of a company’s investment managers that the company was a substantial security holder in a listed public company and that it had not given a notice which it was required to give under securities legislation was to be attributed to the company.  The Privy Council answered the question in the affirmative.  Lord Hoffman approached the matter by considering what should be the position where the law was intended to apply to companies but a company’s primary rules of attribution would defeat that intention.  Lord Hoffman continued at 507:

“In such a case, the court must fashion a special rule of attribution for the particular substantive rule.  This is always a matter of interpretation:  given that it was intended to apply to a company, how was it intended to apply?  Whose act (or knowledge, or state of mind) was for this purpose intended to count as the act etc. of the company?  One finds the answer to this question by applying the usual canons of interpretation, taking into account the language of the rule (if it is a statute) and its content and policy.”

 

Lord Hoffman concluded that the company’s knowledge was to be found in the knowledge of the employee who had the authority to undertake the transaction which required notice to be given by the company.  Lord Hoffman reasoned, at 511:

 

“Once it is appreciated that the question is one of construction rather than metaphysics, the answer in this case seems to their Lordships to be as straightforward as it did to Heron J.  The policy of section 20 of the Securities Amendment Act 1988 is to compel, in fast‑moving markets, the immediate disclosure of the identity of persons who become substantial security holders in public issuers.  Notice must be given as soon as that person knows that he has become a substantial security holder.  In the case of a corporate security holder, what rule should be implied as to the person whose knowledge for this purpose is to count as the knowledge of the company?  Surely the person who, with the authority of the company, acquired the relevant interest.  Otherwise the policy of the Act would be defeated.  Companies would be able to allow employees to acquire interests on their behalf which made them substantial security holders but would not have to report them until the board or someone else in senior management got to know about it.  This would put a premium on the board paying as little attention as possible to what its investment managers were doing.  Their Lordships would therefore hold that upon the true construction of section 20(4)(e), the company knows that it has become a substantial security holder when that is known to the person who had authority to do the deal.  It is then obliged to give notice under section 20(3).  The fact that Koo did the deal for a corrupt purpose and did not give such notice because he did not want his employers to find out cannot in their Lordships’ view affect the attribution of knowledge and the consequent duty to notify.”

 

810               Lord Hoffman did not consider that it was necessary to determine whether the relevant employees could have been described as “the directing mind and will” of the company.  Lord Hoffman’s reasoning, as a matter of principle, is not easy to reconcile with Tesco but his Lordship explained it by reference to the particular statute involved.  Lord Hoffman said of Tesco at 508:

“The House of Lords held that the precautions taken by the board were sufficient for the purposes of section 24(1) to count as precautions taken by the company and that the manager’s negligence was not attributable to the company.  It did so by examining the purpose of section 24(1) in providing a defence to what would otherwise have been an absolute offence:  it was intended to give effect to ‘a policy of consumer protection which does have a rational and moral justification:’  per Lord Diplock, at pp.194‑195.  This led to the conclusion that the acts and defaults of the manager were not intended to be attributed to the company.”

 

However, his Lordship did not conclude that in all cases where an employee had authority to do an act on behalf of a company, knowledge of the act was to be attributed to the company.  Lord Hoffman said at 511:

 

“But their Lordships would wish to guard themselves against being understood to mean that whenever a servant of a company has authority to do an act on its behalf, knowledge of that act will for all purposes be attributed to the company.  It is a question of construction in each case as to whether the particular rule requires that the knowledge that an act has been done, or the state of mind with which it was done, should be attributed to the company.”

 

811               The application of the approach taken in Meridian does not assist the Commission.  Mr Feldgen had no authority to undertake any negotiations with any Tip Top representative as to the terms upon which Tip Top bread was to be reintroduced to the Safeway Preston store.  It was not part of his employment to do so.  Although he was given authority to meet with Mr Lovett, the evidence does not establish that he was given authority to reach an agreement with the Tip Top representative in relation to what bread would be sold, and for what prices bread would be sold, at the Preston Market stall.  Indeed, Mr Feldgen acknowledged that he had been told not to discuss prices with anyone at the Tip Top Preston Market stall.

812               In this respect the position of Mr Feldgen is to be distinguished from the investment managers in Meridian.  The investment managers had authority to carry out the transaction which gave rise to the obligation to give notice.  Mr Feldgen had no authority to reach any agreement, arrangement or understanding with Tip Top as to the supply or pricing of bread whether at the Safeway Preston store or at the Preston Market stall.  The action of discussing prices and negotiating the terms on which bread would be reintroduced into Safeway Preston was not within the scope of Mr Feldgen’s employment.  It was not part of his ordinary or regular duties.  If he did reach such an agreement, arrangement or understanding he did so, as he acknowledged, contrary to his instructions. 

813               Thus far, I have considered Mr Feldgen’s position on the basis that he had no authority to enter into an agreement, arrangement or understanding with Tip Top or to implement any such agreement, arrangement or understanding by discussing and agreeing upon the type of bread to be sold or the prices at which bread was sold at the Preston Market stall.  It is also necessary to consider Mr Feldgen’s position on the basis that he was told to meet with a Tip Top representative and to ensure that Tip Top agreed to stop selling branded bread and only sold plain wrap bread at the same price as Home Brand bread or the Safeway generic Code C and Code D bread.

814               On this alternative basis it is necessary to determine whether Mr Feldgen was given authority by Safeway to implement the agreement, arrangement or understanding that had been entered into.  The evidence is sparse in this respect.  Although I have rejected the submission that Mr Feldgen was acting on a frolic of his own, I have also reached the conclusion that I am not satisfied that Mr Jones told Mr Feldgen of the conditions on which Tip Top bread would be reintroduced into Safeway Preston.  In this context it is important to remember that Mr Feldgen was not prepared to say that Mr Jones instructed him to discuss prices with anyone outside Safeway but acknowledged that either Mr Jones or someone at Safeway Preston had told him not to discuss prices with anyone at the Tip Top Preston Market stall.

815               As noted earlier, I am satisfied that someone within Safeway told Mr Feldgen to meet with Mr Lovett but the evidence does not enable me to be satisfied that that person was Mr Jones.  It is not therefore possible to determine the level of authority or responsibility possessed by the person who told Mr Feldgen of the conditions on which Tip Top bread was to be reintroduced to Safeway Preston or the level of authority or responsibility possessed by the person who told Mr Feldgen to meet with the Tip Top representative.

816               Whether one applies the approach in Meridian (supra) or Tesco (supra), it is not possible to say who it was who communicated the information about the conditions on which Tip Top bread could be reintroduced and who it was who told Mr Feldgen to meet with Mr Lovett.

817               The provisions of s 84 of the Act do not advance the matter any further.  Section 84 supplements the common law position, it does not replace it:  Trade Practices Commission v Tubemakers of Australia Ltd (1983) 47 ALR 719 at 738‑740.  For the purposes of this analysis s 84(2) is relevant.  It provides:

“Any conduct engaged in on behalf of a body corporate:

(a)       by a director, servant or agent of the body corporate within the scope of the person’s actual or apparent authority; or

 

(b)       by any other person at the direction or with the consent or agreement (whether express or implied) of a director, servant or agent of the body corporate, where the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the director, servant or agent;

 

shall be deemed, for the purposes of this Act, to have been engaged in also by the body corporate.”

 

Prior to 1986, s 84(2) was in the following terms:

“Any conduct engaged in on behalf of a body corporate by a director, agent or servant of the body corporate or by any other person at the direction or with the consent or agreement (whether express or implied) of a director, agent or servant of the body corporate shall be deemed, for the purposes of this Act, to have been engaged in also by the body corporate.”

 

This provision was the subject of consideration in Walplan Pty Ltd v Wallace (1985) 8 FCR 27.  Lockhart J, delivering the judgment of the Full Court said at 37:

 

“Section 84(2) is obviously a provision of wide application.  It is, in my opinion, an extension of the principles enunciated in Tesco.  Where proceedings are brought against a corporation for contravention of a provision of the Act the corporation’s liability may be determined either by applying the principles of Tesco or by s 84(2).  The subsection is not concerned with intention and I agree with what Toohey J said about this in Tubemakers at 44,326.

 

I cannot accept the submission of counsel for the appellant that s 84(2) only applies where a person had the corporation’s actual (be it express or implied) authority to engage in the conduct in question.  If the subsection had so limited an operation it would, I think, fail to achieve any useful purpose.  It would be largely a restatement of the general law.  It is a statutory provision designed to facilitate proof of the responsibility of a corporation for the acts of its directors, servants, agents and others.  It is designed to attribute to a corporation conduct of others for which the corporation would not necessarily be otherwise responsible.

 

The phrase ‘on behalf of’ is not one with a strict legal meaning and it is used in a wide range of relationships.  The words are not used in any definitive sense capable of general application to all circumstances which may arise and to which the subsection has application.  This must depend upon the circumstances of the particular case, but some statements as to the meaning and operation of the subsection may be made.  In the context of s 84(2) the phrase suggests some involvement by the person concerned with the activities of the company.  The words convey a meaning similar to the phrase ‘in the course of the body corporate’s affairs or activities’.  The words ‘on behalf of’ also encompass acts done by a corporation’s servants in the course of their employment, but those words are not confined to the notion of the master/servant relationship.”

 

The amendment of s 84(2) to include conduct engaged in within the scope of a person’s “apparent” authority, as well as conduct engaged in within the scope of a person’s “actual” authority leads, in my view, to a narrowing of any difference between the application of the common law principles, such as are found in Tesco (supra) and Meridian (supra) and the application of s 84(2).

 

818               However, for the reasons to which I have referred, it was not within Mr Feldgen’s apparent authority either to enter into an agreement, arrangement or understanding of the kind alleged or to implement it.

819               I should deal with an alternative submission by the Commission that Mr Feldgen’s conduct was to be attributed to Safeway even though he may have acted contrary to express instructions that he was not to discuss prices with anyone at the Preston Market stall.  The Commission relied upon the reasoning of the House of Lords in Director General of Fair Trading v Pioneer Concrete (UK) Ltd [1995] 1 AC 456.  In that case companies were found to be in contempt of court by reason of the conduct of employees who, contrary to an express prohibition by senior management, had entered into a price fixing and work allocation agreement in breach of an injunction granted against the companies.  The House of Lords held that the conduct of the employees was the conduct of their employer companies on the grounds that a company can only act by agents and that an employee who acts for the company within the scope of his employment is the company:  per Lord Templeman at 465, per Lord Nolan at 475.  The relevant offence in that case was entering into agreements that were registrable under the Restrictive Trade Practices Act 1976 (UK), but that were not registered.  It was unlawful to give effect to an agreement if particulars of it were not registered.  It was within the scope of the employment of the employees to enter into the agreements of the kind involved.  That case, however, is to be distinguished from the situation involving the Preston Market stall as it was not within the scope of Mr Feldgen’s employment to negotiate the terms upon which bread was to be reintroduced to Safeway Preston.  Quite apart from the express instruction not to discuss prices with anyone at the Tip Top Preston Market stall, the authority to negotiate and implement the terms on which bread deleted from a Safeway store was to be reintroduced to the store was not given to store managers.  That was a matter for the category manager.

820               Although the Commission submitted that there were meetings of the minds of individuals, the evidence of such meeting of the minds is insufficient to enable me to be satisfied that the contract or arrangement or the reaching of the understanding relied upon by the Commission has been made out.

821               It follows from this analysis and my findings that the Commission’s case that Safeway and Tip Top made a contract or arrangement, or reached an understanding with each other (or attempted to do so) in relation to Tip Top’s supply of bread at its Preston Market stall is not made out.  The allegations in pars 7 to 12, 20, 21 and 25 of the statement of claim are not made out nor are the allegations in pars 16D, 16E and 28 in relation to exclusive dealing to the extent to which they relate to the Preston Market stall.  I elaborate on this conclusion in relation to the allegation of a contravention of s 47 of the Act later in these reasons.  The claims against Mr Jones in relation to the Preston Market stall are also not made out.

THE ALBURY NOVEMBER 1995 INCIDENT

Background

822               There was a second incident involving the Safeway Albury store and Bob’s IGA store operated by Mr Morrell which occurred in November 1995.  The Commission alleged that Safeway and Mr Jones induced or attempted to induce Tip Top to engage in resale price maintenance (s 48), made or attempted to make a contract or arrangement with Tip Top, or arrived at or attempted to arrive at an understanding with Buttercup in contravention of s 45(2)(a) and (b) of the Act and engaged or attempted to engage in the practice of exclusive dealing in contravention of s 47 of the Act.  The Commission also alleged that Safeway took advantage of its market power in contravention of s 46 of the Act.

823               In October and November 1995 Tip Top changed its marketing strategy which had concentrated on promoting the sale of its proprietary branded bread products.  It decided to sell plain wrap bread including Eureka bread at cheap prices in order to gain market share. Eureka bread was sold in clear plastic bags.  The only marking on the bags was a small white sticker label with computer printing stating the “use by” date, that it was manufactured by Eureka Bakery of York Street, Eaglehawk, the net weight, the ingredients, the price and the bar code.  The sale of plain wrap bread, such as Eureka, had the capacity to affect adversely the sales of Tip Top proprietary branded Code C such as Sunblest.

824               During the first half of 1995 Mr Morrell had a number of conversations with Mr Graeme Taylor, a Tip Top Area Representative, in which he asked Mr Taylor if it was possible for Tip Top to supply Bob’s IGA with unbranded or plain wrap bread at a price cheaper than Tip Top branded bread. 

825               In early November 1995, Mr Taylor told Mr Morrell that Tip Top would be prepared to supply him with Eureka White Sandwich, White Toast, Wholemeal Sandwich and Multigrain bread at $1.00 per loaf on a no returns basis.  Mr Morrell told Mr Taylor that he would sell the bread at $1.39 a loaf, and Mr Taylor told him that if he sold it below $1.39 a loaf, he would not be able to supply bread to Mr Morrell.

826               On the morning of Monday 13 November 1995, Tip Top commenced supplying Bob’s IGA with Eureka bread.  The cost to Bob’s IGA of the Eureka bread was $1.00 per 680g loaf.  Tip Top delivered Eureka bread to Bob’s IGA on 15 and 16 November 1995.  Bob’s IGA also continued to stock Tip Top branded products on 13, 14 and 15 November 1995 including Multigrain, Multigrain Toast, Multigrain 9 Grains, five varieties of Burgen products and lines of crumpets, muffins and pikelets.

827               Mr Morrell had initially decided to sell the Eureka bread at $1.29 a loaf and had programmed the computer controlling the scanning process at the check‑out to charge that price.  However, shortly before the bread was delivered Mr Morrell recalled the concern expressed by Mr Taylor regarding the consequences of selling the bread below $1.39 a loaf.  He instructed his staff to put a sign inside the store advertising “Plain wrap bread” at $1.39 but forgot to change the computer settings.  As a result, the bread remained advertised at $1.39 but the price scanned at $1.29, and customers in fact paid $1.29 a loaf. 

828               As was the usual practice for bread supplied on a no return basis, Mr Morrell told his staff to reduce the price towards the end of the day to clear the stock.  By the end of the working day on Monday 13 November 1995 Bob’s IGA was selling Eureka bread at $1.19 per loaf.

829               During the week commencing 13 November 1995 Safeway sold its Tip Top Code C range, including Sunblest, on promotion at $1.57 a loaf across Victoria and Albury.

830               Mr Taylor visited Bob’s IGA on Tuesday 14 November 1995 and noticed a sign indicating that bread was being sold at $1.29 a loaf.  The bread scanned at $1.29 a loaf.  Mr Morrell said that the sign said that the bread was on sale at $1.39 but agreed that the bread was being scanned at $1.29.

831               It is more probable, and I accept, that on 14 November 1995 the bread was advertised at $1.29 a loaf and not at $1.39 as Mr Morrell stated.  The price had been reduced to $1.19 the evening before, so that the scanner would have been altered to reflect that price.  The scanner was reading the product at $1.29 on 14 November 1995 and had therefore been reprogrammed to scan the bread at $1.29.  It is therefore probable that the sign would have been altered similarly to show that as its  price. 

832               Mr Morrell saw Mr Taylor in the store with about three loaves of Eureka in his hands speaking with the assistant manager.  Mr Morrell and Mr Taylor had a conversation in the store but their evidence differed on its content.  However, they both agreed that Mr Taylor expressed concern about the price being $1.29 and that Mr Taylor asked Mr Morrell to put the price up to $1.39.  Mr Morrell said that he would change it so that it scanned at $1.39 the following morning and that he did so to take effect from 15 November 1995.  According to Mr Toohey, Mr Taylor phoned him back and told him that Mr Morrell was going to put the price up to $1.39 the next day. 

833               A critical conversation occurred on Wednesday 15 November 1995 between Mr Maine and Mr Jones.  It is controversial as Mr Jones denied Mr Maine’s version of the conversation.  Nevertheless, there are some objective facts that tend to support Mr Maine’s version and render it more probable than Mr Jones’ version, although Mr Maine, in part, gave evidence that tended to support Mr Jones’ version.  It is necessary to identify the competing evidence.

Mr Maine’s evidence

834               In examination‑in‑chief, Mr Maine said that at about 11.00am on 15 November 1995 he received a telephone call from Mr Jones (who identified himself) and said:

“You’ve got cheap bread in Albury and Ferntree Gully.  Get it out of there.  You’ve been deleted in Albury, in the two stores in Albury and I will delete you in Ferntree Gully.”

 

Mr Maine understood Mr Jones was referring to Eureka bread.  He told Mr Jones that he would look into the matter and get back to him.  Mr Maine spoke to Mr Toohey, Tip Top’s Northern Victoria District Manager, and Mr Morrell about Mr Morrell increasing the price of the bread.  Mr Morrell refused to do so and Mr Maine decided to stop selling Eureka bread to Bob’s IGA and to sell it Sunblest branded bread every second week at a discounted price, which would enable it to sell the bread at $1.39 a loaf.  On Thursday 16 November 1995, Mr Maine telephoned Mr Jones and told him that the Albury situation had been fixed.  Mr Jones’ reply was “Okay”.

 

835               It was put to Mr Maine in cross‑examination that he had two conversations with Mr Jones – the first solely about Albury and a separate phone call about Ferntree Gully.  Mr Maine recalled one conversation but said it may well have been two conversations.

836               In cross‑examination it was put to Mr Maine that when Mr Jones telephoned him Mr Jones said that he had been advised by the Safeway Albury store manager that Safeway’s competitor was selling a new line called Tip Top 9 Grains at 99c loaf, that Safeway was running that product as a statewide special that week and he asked whether Tip Top was supplying Safeway at the same cost price as it was supplying the competitor.  Mr Maine could not recall such a conversation.  For the reasons to which I shall refer, I am satisfied that Mr Jones did not have a conversation with Mr Maine about Tip Top 9 Grains bread on or about Wednesday 15 November 1995 and that the first conversation which Mr Maine had with Mr Jones about what Safeway’s competitor was doing in November 1995 had nothing to do with Tip Top 9 Grains bread.

837               Nevertheless, Mr Maine expanded on the conversation he had with Mr Jones in relation to the activity of Safeway’s competitor.  Mr Maine’s evidence in this respect was somewhat confusing but I am satisfied that his evidence‑in‑chief did not give a complete picture of his conversations with Mr Jones.  Counsel for Safeway put to Mr Maine, Mr Jones’ version of the conversations he had with Mr Maine.  These conversations related to the discounting of Tip Top 9 Grains bread and a Safeway Tip Top 9 Grains promotion.  It was ultimately accepted by Mr Jones that he could not have had a conversation about Tip Top 9 Grains bread with Mr Maine on or about 15 November 1995.  Accordingly, it is necessary to approach the cross‑examination of Mr Maine on the Tip Top 9 Grains bread issue with care.  Mr Maine had no recollection of a conversation with Mr Jones about Tip Top 9 Grains bread but in the course of this part of the cross‑examination, he adverted to matters which satisfy me that there was more to his conversation with Mr Jones than he had given in evidence‑in‑chief.  I refer to the following passage in cross‑examination:

“When Mr Jones rang you, I suggest to you that his information that he referred to was that a Safeway competitor was selling a new line called Tip Top 9 Grains.  Do you remember Mr Jones referring to that?---Not specifically, no.

 

There was a new line at the time, Tip Top 9 Grains?---There was, yes.

 

What I want to suggest what happened in relation to Albury was this:  that you had a conversation with him in which Mr Jones said, ‘I have been advised by Safeway’s Albury store manager that Safeway’s competitor is selling a new line called Tip Top 9 Grains.  Safeway is running this product as a statewide special this week.  Please explain to me how a competitor could be selling a new line at 99 cents?  Are you supplying this to Safeway at the same cost price that you are supplying the competitor?’  Do you remember Mr Jones saying that to you?---No, I don’t. 

 

You can’t deny that he said that to you, can you?---No, I guess I can’t.  I can’t recall the conversation specifically.

 

And then I want  to suggest you said that you would get back to Mr Jones?---Yes.

 

In fact, you got back to him that day and what you said to Mr Jones was this:  ‘I’m sorry, Mark.  One of Tip Top’s area managers has given the deal which is unauthorised to fund the promotion so the product could be sold at 99 cents per loaf.’  Do you remember saying that to Mr Jones?---This is on the 9 Grain?

 

This is in relation to the conversation concerning Albury in which Mr Jones had raised the 9 Grain in the first conversation, yes?---Well, I can’t recall the 9 Grain discussion but it would be pretty unlikely to be selling 9 Grain at 99 cents.

 

What I want to suggest to you that Jones said was this:   ‘Safeway is running a state promotion.  If Tip Top can give these deals to an independent so the independent can run a promotion at 99 cents.’  Do you remember Jones saying something to that effect?---Only in regard to Eureka basically.  That is my recollection. 

 

Then I want to suggest that you rang Jones back later on and you said, ‘Tip Top can’t afford to do the statewide deal.  It will cost us too much money.’  Do you remember telling him that in relation to Albury?---In relation to Albury, yes - unprofitable I think I said.

 

Then Jones said, ‘So It’s fine if you’re a small retailer, you get the deal, but if you’re a large retailer its going to cost too much money.  So why should Safeway support Tip Top in any promotion?’  Do you remember Jones saying that?---Not verbatim but yes, I---

 

To that effect?---Yes, to that effect.”

 

And shortly after that passage:

“What in effect you sought to do was to have Mr Morrell jack up his price, correct?---Yes.

 

And when he bucked on that you withdrew the promotion?---Correct.

 

Mr Jones suggested neither of those things to you, did he?---No.

 

He asked you, I suggest, for the same wholesale price?---Correct.

 

And when you refused the deletion remained in place?---Correct, but had Safeway wanted to take on Eureka bread at that price we would have certainly been interested in supplying it.”

 

838               I take Mr Maine to be saying in these passages that Mr Jones said he expected the same deal as Tip Top was offering Bob’s IGA in Albury and that he telephoned Mr Jones back and told him that Tip Top could not do such a deal as it would be unprofitable.  It is not clear whether Mr Maine was assenting to the proposition that it was unprofitable for Tip Top to offer the same wholesale price as given to Bob’s IGA to Safeway Albury or whether it was unprofitable for Tip Top to offer that wholesale price on a statewide basis.  The difficulty with his answer to the question put to him is that the question was based on a false assumption, namely that the conversation related to a competitor of Safeway selling Tip Top 9 Grains bread at 99c a loaf at the same time as Safeway was running a statewide promotion at that time in respect of the same product. 

839               For the reasons to which I refer hereafter, the 9 Grains conversation could not have occurred on 15 November 1995.  It follows that the conversation on that date related to local competition in Albury.  It was no part of the bread policy to seek a case deal other than to respond to a particular competitive situation.  Any discussion Mr Maine had with Mr Jones on 15 November 1995 would therefore have related to Mr Jones seeking to have Safeway be competitive with Bob’s IGA in Albury and The Cool Store in Ferntree Gully.  I am satisfied that Mr Jones only sought a case deal to respond to the competitive situation Safeway was then facing which was from Bob’s IGA in Albury and from The Cool Store in Ferntree Gully.  I am also satisfied that when Mr Maine responded to the question in par 837 above he told Mr Jones that it was unprofitable to give Safeway Albury the same wholesale price on Tip Top branded bread as had been given to Bob’s IGA.

840               It is not clear from this evidence whether Mr Jones sought the same deal as Tip Top had offered Bob’s IGA in the first conversation or in the second conversation, nor is it clear whether he sought the same deal before or after he told Mr Maine that Tip Top had been deleted in Albury.  The passage to which I have referred in par 837 above suggests that Mr Maine said that Mr Jones said he expected the same deal in his first conversation with Mr Maine and that he asked for the same wholesale price.  I am satisfied that it was in the first conversation Mr Jones asked Mr Maine for the same deal as had been given to Bob’s IGA.

841               There was therefore, an inconsistency in Mr Maine’s evidence as it is unlikely that Mr Jones would, in the one conversation, ask for a case deal on Eureka, the same as had been given to Bob’s IGA in Albury and say that Tip Top had been deleted in the two stores in Albury.  More particularly is this so when Mr Maine did not respond to the request for the case deal in that conversation but telephoned Mr Jones back later and told him that he could not do the deal done in Albury as it would be unprofitable.  In examination‑in‑chief, Mr Maine had said that at the end of the first conversation he would look into the matter and get back to Mr Jones.  According to his answers in cross‑examination, he spoke again to Mr Jones and told him he could not do the deal.  This is not inconsistent with his evidence‑in‑chief in which he told Mr Jones that the Albury situation had been fixed after Tip Top stopped selling Eureka bread to Bob’s IGA.

842               Although, for the reasons to which I shall refer, I do not accept Mr Jones’ version of the conversation with Mr Maine on 15 November 1995, I am satisfied that Mr Jones asked for a case deal, the same as given to Bob’s IGA before the deletion at Safeway Albury was carried into effect, and that when Mr Maine told him Tip Top could not do the deal because it was unprofitable, Mr Jones arranged for the deletion.  I am satisfied that Mr Jones asked for the case deal during a sequence spread over two conversations in which he asked for, and was refused, a case deal on a price similar to that given to Bob’s IGA.  In those circumstances, Mr Maine’s evidence that Mr Jones said – “You’ve got cheap bread in Albury and Ferntree Gully.  Get it out of there.  You’ve been deleted in Albury, in the two stores in Albury” must be evaluated in a context in which a case deal was sought and refused.  I consider it unlikely that Mr Jones would tell Mr Maine to get Tip Top bread out of two independent stores when he was seeking to obtain a case deal for two Safeway stores and had not had a response to his request.  I have found that Mr Jones asked for a case deal for Safeway Albury.  As appears from my consideration of the Ferntree Gully incident (post, in particular at pars 884, 885, 933), I also find that Mr Jones sought a case deal in relation to Safeway Ferntree Gully.

843               In cross‑examination, Mr Maine was more hesitant about his evidence that Mr Jones said in relation to the bread at Albury and Ferntree Gully “Get it out of there”.  When it was put to him that Mr Jones did not say those words, he answered “I can’t recall exactly”, and said he had to use his statement as his best recollection.  He was reliant on his written statement signed on 12 July 1996 and assumed it was correct.  Although he thought Mr Jones had used those words, he had agreed earlier in cross‑examination (par 837 above) that Mr Jones did not suggest that Mr Maine withdraw the promotion The Cool Store was conducting and did not suggest that The Cool Store increase the price of the bread.  In the same exchange in cross‑examination, he agreed that Mr Jones asked for the same wholesale price.  Having regard to this evidence and his evidence as to what was the basis of his conversation with Mr Jones (par 885), I am not satisfied that Mr Jones told Mr Maine to get the bread it was supplying to Bob’s IGA and The Cool Store out of those stores.  It is improbable that Mr Jones told Mr Maine to get the bread out of those stores either before asking, or at the same time as asking, for a case deal.

844               Safeway submitted that Mr Maine’s evidence was unreliable as he had referred to a deletion in two stores whereas the evidence only showed a deletion in one store, Safeway Albury.  However, it is apparent from Mr Toohey’s visit to the Safeway store at Lavington on the afternoon of 15 November 1995, and his conversation with the store manager, that there had been an instruction to that store to delete Tip Top bread.  This issue is not significant having regard to my finding that Mr Jones asked Mr Maine for a case deal at the same wholesale price charged to Bob’s IGA.

Mr Jones’ evidence

845               Mr Jones denied having any conversation in the terms given by Mr Maine and denied having discussed Albury and Ferntree Gully in the one conversation.

846               Mr Jones said that he contacted Mr Maine about the Albury November 1995 incident after receiving advice from his CMA to the effect that Safeway Albury was uncompetitive on a new Tip Top line “9 Grains”.  He gave the following evidence‑in‑chief of the content of that conversation with Mr Maine:

“We’d been advised by the Albury store that they were uncompetitive on a brand new line which we’d just started to range, and that was a product called Tip Top 9 Grains, and that I phoned them up and said that Albury had advised that the competitor was selling Tip Top 9 Grains at 99 cents, that, you know, how could they be selling it so cheap when our cost price for the promotion was – we were running a state at the time at $1.40 or $1.50, I can’t recall what the price was, and asked him whether or not we were buying at the same cost price as what the competitor was.

 

Did Mr Maine make any reply?---He just said that he would look into it and come back to me.  He wasn’t aware of it.

 

Did he?---Yes, he did.  He came back and said that an area manager had given an unauthorised deal which enabled that competitor to sell it at 99 cents.

 

Did you make any reply to what Mr Maine told you on that occasion?---Yes, I did.  I said to him that we were running a state promotion and that we wanted the same deal as what the competitor was [receiving] so that we could also take advantage of the deals that were available.

 

Did Mr Maine reply to your request?---Mr Maine just said that he couldn’t afford a statewide promotion, that they just wouldn’t do it.

 

What did you say?---I said to him, ‘It’s fine if you’re a small retailer.  You can afford to fund them a  deal at 99 cents but if you happen to be a large retailer, all of a sudden you can’t get the same deal.’  I said, you know, we were supporting them with the promotion of a new line.  ‘Why should Safeway therefore support you with promotions if that’s the case when we can’t get deals the same as our competitors?’

 

Did you say anything then?---I just said that I’ll come back to him and let him know what our position was.”

 

Mr Jones did not have any other recollection of speaking to Mr Maine separately about Albury other than the conversation about 9 Grains. 

 

847               Mr Jones was cross‑examined at length about this conversation.  He ultimately accepted that his conversation with Mr Maine about Safeway running a Tip Top 9 Grains promotion must have been later than Wednesday 15 November 1995 and that his recollection was incorrect.  I am satisfied that Mr Jones did not have a conversation with Mr Maine on or about 15 November 1995 in which he raised with Mr Maine the issue of a competitor of Safeway Albury selling Tip Top 9 Grains bread at a price that was cheaper than the cost price of that bread to Safeway.  On 15 November 1995, Bob’s IGA was not selling Tip Top 9 Grains bread for 99c a loaf.

848               According to two letters from Mr Maine to Mr Jones dated 20 and 21 November 1995, a promotion had been arranged for a number of products including 9 Grains to commence on 27 November and then 4 December 1995.  The letters referred to a telephone conversation on “Friday afternoon”, that is 17 November 1995.  This was after the Albury deletion had ended.  Further, a Safeway grocery bulletin dated 6 November 1995 referred to a Tip Top 9 Grains promotion that was to commence on 27 November 1995.

849               Scan data showed that in the week of the deletion (the week ending 19 November 1995) Tip Top 9 Grains was selling at $2.19 per loaf, which Mr Jones said did not look like it was on promotion.  The scan data also showed that Tip Top 9 Grains bread was on sale in the week ending 3 December 1995 (as referred to in the letter of 21 November 1995) at $1.94.  Mr Jones agreed that that price looked like a promotion and that it appeared that the Tip Top 9 Grains promotion did not begin until 27 November 1995.  Mr Jones accepted that when he was speaking to Mr Maine about the Tip Top 9 Grains bread, it was on a date other than 15 November 1995.

850               The Commission submitted that it was hard to explain Mr Jones’ evidence in relation to 9 Grains bread as anything other than a fabrication.  I do not accept that submission.  I am satisfied that Mr Jones’ evidence was incorrect, but that was more the product of a lack of recollection and an attempt to reconstruct events as he assumed they must have been.  Although Mr Jones was clearly wrong in his recollection, the temporal relationship between the deletion and the final negotiation and timing of the 9 Grains promotion was such that I am satisfied that his reconstruction was flawed rather than deliberately false.

851               Mr Maine agreed that the deletion remained on foot until, to use his words, he fixed it up.  He agreed that what he sought to do was to have Mr Morrell jack up his price and that when Mr Morrell refused to do so, he withdrew the promotion.  However Mr Maine agreed that Mr Jones suggested neither of those things to him and that he asked him for the same wholesale price.  He agreed that when he refused, the deletion remained in place.  Mr Maine said that had Safeway wanted to take on Eureka bread at that price Tip Top would have certainly been interested in supplying it.  He acknowledged that this was not what Mr Jones had asked for and that he had refused what Mr Jones had asked.  Mr Maine agreed that he took what he regarded as an easier way out by seeking to ameliorate the effects of the discount. 

852               The deletion of Tip Top bread from Safeway Albury and its withdrawal from sale took place early in the afternoon on Wednesday 15 November 1995 and continued until the following morning, 16 November 1995.  A delivery of Tip Top products was accepted at 10.00am.  There was scant evidence as to how the deletion was implemented and how it came about that Tip Top bread was accepted the following morning.  Mr Bocquet, the Safeway Albury Store Manager, had no recollection of the incident other than that on a Thursday night in November about three or four years earlier, staff took two racks of Tip Top bread out of the store.  Mr Jones denied giving instructions for the deletion or for the reinstatement.  What is clear is that the deletion occurred.  Having regard to my acceptance of Mr Maine’s evidence as to the conversation he had with Mr Jones, which was amplified in cross‑examination in the manner to which I have referred, I am satisfied that Mr Jones gave instructions for the deletion and the reinstatement when the Tip Top bread was removed from display.  There were empty racks but no price‑fighting bread was brought in to replace the deleted bread.

853               What occurred after Mr Maine’s initial conversation with Mr Jones was that Mr Maine asked Mr Toohey to find out the price at which Bob’s IGA was selling bread.  Mr Toohey told Mr Maine the price was $1.29 or $1.39.  There was a conflict in the evidence of the Tip Top personnel who were involved, Mr Maine, Mr Toohey and Mr Kadir.  What emerged from the evidence was that Mr Maine decided to cease supplying Bob’s IGA with the plain wrap Eureka bread and instead to offer Sunblest bread at a discounted price of $1.24 a loaf every second week until Christmas which would enable him to sell it at $1.39 a loaf.  Mr Toohey passed this on to Mr Morrell. 

854               On Thursday 16 November 1995, Tip Top delivered Tip Top bread to Bob’s IGA but did not deliver any plain wrap Eureka bread.  Tip Top recommenced deliveries of Eureka bread at the end of November 1995.

855               After Mr Maine decided to cease supplying Eureka bread to Bob’s IGA he telephoned Mr Jones on Thursday 16 November 1995 and told him that the Albury situation had been fixed.  As noted earlier, Tip Top deliveries were made to Safeway Albury at 10.00am.

856               As with other deletions, more Tip Top products were deleted than the bread policy required.  Only those products in respect of which Safeway was seen to be uncompetitive should have been deleted, such as Sunblest White 680g, Toast 680g and Wholemeal Toast 680g.  However, many more products were deleted such as Weight Watchers bread, Hyfibe White 750g, Hyfibe White Toast 750g and some Burgen and Bornhoffen products.  There was no explanation for the deletion of these products.  Mr Jones denied giving instructions for the deletion of any Tip Top products at Safeway Albury in November 1995.  For the reasons to which I have referred, I am satisfied that he gave the instruction for the deletion of these products.

857               I am satisfied that Mr Jones was concerned about the price at which Bob’s IGA was selling Eureka bread.  So much emerged from his initial conversation with Mr Maine.  So why did the deletion occur?  It was not for space reasons or for any reason relating to planograms.  Not only were there empty bread racks in Safeway Albury after the deletion occurred, but more importantly, no price‑fighting brand such as Captain Cutless was introduced into the store.  Captain Cutless had been ranged in the store between July 1994 and December 1994 (except for one week in August), and Mr Bocquet said he had no difficulty in ranging Captain Cutless at the same time as the full range of proprietary branded bread was displayed.  When Captain Cutless was ranged, no proprietary branded bread was deleted.

858               The Albury November 1995 incident and the Ferntree Gully incident must be considered together in a number of respects.  Mr Maine’s recollection was that Mr Jones raised Albury and Ferntree Gully in the one conversation.  Although he referred to Tip Top having cheap bread in both places, he also asked for a case deal in respect of the Safeway store at both places.  Later in these reasons I conclude that it was improbable that Mr Jones told Mr Maine to get the bread out of The Cool Store at Ferntree Gully and asked for the same wholesale price as Tip Top was charging The Cool Store in one and the same conversation.  I reach the same conclusion in relation to Bob’s IGA.

859               Eureka bread may have represented a competitive threat to Safeway Albury but that was because of the cheapness of the price at which it was being sold rather than the identity of its manufacturer.  It was the cheapness of the bread to which Mr Jones referred in his first conversation with Mr Maine and when Mr Jones followed up the Ferntree Gully situation on the following Monday, 20 November 1995, he made the point that he did not mind cheap pricing as long as he could buy at the same price.

860               I am satisfied that Mr Jones was concerned about the cheapness of the price at which Bob’s IGA was selling Eureka bread rather than that customers might consider Safeway Albury to be uncompetitive in respect of Tip Top bread.  He wanted to get the same wholesale cost price for the Tip Top bread sold at Safeway Albury as Tip Top had charged Bob’s IGA for the Eureka bread.  He telephoned Mr Maine to get a competitive price discount from Tip Top rather than to eliminate the cheap discounting of bread.  I am not satisfied that Mr Jones sought the competitive price and then deleted Tip Top bread from Safeway Albury to punish Tip Top and to eliminate the cheap discounting of bread.  Mr Maine accepted that Mr Jones asked for the same cost price as the price for which Eureka bread was being supplied to Bob’s IGA and that he had rejected that proposal as it would be unprofitable.  Mr Maine also agreed that Mr Jones did not suggest to him that he get Mr Morrell to raise the price of the bread or that Tip Top withdraw the Eureka promotion.  Although Mr Maine telephoned Mr Jones after he had withdrawn Eureka bread from Bob’s IGA and told him that the Albury situation had been fixed, Mr Jones had not asked him, as I have found, to take that action.  Mr Jones’ attempts at this time to get a case deal at both Safeway Albury and Safeway Ferntree Gully satisfy me that he was seeking to get competitive deals on price, albeit on proprietary branded products, rather than to punish Tip Top or eliminate the cheap discounting of bread.

861               The findings that I have made lead to the conclusion that Safeway did not enter, or attempt to enter, into any agreement or arrangement, or reach an understanding with Tip Top or give effect or attempt to give effect to such an agreement, arrangement or understanding in relation to the supply of bread by Tip Top to Bob’s IGA or in relation to the price at which Bob’s IGA would sell bread.  As Mr Maine agreed, Mr Jones did not suggest that Tip Top get Mr Morrell to increase the price of his bread or that Tip Top withdraw the promotion of Eureka bread given to Bob’s IGA.  Of course, it is necessary to look at Mr Jones’ and Safeway’s conduct as well as the statements made by Mr Jones, that is to say, it is important to consider what the relevant participants did as well as what they said.  Bearing this in mind, the evidence, in particular the evidence of Mr Maine, does not satisfy me that Safeway contravened s 45 of the Act in the respects alleged by the Commission.

862               I am not satisfied that Safeway induced, or attempted to induce, Tip Top to contravene s 48 of the Act, that is to say, to engage in any of the acts set out in s 96(3) which constitute resale price maintenance.  Tip Top did engage in resale price maintenance but it was not induced to do so by Mr Jones.  Mr Maine made it clear that Mr Jones did not suggest that he get Mr Morrell to increase the price of his bread, nor did Mr Jones suggest that he withdraw the promotion from Bob’s IGA.  What he did ask for was the same wholesale price as was given to Bob’s IGA.  The allegation of resale price maintenance pleaded was that Safeway induced or attempted to induce Bob’s IGA not to sell Eureka bread for not less than $1.39 per loaf.  There was no attempt by Mr Jones or Safeway to induce Tip Top to get Bob’s IGA to raise its price to that level.  Tip Top’s motivation in seeking to have Mr Morrell increase the price of his bread was to avoid action being taken by Safeway, but Safeway did not seek to achieve that result for the reasons to which I have referred. 

863               It also follows from my findings that Safeway did not contravene s 47 of the Act and engage in the practice of exclusive dealing.  I elaborate on these conclusions later in these reasons and I also consider later whether there was a contravention of s 46 of the Act.

THE FERNTREE GULLY INCIDENT

Background

864               The final incident (in chronological sequence) alleged by the Commission occurred in November 1995 at Ferntree Gully and involved Tip Top.  Unlike the other incidents alleged by the Commission, there was no actual deletion or removal of Tip Top products from the Safeway store.  It was this incident that led to media reports and comments in State Parliament about Safeway’s actions and ultimately to the investigation by the Commission. 

865               The Commission alleged against Safeway and Mr Jones that they attempted to induce Tip Top to engage in resale price maintenance in contravention of s 48, attempted to make a contract or arrangement with Tip Top or arrived or attempted to arrive at, or gave effect to or attempted to give effect to an understanding with Tip Top in contravention of s 45(2)(a) & (b) and engaged or attempted to engage in the practice of exclusive dealing contrary to s 47(1) of the Act.  The Commission also alleged that the Ferntree Gully incident was part of Safeway’s taking advantage of its substantial degree of market power in the wholesale market to deter or prevent Tip Top engaging in competitive conduct in the wholesale market in contravention of s 46 of the Act.

866               The main witnesses who gave evidence about this incident were Messrs Maine & Dobson for the Commission and Messrs Jones, Parker, Gladstone, White, Mead and Luscombe for Safeway and Mr Jones.

867               In 1994 and 1995 The Cool Store Pty Ltd operated a fruit and vegetable store at 59 Dorset Road, Ferntree Gully.  Mr Kenneth Dobson was the Managing Director.  The store operated under the name “The Cool Store”, and in addition to selling fruit and vegetables it also sold bread, milk and a small variety of frozen foods.  In July 1994 The Cool Store began purchasing its bread supplies from Tip Top on a sale or return basis.

868               In November 1995 Mr Dobson had discussions with a Tip Top Area Manager, Mr David Gladstone, about the possibility of purchasing a plain wrap bread from Tip Top.  Mr Gladstone agreed and on Monday 13 November 1995 The Cool Store commenced selling Eureka plain wrap bread as well as proprietary branded bread.  Eureka was sold by The Cool Store in white, toast and wholemeal varieties.  As I have noted earlier, the bread bag in which Eureka bread was sold was a plain clear plastic bag with a computer generated sticker label.  The sticker displayed the name and address of the Eureka Bakery, the “use by” date, net weight, ingredients, price and bar code.  It did not contain any indication that it was manufactured by Tip Top.

869               The Cool Store paid Tip Top $1.00 per loaf for the Eureka bread (on sale or return) and sold it at an everyday low price of $1.15.  It advertised the bread on a sign outside the store as “Plain Wrap Bread Coad [sic] C $1.15 a loaf” and later on a sign in the entrance to the store with the words “Get more dough for your money Plain Wrap Bread ‘Code C’ Sandwich Toast Wholemeal $1.l5 loaf”.  The signs did not mention that it was Tip Top bread. 

870               Tip Top delivered 192 loaves of Eureka bread to The Cool Store on 13 November 1995.  The deliveries were increased to over 200 loaves of Eureka bread per day later in the week.  Mr Dobson said that his main competition as a retailer of bread was from Safeway Ferntree Gully and Coles at Mountain Gate.

871               The Safeway Ferntree Gully store was located on the Burwood Highway, about two kilometres from The Cool Store.  In November 1995 Mr Kenneth Parker was the manager of the store.  In November 1995 Safeway Ferntree Gully sold Home Brand bread at $1.59 per  680g loaf.  At that time it was also purchasing Captain Cutless from Sunicrust.  Captain Cutless had been sold at Safeway Ferntree Gully from the week ending 12 June 1994 until the end of 1995, except for a short period between 7 August 1994 and the week ending 14 August 1994.

872               The Cool Store was not a nominated competitor of Safeway Ferntree Gully for bread.  Mr White, the Safeway Area Manager for the area which included Ferntree Gully, said that The Cool Store was not a serious competitor against Safeway.  Mr Parker was not concerned by the cheap bread on sale at The Cool Store.

873               The central conversations in relation to this deletion involved Mr Maine, Tip Top’s Victorian State Sales Manager, and Mr Jones.  Because the evidence was controversial it is necessary to set it out in some detail.

Mr Jones’ evidence

874               Mr Jones said that sometime after he had spoken to Mr Maine about the 9 Grains promotion price in Albury (in the first half of November 1995), he was told by his CMA, Ms Miller, that she had received a phone call from the Ferntree Gully store saying that it was uncompetitive on Tip Top bread, which was being sold by The Cool Store at $1.19, and that Safeway needed a competitive bread. 

875               Ms Miller recalled speaking with Safeway Ferntree Gully in relation to competitive activity but could not recall any details, such as when the incident occurred or to whom she spoke, although she recalled that Captain Cutless was introduced and a baker’s bread was deleted.  She did not recall telling Mr Parker that Tip Top bread should be withdrawn from the Safeway Ferntree Gully store.

876               Mr Jones telephoned Mr Maine on Wednesday 15 November 1995 and had the following conversation:

“I informed Tim [Maine] that we had received a call from our Ferntree Gully store to advise us that we were uncompetitive on Tip Top bread and that a Cool Store in the area was selling Tip Top bread at $1.19 and asked him could we buy at the same price and if we couldn’t buy at the same price we may have to withdraw his product because we were seen to be uncompetitive by our customers.” 

 

Mr Jones said that at the time of this conversation, all he knew was that the competitor was selling Tip Top bread and that Safeway believed it needed to be competitive on Tip Top bread.  He said that he had not been told it was plain wrap or Eureka bread. 

 

877               According to Mr Jones, Mr Maine said that he would look into it and come back to him.  Mr Maine called him back on the same day and told him that they were running a special promotion in the store, that it was in its second week and it was finishing on the Sunday.  The Sunday would have been 19 November 1995.  Mr Jones said in reply:

“I don’t mind, you know, anyone selling cheap bread provided Safeway can buy bread at the same cost price as what our competitors are, and he [Maine] said to me that he couldn’t supply us … he wouldn’t supply us the deal and I said ‘Well, I’ll let it go then…I said that I just wouldn’t worry about it; I’ll let it be’.”

 

After Mr Jones spoke with Mr Maine, he realised that he was not following the company policy, and he then telephoned Mr Parker at Safeway Ferntree Gully and said:

 

“The Cool Store is running a special until the Sunday.  We should take the uncompetitive Tip Top product off show until the promotion is finished because we’re uncompetitive.  We will organise to introduce Captain Cutless.” 

 

(In cross‑examination he could not recall the exact conversation other than that he asked Mr Parker to take the uncompetitive bread off show but he did not know if it was Tip Top).

 

878               Mr Parker told Mr Jones that he was not going to take the bread out because it upset the customers, and Mr Jones replied that Mr Parker knew the company policy as well as he did and told Mr Parker that the next Monday he should do a competitive check on The Cool Store. 

879               Mr White telephoned Mr Jones shortly after his conversation with Mr Parker and asked him why he had given instructions to delete Tip Top bread from Safeway Ferntree Gully.  Mr Jones told Mr White that Safeway was uncompetitive in respect of the bread, that he had asked for the same cost price as that at which Tip Top had been supplying The Cool Store, and that Tip Top had told him that they would not sell their product to Safeway at the same cost price but that the promotion would finish next Sunday.  If Mr Jones was seeking to implement Safeway’s bread policy as created by Mr Brookes, he was not doing so as the policy did not apply to special promotions of the duration for which he had been told The Cool Store was running the promotion (until the following Sunday).  According to Mr Dobson, the supply of the Eureka bread was a long‑term arrangement and not a short‑term promotion, but Mr Jones was told by Mr Maine that it was a promotion.

880               Mr Jones said that on the following Monday, 20 November 1995, the Ferntree Gully store told his CMA that it was still uncompetitive on Tip Top bread and he telephoned Mr Maine because Mr Maine had told him there was a promotion finishing on the Sunday.  Mr Jones gave the following account of his conversation with Mr Maine:

“[I said] that he’d lied to me – that Tim had told me that the promotion was ending on the Sunday and that, you know, how can I deal with someone who is not telling the truth, and that Safeway wanted to buy the bread at the same cost price so we can be competitive.” 

 

Mr Maine said he would come back to him.  Mr Maine called back the same day and told Mr Jones:

 

“that there had been an error, a glitch, a computer error or something and that the deal had gone on and that he said that he wasn’t telling lies, he was telling the truth, and that, you know, if Safeway wanted to do a price check they would see that he was telling the truth; it was only a promotion.”

 

881               In cross‑examination Mr Jones denied that on 21 November 1995 Mr Maine had telephoned him and told him that the situation at Ferntree Gully would be fixed the next day, and denied telling Mr Maine that Safeway would accept delivery that day but would not put the bread out until the store manager at Ferntree Gully had checked the prices at The Cool Store. 

Mr Maine’s evidence

882               To create an effective time frame summary of Mr Maine’s evidence, I will from time to time in my consideration of this incident, refer again to evidence in relation to the Albury November 1995 deletion.

883               In evidence‑in‑chief, Mr Maine said that he received a telephone call from Mr Jones at approximately 11.00am on Wednesday 15 November 1995 in the following terms:

“You’ve got cheap bread in Albury and Ferntree Gully.  Get it out of there.  You’ve been deleted in Albury, in the two stores in Albury and I will delete you in Ferntree Gully.”

 

Mr Maine said he would look into the matter and get back to him.  In cross‑examination Mr Maine said that his recollection was that Mr Jones mentioned the problem of The Cool Store and the problem of the Bob’s IGA store in Albury in the one conversation but that it may well have been two conversations.

 

884               In cross‑examination, Mr Maine agreed that Mr Jones asked for the same price for Sunblest.  He was unsure whether he clarified if it was to be in Ferntree Gully or the total State but he assumed that it was in the area where the discounting was operating.

885               Also in cross‑examination, counsel for Safeway put to Mr Maine that after the first conversation with Mr Jones, Mr Jones telephoned him again and said:

“We have been contacted by Ferntree and are uncompetitive on Tip Top bread.  The Cool Store are selling at $1.19.  How could they sell bread so far below our costs?  Safeway always expects to have the best price available.  I want to buy bread at the same cost price as you’re selling it to The Cool Store.  If Tip Top don’t supply us at a competitive cost, we’ll have no alternative but to not range this Code C bread at our Ferntree Gully store”

 

When asked whether he remembered anything of this nature being said, Mr Maine responded:

“Yes.  I’m not sure if it was in two conversations or the one but that was certainly the basis of the conversation.”

 

Mr Jones’ version of this conversation had him saying that they have “to withdraw his [Mr Maine’s] product rather than not ranging this Code C bread”.

 

886               Mr Maine agreed in cross‑examination that after this conversation he called Mr Jones the same day and told him that he had checked it out and that The Cool Store was only running a promotion, which was in its second week, and would be finished at the end of the week.  According to Mr Gladstone, Tip Top’s National Sales and Marketing Director, the deal arrived at between Tip Top and The Cool Store was to be a long‑term arrangement.

887               When it was put to Mr Maine that Mr Jones did not say to him the words to the effect of “Get it out of there”, Mr Maine said that he thought he did, although he could not recall exactly.  He was reliant on his witness statement (signed on 12 July 1996), and because it was made in 1996 he assumed it was right.  Mr Maine understood Mr Jones to be referring to the Eureka product that Tip Top was selling at Bob’s IGA (Albury) and at The Cool Store (Ferntree Gully). 

888               After Mr Maine’s conversation with Mr Jones on 15 November 1995, he contacted Mr Toohey, Tip Top’s Area Manager in the Albury area and asked him what was happening at Bob’s IGA and made an arrangement with him whereby Eureka supplies were withdrawn and replaced with Sunblest branded bread at a discounted price which could be sold for $1.39 a loaf, that being the price at which Sunblest was to be sold at Safeway stores.  After this agreement had been reached, Mr Maine telephoned  Mr Jones on Thursday 16 November 1995 and said that the Albury situation had been fixed.

889               Mr Maine telephoned Mr Gladstone on 16 November 1995 and asked what was happening at The Cool Store in terms of prices and Mr Gladstone told him that they were selling bread at a price which he thought was about $1.19 but that he would go and check.  Later that day Mr Maine and Mr Gladstone met in Mr Maine’s office.  During the meeting Mr Kadir came in and out of the office.  At one stage Mr Gladstone said that The Cool Store was selling bread at $1.19 or thereabouts.  Mr Maine said that Safeway was talking about deleting Tip Top at Ferntree Gully, that the problem was obviously the price and would Mr Gladstone talk to The Cool Store about his price.  Mr Kadir said that the price needed to be $1.39 and Mr Maine asked Mr Gladstone to talk to Mr Dobson about getting his price up to $1.39.  Mr Gladstone said he would go and talk to Mr Dobson but that he did not feel comfortable about it and said that Mr Dobson would not be happy. 

890               Mr Maine said that he had another telephone conversation with Mr Jones about Ferntree Gully on Monday 20 November 1995 during which Mr Jones said to him:

“Mark Jones here.  We’ve still got a problem in Ferntree Gully in terms of prices.  What have you done about it? … I don’t mind cheap pricing as long as I can buy the same price for all my stores.”

 

Mr Maine replied:

“Mark, you know I can’t supply Sunblest at that price.  It would [be] unprofitable from our point of view.”

 

To which Mr Jones replied:

“You’d better get back to me on the situation at Ferntree Gully.”

 

Mr Maine said that the reason he referred to Sunblest when it was Eureka being sold by The Cool Store was he knew he could not sell Eureka bread to Safeway because Safeway had an agreement with Sunicrust at the time regarding their in-store bakery bread and that if they were to bring in a price‑fighting brand or an in‑store bakery bread it would be contravening that contract. 

 

891               Mr Maine said that the reason it would be unprofitable from Tip Top’s point of view was that Sunblest was a major brand and the costings on Sunblest, including to support the Sunblest brand, were much more expensive on a Sunblest loaf than on a Eureka loaf. 

892               In cross‑examination Mr Maine did not remember Mr Jones in this conversation saying that he (Mr Maine) had been lying, nor did he agree that he told Mr Jones to check the price at The Cool Store the following day.  He said that Mr Jones suggested that he would check the price.

893               Mr Maine next spoke to Mr Gladstone on 20 November 1995 and told him that Tip Top was going to be deleted out of Safeway if they did not fix the problem with The Cool Store.  He suggested that they replace the Eureka bread with Sunblest and work out a deal to allow him to sell it at $1.39.  Mr Maine nominated the price of $1.39 because it was a figure for which they had recently been selling Sunblest or had been planning to sell Sunblest at Safeway generally throughout the State and that it was a market price brand at that time.

894               Mr Maine left it to Mr Gladstone to arrange for The Cool Store to receive no further supplies of Eureka bread but to be supplied with Sunblest branded bread which it should not retail for less than $1.39. 

895               After making these arrangements with Mr Gladstone, Mr Maine telephoned Mr Jones on Tuesday 21 November 1995 and told him that the situation in Ferntree Gully would be fixed from tomorrow (Wednesday 22 November).  Mr Maine said that Mr Jones replied:

“We’ll accept delivery tomorrow but we won’t put the product out on display until our store manager has physically checked that the pricing has been fixed.” 

 

The instruction for the deletion

896               Mr Parker did not report to the buying office that his store was uncompetitive on Tip Top bread by reason of The Cool Store.  Mr Jones was not able to say from his conversation with Ms Miller who had reported the uncompetitiveness.  A memorandum from Mr Jones, said to record the circumstances of this incident (to which I will refer in some detail), refers to “a staff member from the Ferntree Gully Safeway store” ringing the CMA.  I am unable to determine who first raised the issue with Mr Jones’ office.

897               In November 1995, Mr Parker received a telephone call from Mr Jones or a woman at Mr Jones’ office to the following effect:

“Ken, I want you to take the Tip Top bread range off show.”

 

He asked what was the reason and was told that it was “something to do with negotiating a new deal with Tip Top”.  He said he would not do it and asked what he was going to tell his customers who wanted Tip Top bread and there was nothing on show.  The other person told him that he still had to take it off show and the conversation concluded with Mr Parker saying that he was not going to do so.  Later that day, Mr Parker told a Tip Top representative that he had been told by State office to take the Tip Top range off show but that he was not going to do so.

 

898               On the same day, or very close to the same day, Mr Parker had a conversation with Mr Jones as a result of a Herald Sun newspaper article accusing Safeway Ferntree Gully of bully tactics against The Cool Store.  There was no evidence of a Herald Sun article but there was an article in The Age.  Mr White, the Area Manager, was in Mr Parker’s office at the time of this conversation.  According to Mr Parker (in his first witness statement) Mr Jones said:

“I am negotiating with Tip Top on the price of bread.  I just need to get Tip Top bread off showand I want you to do that.”

 

Mr Parker replied:

“I am not doing that.  I do not think it is right.  How do I explain to my customers that there is no Tip Top bread for them?  What’s in the newspaper this morning is not correct.  I have nothing to do with the Coolstore.  They do not concern me.  I only concern myself with the Maxi Food Barn.”

 

Mr Jones said to Mr Parker:

“Ken, I need you to take the Tip Top bread range off show in order to do a deal on price with Tip Top.”

 

Mr Parker replied:

“Well that’s your problem, as far as I’m concerned the Tip Top stays on show.”

 

899               Mr Parker made a supplementary witness statement on 15 July 1999, one week before he appeared to give evidence.  In par  7 of that statement he said that he could not be sure that a conversation occurred with Mr Jones precisely in the terms he recorded in his first statement.  In particular, he said that he could not be confident that Mr Jones said to him “You just need to get Tip Top bread off show and I want you to do that” and “I need to take the Tip Top bread off show in order to do a deal on price with Tip Top”.  In that statement, and in cross‑examination by counsel for Mr Jones, Mr Parker also said that he would have understood a reference to removal of bread by Mr Jones to mean removal of Code C bread.  However, later in cross‑examination, Mr Parker could not remember exactly what was said, whether it was exactly Code C, whether it was 680g or whether it was just Tip Top bread.  Similarly, when it was put to him that there were certainly no words to the effect that he should only take the Tip Top Code C bread off show, he said that he could not remember if there was or was not.  Importantly, in cross‑examination, Mr Parker agreed that his first statement contained his best recollection at the time it was made of his conversation with Mr Jones.  In that statement, according to Mr Parker, Mr Jones told Mr Parker that he needed “to take the Tip Top bread range off show”.  When counsel for Mr Jones put to Mr Parker Mr Jones’ version of the conversation which included Mr Jones saying:

“We should take the uncompetitive Tip Top product off show until the promotion is finished because we’re uncompetitive”,

 

Mr Parker responded:

“I can remember being asked to take Tip Top bread off show”.

I am satisfied that Mr Jones told Mr Parker to take the Tip Top bread range off show and not just the uncompetitive bread.

 

900               Mr White, in his first witness statement, gave evidence of a conversation with Mr Parker in which Mr Parker told him that he had received an instruction from State office to remove all Tip Top bread from display pending some discussions with Tip Top management, and that he did not want to do it and he did not think it right or fair to the customers. 

901               Mr White said that he telephoned Mr Jones and asked why the instruction had been given to take Tip Top bread off display in the Ferntree Gully store.  Mr White recorded his version of this conversation with Mr Jones in par 9 of his first witness statement as follows:

[Mr Jones:]        “We’ve been told that Tip Top are selling bread to the Coolstore at a cheaper price than they are prepared to sell it to us.  This is allowing the Coolstore to sell bread cheaper than we can and putting us in an un-competitive situation.  I’ve contacted Tip Top and asked them to supply us with the same product at the same price so that we can have an equal opportunity to compete with the Coolstore.  Tip Top are denying us the opportunity to buy the product at the cheaper price but I am still negotiating with them for a competitive cost price.  In the meantime I am not prepared to stock theirproduct.  We cannot afford to be seen to be uncompetitive.” 

 

Mr White said that following a further conversation with Mr Parker he made a decision to leave the Tip Top products on display.  The bread was not removed from sale as it was in the other incidents.

 

902               Mr White also filed a supplementary statement dated 16 July 1999 which was five days before giving evidence.  In that statement, Mr White said that he understood Mr Parker to have been speaking about Tip Top Code C bread.  Mr White said that his supplementary statement about this issue was to explain what he called “Safeway speak”.  He said that his first statement was put together in a language which he would understand “but perhaps others may not understand”.  I do not find any statement in Mr White’s first statement which I do not understand and I do not accept that the first statement was couched in language which was only understood by Safeway employees and not readily understood by other persons.

The Tip Top evidence

903               On Monday 15 November 1995, Mr Gladstone was told by another Tip Top area manager that they had a problem with Dobson’s and that they may have to put the price up but not to “worry the company is going to back you up.” 

904               On Thursday 16 November, Mr Gladstone discussed with Mr Terry Prosser, the Sales Manager at Tip Top’s Dandenong premises, a means of supplying The Cool Store with bread through an intermediary, Creative Bakeries, an independent baker, to avoid retaliatory action from Safeway.

905               Mr Gladstone then spoke with Mr Kadir.  According to Mr Gladstone, Mr Kadir told him to talk to Mr Dobson about helping Tip Top by increasing his price to $1.39 loaf.  Mr Kadir denied that he spoke to Mr Gladstone in these terms.

906               On 16 November 1995, Mr Gladstone had a conversation with Mr Maine in which Mr Maine said:

“We have to get the price up at Dobson’s or we will be out of all Safeway stores.  They are talking all Safeways.”

 

Mr Gladstone told Mr Maine that he would go and speak with Mr Dobson but that he was not happy about it.

 

907               On Friday 17 November 1995 Mr Gladstone spoke to Mr Dobson, told him they were getting pressure from Safeway and asked him to put the price of the Eureka bread up to $1.39.  Mr Dobson said that he would only put the price up to $1.29 per loaf.  He continued to sell Eureka bread at $1.15 per loaf up to and including Saturday 18 November 1995.  The price was increased to $1.29 on Monday 20 November 1995.

908               On Monday 20 November 1995, Mr Gladstone visited Mr Dobson and told him that it was no longer acceptable for him to sell the bread at $1.29 as Safeway had been on to Tip Top and that The Cool Store would no longer be supplied with Eureka bread.

909               On Tuesday 21 November 1995, Safeway Ferntree Gully accepted delivery of Tip Top bread.  On and from Tuesday 21 November 1995 Tip Top stopped supplying Eureka plain wrap 680g bread to The Cool Store until 28 November 1995. 

910               It was the Ferntree Gully incident which first attracted media attention.  On 24 November 1995 an article by Ms Gabrielle Costa appeared in The Age.  Ms Costa had spoken to Mr Mead and to Mr Dobson.  The article discussed the cessation of supply of bread by Tip Top to The Cool Store and reported comments made in the Victorian Parliament.

911               The article said in part:

“Safeway does not sell the plain-wrapped bread.  Safeway’s state general manager, Mr Ralph Mead, said the only contact his company had with Tip Top was a request for bread to be supplied at the same price as the Coolstore’s. 

 

The article also reported Mr Mead as saying that Safeway was “unable to buy plain‑wrapped bread from Tip Top” and:

 

“I can only say from our point of view that what was said to Tip Top about the Coolstore is that we needed to buy bread to sell at the same price as our competitor in Ferntree Gully”.

 

912               On 24 November 1995, Mr Prosser and Mr Gladstone met with Mr Dobson and offered to resume sales of Eureka on the same terms as before.  Mr Dobson agreed, and from Tuesday 28 November 1995 Tip Top resumed deliveries of Eureka bread to The Cool Store.  Mr Dobson sold the bread at $1.15 per loaf.

913               After Tip Top resumed deliveries of Eureka to The Cool Store on 28 November 1995, Safeway Ferntree Gully reduced the retail price of Captain Cutless from $1.52 to $1.19 in the week ending 3 December 1995.  (In July 1995 Mr Jones had given Mr Parker permission to range Captain Cutless to be competitive with a Maxi Food Barn.  It was delivered daily up to at least June 1996).  In later weeks it was reduced to $1.09 and $1.00. 

914               Another article about the incident was printed in The Age on 25 November 1995.  In that article Ms Costa quoted Mr Mead as saying:

“… all that Safeway had requested was the supply of plain‑wrapped bread at the same price being paid by the Cool Store”.

 

Mr Mead said that at the time he spoke to Ms Costa he assumed that, because the Sunicrust Captain Cutless product was being used, Safeway had not been able to buy plain wrap or price‑fighting bread from Tip Top.  He believed that Safeway would ask the supplier of a low priced bread offered to a competitor, to be supplied with bread at the same cost price as it was being supplied to a competitor. 

 

915               Following the media publicity given to the allegation made in the Victorian Parliament, Mr Mead asked Mr Luscombe to enquire into the matter.  Mr Mead spoke to Mr Jones, his assistant, Mr Peter Heywood and Mr Parker and reviewed the supplier files of correspondence kept by Mr Jones of the dealings with Tip Top, Sunicrust and Buttercup.  Based on these enquiries he prepared a memorandum dated 6 December 1995 to Mr Mead.  In part, the memorandum said:

“…

3.         In relation to the Tip Top Bakery/Coolstore Bakery and similar alleged incidents in the Albury area recently reported in the media, I have conducted several exhaustive interviews and perused all filed correspondence, and am satisfied that Category Manager, Mark Jones, has at all times acted within Company policy and guidelines as outlined in points 1 and 2 [responsibilities under the Trade Practices Act and instructions to ensure competitiveness].

 

4.         …

 

5.         A telephone conversation between myself and Mr David Kadir, Tip Top National Sales and Marketing Director, on Friday 24 November, confirmed that Tip Top’s understanding of the communication between Mark Jones and their Company was in concordance with my investigation.”

 

When cross‑examined about this document, Mr Luscombe agreed that to say that he had conducted “several exhaustive interviews” was perhaps a “liberal use of an adjective in the memo”.  Ms Miller could not recall Mr Luscombe coming to find out her account of what happened in respect of Ferntree Gully.  He said that his use of the word “exhaustive” was intended to convey that he had asked all the pertinent questions of the relevant people. 

 

916               Mr Luscombe said he had put direct questions to Mr Jones whether he had asked Tip Top to increase the retail price at The Cool Store and whether he had asked Tip Top to cease supply to The Cool Store.  Mr Jones had answered no to each question. 

917               Mr Luscombe could not remember exactly what he asked Mr Parker, but the substance was what was the bread in question at The Cool Store and what action had he taken.  He remembered that Mr Parker had said that Mr Jones had told him to take the bread off show but that he had not actually taken the bread off show. 

918               Mr Luscombe also said that Mr Kadir did not confirm his understanding as referred to in par 5 of the memorandum but he did not deny it and had said that he “did not know”.  Mr Luscombe had no recollection of the detail or circumstances surrounding a memorandum from Mr Jones to him on 6 December 1995.

919               After the Commission became involved, Mr Jones prepared a memorandum for Mr Luscombe and Mr Mead.  In its final form the memorandum (exhibited to Mr Jones’ witness statement) was in the following terms:

 

            “TO:              Michael Luscombe

                                 for Ralph Mead

            FROM:          Mark Jones

            DATE:           6 December 1995

 

Michael/Ralph,

 

The following is a true account, to the best of my recollection, of the conversation and actions surrounding the incidents detailed in the recent media releases.

 

1.                  A staff member from the Ferntree Gully Safeway store rang my Category Assistant, Elissa Miller, advising that the Coolstore was selling a Plain Wrap Code C supplied by Tip Top, at $1.19.

 

2.                  As the retail price of $1.19 was substantially below our cost price for a Code C from Tip Top, I rang Tip Top Sales Manager, Tim Maine, to confirm Tip Top was in fact the supplier, and, when that was confirmed, queried how a retailer could sell bread so far below our cost.  Tim Maine confirmed that the bread was being supplied at a cheaper cost than that offered to Safeway.  I advised Mr. Maine that Safeway always expected to buy at the best price available and would want Tip Top to supply Code C bread at the same cost as to the Coolstore and failure by Tip Top to supply at a competitive cost would leave us with no alternative but to not range this Code C bread at our Ferntree Gully store.   Tim Maine advised me he would consider the matter and get back to me.

 

3.                  Tim Maine rang back and said the cost deal on offer to the Coolstore was in fact finished at the end of the week and would no longer be available to the trade.  I then advised Tim that we would not take the matter any further.

 

4.                  On the following Monday, the Ferntree Gully store advised that the bread was still being retailed below our cost at the Coolstore.  I rang Tim Maine to once again restate our position regarding cost.

 

5.                  On Tuesday, a competitive retail price check ascertained that the cost deal offer had been withdrawn and I considered the matter resolved.

 

6.                  The above situation has been repeated several times in the past.  I am fully aware of my responsibilities and the Company policy in regard to the Trade Practices Act.  In the Tip Top matter (and in all previous matters) I have been at pain to ensure at all times I restrict my remarks to cost price issues, and at no stage mention or allude to retail pricing or supply to other retailers.

 

[signed]

 

MARK JONES

CATEGORY MANAGER” 

 

Mr Jones sought to disassociate himself from some of the statements in the memorandum.

920               In par 232 of his witness statement Mr Jones said that he had prepared an account of what had occurred at the request of Mr Luscombe following the media reporting of Mr Dobson’s complaints.  In examination‑in‑chief, Mr Jones said that this paragraph was an error, and in fact Mr Luscombe had asked him to supply him with information regarding the incident at The Cool Store.  He said that he wrote out the whole incident in his handwriting  and gave it to Mr Luscombe but that Mr Luscombe brought the pages back and said it was in far too much detail.  Mr Luscombe then prepared the memorandum in the form exhibited to his witness statement for him to sign.  Mr Jones said that he read the memorandum before he signed it, but did not know why he signed it if it was incorrect.  However, in re‑examination he said he believed he did not read the memorandum properly before he signed it and could not recall reading it.  Ms Miller was positive that she had not seen the memorandum before the court case.  Ms Miller also said that Mr Jones’ practice was always to hand write letters.  She said that she was positive that she did not type the memorandum because her style of typing letters was not that used in the memorandum. 

921               Mr Luscombe had no recollection of how the memorandum came to be prepared, if he drafted the statement or if it was preceded by a handwritten document from Mr Jones.  He said that it was possible that Mr Jones provided him with a draft, which he had rewritten, but he could not recall it.

922               During cross‑examination about the memorandum Mr Jones said that there were errors in the document as redrafted by Mr Luscombe.  In relation to par 1 Mr Jones said that Ferntree Gully did not advise his CMA that The Cool Store was selling plain wrap Code C supplied by Tip Top at $1.19.  Rather they advised him that they were uncompetitive on Tip Top bread and that their retail price was $1.19.  In relation to par 2, Mr Jones said that he did not ring Mr Maine to confirm that Tip Top was in fact the supplier.  He said that he knew that already. 

923               Mr Jones said that par 3 was not totally correct because Mr Maine did phone him back and said that he would not offer Safeway the same deal and that it was in fact a promotion that was running for two weeks and finishing that Sunday. 

924               Mr Jones said that in par 4 the sentence “On the following Monday, the Ferntree Gully store advised that the bread was still being retailed below our cost at the Coolstore” was incorrect and should have said that the Ferntree Gully store advised “that they were uncompetitive on Tip Top bread.”  In addition, Mr Jones said that the sentence “I rang Tim Maine to once again restate our position regarding cost” was also incorrect.  He said that he phoned Mr Maine and had a conversation to the effect that he had been advised by the Ferntree Gully store that Safeway was uncompetitive and made reference to their earlier conversation.  He told Mr Maine that he obviously lied to him and that Safeway wanted to buy proprietary bread at the same cost price as what Ferntree Gully was buying at.  He also said that there were other conversations that were not included.

925               Mr Jones said that he was not sure if the competitive retail price check referred to in par 5 was done, but he suggested it and assumed it was done.  In relation to par 6, Mr Jones said that this paragraph was not one that he had put in.  He said that Mr Luscombe had put it in. 

926               The Commission submitted that this incident was a very clear example of Safeway’s punishment strategy to eliminate deep discounting on bread by independent competitors.  It said that there was no competitive threat posed by The Cool Store for Mr Jones to make the request to delete Tip Top products, yet Mr Jones persisted in his demands for the removal of Tip Top products.  There was no evidence of customer or other perception that Safeway was uncompetitive on bread and Safeway had stocked Captain Cutless for over a year.  The Commission said that Mr Jones saw Ferntree Gully as another opportunity (in addition to Albury) to bring Tip Top into line, and the policy as applied was used as a pro‑active weapon by Safeway to deter Tip Top providing cheap bread to independent stores.

927               There must have been a telephone call to Mr Jones’ office informing someone at the office, presumably Mr Jones’ CMA, that The Cool Store was selling bread supplied by Tip Top at discounted prices.  It is improbable that Mr Jones’ office could have become aware of The Cool Store’s discounting of bread otherwise than from a telephone call from someone at Safeway Ferntree Gully.  However, I am not satisfied that whoever made the telephone call said that Safeway Ferntree Gully was uncompetitive because of what The Cool Store was doing.  Mr Parker and Mr White did not consider Safeway Ferntree Gully to be uncompetitive, and the store had Captain Cutless in stock so that it could immediately respond to the competition. 

928               I am satisfied that what was reported to Mr Jones’ office was what was set out in par 1 of his memorandum to Mr Luscombe on 6 December 1995, the sale of plain wrap bread manufactured by Tip Top at $1.19.  That memorandum was prepared around three weeks or so after the incident occurred and is more likely to be an accurate recording of what occurred at the time.  Mr Jones was prepared, when he made his witness statement, to verify that it was a “true account” of what occurred.  I do not accept that the document contained errors as asserted by Mr Jones.  In particular, I am satisfied that what was reported to Mr Jones’ office was that The Cool Store was selling a plain wrap bread at $1.19.

929               Although Mr Maine accepted that it was the basis of his initial conversation with Mr Jones, inter alia, that Mr Jones said that Safeway Ferntree Gully was uncompetitive on Tip Top bread, it is more probable that what had been reported by Safeway Ferntree Gully was as set out in Mr Jones’ memorandum to Mr Luscombe.

930               Although Eureka bread may have represented a competitive threat to Safeway Ferntree Gully, I am satisfied that it was the low price at which it was being sold by The Cool Store that concerned Mr Jones rather than the identity of its manufacturer.  As Mr Jones’ memorandum to Mr Luscombe disclosed, The Cool Store’s retail price was substantially below Safeway’s Code C cost price from Tip Top.  I accept Mr Maine’s evidence that Mr Jones referred to “cheap bread”.

931               Mr Jones may have asked for a case deal (and I turn to this issue shortly) but he did so, not because he was concerned that customers might consider Safeway Ferntree Gully to be uncompetitive in respect of Tip Top branded bread but rather, because he wanted to be able to get a similar discounted deal on Code C Tip Top branded bread as Safeway Ferntree Gully already stocked Captain Cutless.

932               I consider the Safeway Ferntree Gully incident to be another example of Mr Jones wanting to get a cheap price for branded bread to enable Safeway to compete with discounted bread being sold by a Safeway competitor.  Although Safeway Ferntree Gully was able to compete with Captain Cutless, Mr Jones sought to obtain a competitive price discount from Tip Top by asking for a case deal.

933               I am satisfied that Mr Jones sought a case deal from Mr Maine in the course of his initial conversation with him.  Although there was an issue whether Mr Maine had one conversation or two conversations with Mr Jones about Albury and Ferntree Gully, I do not regard that as a critical issue.  What is important is Mr Maine’s evidence as to the substance of what Mr Jones said to him.  Although Mr Maine’s evidence‑in‑chief was that Mr Jones said, “You’ve got cheap bread in Albury and Ferntree Gully.  Get it out of there”, he agreed that the basis of the conversation was as described in par 885 above. 

934               Whichever conversation it was, Mr Maine was acknowledging that in the conversation in which Mr Jones told him that they had been contacted by Safeway Ferntree Gully about The Cool Store selling bread at $1.19 a loaf, Mr Jones was asking for a case deal.  Mr Jones repeated his request for a case deal when he spoke to Mr Maine on Monday 20 November 1995.  Mr Maine’s response was, not to offer a case deal, but to check the matter out and tell Mr Jones it was a promotion that would finish at the end of the week.

935               The Commission submitted that the language used by Mr Jones was not a request for a case deal but was rather a statement or explanation as to what was going to occur.  I reject that submission.  I am satisfied that the language used by Mr Jones was couched in terms of a request for a case deal and it was part of a negotiation and was not simply an explanation as to what was going to occur.

936               Mr Parker’s evidence that Mr Jones wanted the Tip Top bread taken off show “in order to do the deal with Tip Top” also supported Mr Jones’ evidence that he sought a case deal from Mr Maine.

937               I have already made a finding that I am not satisfied that Mr Jones told Mr Maine to get the bread it was supplying to The Cool Store and Bob’s IGA Albury out of those stores (par 843 above).  It is improbable that Mr Jones told Mr Maine to get the bread out of The Cool Store and asked for the same wholesale price as Tip Top was charging The Cool Store in one and the same conversation.

938               I am satisfied that Mr Jones asked Mr Parker to take the Tip Top range off show at Safeway Ferntree Gully.  Although Mr Parker, in cross‑examination, said that the instruction to delete came from “one of the girls” from the office, Mr Jones said that he spoke to Mr Parker.  I am satisfied that Mr Jones did so.  Mr Parker’s evidence varied from his first statement and second statement, but he ultimately agreed that his first statement contained his best recollection at the time it was made of his conversation with Mr Jones and that he could not remember if there were, or were not, any words from Mr Jones that he should only take the Tip Top Code C bread off show.  I am not prepared to accept Mr Parker’s disclaimer in his supplementary statement that he could not be confident that Mr Jones may not have said to him the precise words that he recorded in his first statement.  The first statement recorded Mr Jones telling Mr Parker that he wanted Mr Parker to “get Tip Top bread off show” and later “I need you to take the Tip Top range off show”.  Those statements were a clear direction to remove all Tip Top bread.  I do not accept Mr Parker’s evidence that he would have understood a reference to removal of bread by Mr Jones to mean a removal of Code C bread.  The words were plain. 

939               The instruction received by Mr Parker was corroborated by Mr White’s evidence that Mr Parker telephoned him and said that he had received an instruction from State office to remove all Tip Top bread from display.

940               I take a similar view with the evidence of  Mr White.  I accept Mr White’s evidence that he was told by Mr Jones that he (Jones) was “not prepared to stock their product”.  I do not accept as credible Mr White’s explanation in his supplementary statement that he understood Mr Jones to be referring only to Code C bread and that in giving that explanation he was explaining “Safeway speak” that he used in his first statement. There was no context from which it could be concluded that Mr Jones was speaking of Code C bread. 

941               Mr White made a concession about the contents of his supplementary statement.  He agreed that it was possible the propositions he advanced by way of a gloss on his original statement required rethinking in the light of the matters of which he was unaware when he prepared his supplementary statement.  Those matters were that he did not know that for some months at Safeway Traralgon (which was within his management area) in 1994 all the Sunicrust products were deleted, nor was he aware that there had been a deletion of all Tip Top products from Safeway Ferntree Gully in June‑July 1994.  I accept the submission of the Commission that, without the knowledge of these events, he was not in a position to give the explanation that he did as to the words used by Mr Jones. 

942               Further, Mr White and Mr Parker were mistaken in their understanding of which bread came within the Code C category.  Neither of them appreciated that Hyfibe, Bornhoffen and Multigrain, despite being 680g loaves, were in fact Code D bread. 

943               I am satisfied that what Mr Jones was looking for was a comparable case deal whereby Safeway Ferntree Gully purchased Tip Top Code C bread at the same price as The Cool Store was purchasing Eureka plain wrap bread.  Mr Jones wanted to get the same cost, albeit on branded bread.  His strategy in this instance was to get Mr Parker to take all Tip Top bread off show until he achieved a lower cost price.  I accept Mr Parker’s primary evidence that Mr Jones asked him to take the Tip Top range off show.  That Mr Jones was concerned about the cost price being paid for Tip Top bread is confirmed by his memorandum to Mr Luscombe dated 6 December 1995.  It may have been finally drafted by Mr Luscombe but its genesis was in Mr Jones’ draft, and Mr Jones was not only prepared to sign it but also to exhibit it to his witness statement as his memorandum.  I do not accept Mr Jones’ evidence that the memorandum contained errors.  I am satisfied that it accurately records, some three weeks or so after the event, what Mr Jones knew about the incident.  It makes it clear he was concerned about Safeway’s cost price.  Although it refers to not ranging Code C bread, I have already found that I accept Mr Parker’s and Mr White’s evidence that Mr Jones wanted to remove the Tip Top range or all Tip Top products.

944               What is also clear from the memorandum is that Mr Jones was saying that he wanted Mr Maine to give Safeway a case deal at Ferntree Gully at the same cost as was being charged to The Cool Store.  Mr Maine’s evidence is to the same effect.  Paragraph 2 of Mr Jones’ memorandum to Mr Luscombe is also to the same effect; it records that a request was made to Mr Maine for a case deal.  Although trade practices issues had been raised with Safeway at the time of the memorandum, it has not been suggested that the document was brought into existence with legal proceedings in mind.  It was not suggested that the memorandum was fabricated for an ulterior purpose, and I am satisfied that it represents Mr Jones’ recollection of the incident at the time he signed the memorandum.  It demonstrates, in particular, that Mr Jones was concerned about the cost of bread to Tip Top rather than whether Safeway was seen to be competitive with the cheap plain wrap bread sold by The Cool Store.

945               Although Mr Jones sought to delete the whole of the Tip Top range, I am not satisfied that his direction to Mr Parker to this effect was to punish Tip Top for selling Eureka bread to The Cool Store at a discounted price.  I am satisfied that in taking this step Mr Jones was seeking to put Safeway in a position where it could buy Tip Top bread at a price comparable to the price for which Tip Top was selling Eureka bread to The Cool Store.  That was why he asked for a case deal.  I do not accept the Commission’s submission that this incident was an example of Safeway’s punishment strategy to eliminate the deep discounting of bread by independent competitors.  The store manager did not want to delete Tip Top bread but Mr Jones still wanted to achieve a comparable cost price on Tip Top bread.  I consider Mr Jones’ request for a case deal, in the circumstances which occurred, to be inconsistent with him having a purpose of, punishing, or intending to punish, Tip Top for putting The Cool Store in a position of being able to sell bread at substantially discounted prices.  Rather the request for a case deal was to enable Safeway to be able to sell Tip Top bread at the same low price as The Cool Store.

946               The fact that Mr Jones understood that The Cool Store was undertaking a short‑term promotion should not have activated the implementation of the policy, but that does not lead me to a conclusion that the purpose of what Mr Jones was seeking to do was to punish Tip Top.  If his purpose was to punish Tip Top he would not have sought a case deal in the terms acknowledged by Mr Maine.

947               The Commission led evidence that Safeway Ferntree Gully deleted Tip Top products in July 1994 and that between 22 August 1994 and 27 October 1994 it accepted a lesser quantity of Tip Top products than it usually did.  I admitted evidence in relation to these matters, subject to objection and subject to relevance.  They were not pleaded as part of any contravention of the Act alleged against Safeway or Mr Jones.  They were not connected in any way with what occurred at Ferntree Gully in November 1995 and I do not gain any assistance from them in making findings in relation to the November 1995 Ferntree Gully incident.

Were there contraventions of the Act?

948               I am not satisfied that Safeway attempted to induce Tip Top to engage in resale price maintenance or that Safeway attempted to arrive at or give effect to, an understanding with Tip Top in contravention of s 45(2)(a) or (b) of the Act.  Neither is the case for exclusive dealing in contravention of s 47 made out.  At its highest, the Commission’s case was that Mr Jones told Mr Maine “You’ve got cheap bread in Albury and Ferntree Gully.  Get it out of there”, although I am not satisfied that Mr Jones made this statement to Mr Maine.  There was no reference to Tip Top getting The Cool Store to raise its bread prices, nor was there any suggestion of an understanding being arrived at as to the level of prices at which bread was to be retailed at The Cool Store and Safeway Ferntree Gully.  Although Tip Top responded to the pressure exerted on it by telling Mr Dobson that his bread prices were not acceptable, and that it would not supply him with Eureka bread, neither Mr Jones nor anyone else at Safeway requested that it do so.  I am not prepared to infer that that conduct was intended by Mr Jones, nor do I consider that I should infer that Mr Jones was trying, to get Tip Top to put pressure on The Cool Store to increase its prices. 

949               Mr Jones may have been putting pressure on Tip Top to give Safeway a cheaper cost price on its Code C Tip Top branded bread, which gives rise to s 46 considerations which I consider later in these reasons, but that pressure did not constitute an attempt to induce Tip Top to engage in resale price maintenance, exclusive dealing or an attempt to reach, or give effect to, an agreement, arrangement or understanding in contravention of s 45 of the Act.  I elaborate on these conclusions later in these reasons.

The provisions of the Act relied upon by the Commission

950               I have already found, for the reasons to which I have referred, that none of the incidents relied on by the Commission resulted in, or constituted, contraventions of ss 45, 47 or 48 of the Act.  There are a number of considerations relevant to my conclusions in relation to those sections which require elaboration and explanation.  As they are common to each of the incidents I consider them generally rather than in the context and framework of a particular incident.  I turn first to a consideration of the allegations of contraventions of s 45 of the Act.

Section45–was there an agreement, ARRAngement or understanding?

951               The Commission’s case was that Safeway had an overriding policy and purpose and that in relation to each of the ten incidents relied upon Safeway had a particular purpose in relation to the local market in which the relevant Safeway store competed.  The Commission submitted that Safeway’s overriding policy and purpose was to ensure that its grocery bread prices were the cheapest in all retail markets in Victoria.  The Commission contended that Safeway’s policy was directed at cheap bread and that its purpose in relation to each local retail bread market in which it operated a retail store was to eliminate or control discounting by relevant independent stores and to ensure that in each relevant market Safeway was not undersold on the price of bread.

952               The Commission did not contend that Safeway’s purpose was to raise its own retail prices, nor the retail prices of all its competitors, or across the whole market.  Rather, it contended that Safeway’s purpose was to raise the lower end retail prices of independent stores.

953               The issue of Safeway’s purpose is critical because of the allegations of contraventions of s 45 and s 46 of the Act.  Section 45(2) of the Act relevantly provides:

“A corporation shall not:

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

(i)         the proposed contract, arrangement or understanding contains an exclusionary provision; or

(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, whether the contract or arrangement was made, or the understanding was arrived at, before or after the commencement of this section, if that provision:

(i)         is an exclusionary provision; or

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

 

In this proceeding the Commission’s case was based on the purpose of the provision and not its effect.

 

954               The proscribed purpose does not need to be the sole purpose of the provision, so long as it is a substantial purpose or an operative purpose.  The scope of the term “purpose” for the purposes of the Act is defined in s 4F(1) of the Act in the following terms:

“For the purposes of this Act:

(a)       a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding, or a covenant or a proposed covenant, 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, or the covenant was required to be given or the proposed covenant is to be required to be given, 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)       a person shall be deemed to have engaged or to engage in conduct for a particular purpose or a particular reason if:

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

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

 

955               When considering whether there is a contravention of s 45(2)(a) or (b) it is necessary to isolate and identify a “provision” of the contract, arrangement or understanding that is said to have the purpose of substantially lessening competition.

956               In each of the nine incidents relied upon by the Commission, that is, other than the Preston Market incident, the allegation that there was a provision of the contract, arrangement or understanding that had the proscribed purpose was in similar terms.  It was that:

(a)        Safeway would agree to recommence purchasing bread products from the relevant plant baker for Safeway’s retail sites in the vicinity of the relevant independent store on condition that the relevant plant baker take such steps as were necessary to ensure that the relevant independent store ceased selling bread at prices cheaper than Safeway’s retail prices.

 

(b)        Safeway would not de‑list the relevant plant baker’s bread products at its retail sites in the vicinity of the relevant independent store if the relevant plant baker took such steps as were necessary to ensure that the relevant independent store did not sell bread at prices cheaper than Safeway’s retail prices.

 

It was alleged that such provisions had the purpose of substantially preventing, hindering or otherwise lessening competition in the retail market in which Safeway and the relevant independent store participated.

 

957               I have made findings in relation to each of the nine incidents that Safeway did not enter into any agreement or arrangement, or reach an understanding, with any of the plant bakers that contained such a provision.  I elaborate on those findings.  There was no evidence that such a provision was specifically or explicitly agreed or entered into.  Indeed, a number of the representatives of the plant bakers disavowed any suggestion that Mr Jones sought to have such a provision agreed to, accepted or understood.  Mr Cooper from Buttercup agreed that neither Mr Jones, nor anyone from Safeway, ever suggested to him that he should go to the independent stores and ask them to raise their prices, nor did Mr Jones ask him to control retail pricing.  Mr Maine from Tip Top agreed that Mr Jones did not suggest that Mr Maine get Mr Morrell from Bob’s IGA in Albury to increase the price of the bread he was selling, nor did Mr Jones suggest that Tip Top withdraw the promotion it was giving to Bob’s IGA.  The following question was put to Mr McLeish of Sunicrust:

“Mr Jones, never in any conversation with you, whether by words or by conduct, ever said to you or suggested to you or hinted to you that action should be taken to get retailers to push their prices up?”

 

Mr McLeish answered:

“Never did”.

958               Of course, a contract, arrangement or understanding can be inferred from conduct, as can an attempt to make a contract, or arrangement or reach an understanding.  However, on the findings I have made in relation to each of the nine incidents I am not satisfied that Safeway or Mr Jones either attempted to make a contract or arrangement or reach an understanding that contained either of the provisions alleged by the Commission or in fact made such a contract or arrangement, or reached such an understanding.  In each case Mr Jones presented the plant baker with either a fait accompli, or a request for a case deal which, when declined or rejected, resulted in a deletion of bread products from display.  Although the consequence was a request by the plant baker in one case that the independent store increase the price at which it was selling bread, and in another case was a withdrawal of supply of a particular bread product from an independent store, that consequence did not result from any contract, arrangement or understanding containing a provision in the terms alleged by the Commission or any attempt by Safeway to make such a contract or arrangement or reach such an understanding.

959               In order to establish that a contract, arrangement or understanding exists between relevant parties it is necessary to find that there has been a meeting of the minds of the participants on the relevant issue.  Such a meeting of minds may not be articulated explicitly but it may nevertheless be inferred from conduct and surrounding circumstances.  The matter was put succinctly by Lockhart J in Trade Practices Commission v Email Ltd (supra).  His Honour said at 385:

“For there to be an arrangement or understanding there must be a meeting of the minds of those said to be parties to the arrangement or understanding.  In some cases this may be inferred from circumstantial evidence.  There must be a consensus as to what is to be done and not just a mere hope as to what might be done or happen.  Independently held beliefs are not enough.”

 

(See also Stationers Supply Pty Ltd v Victorian Authorised Newsagents Association Ltd (1993) 44 FCR 35 at 61).  The distinction between a hope or expectation and an understanding was recognised and accepted by the Full Court in News Ltd v Australian Rugby Football League Limited (1996) 64 FCR 410 at 571. 

 

960               None of the findings I have made in relation to any of the nine incidents supports the conclusion that in any case there was a meeting of the minds of the relevant participants in the terms alleged by the Commission.  I have considered this issue already in relation to the Preston Market incident.  Further, I am not satisfied that the evidence established that there was an attempt by Safeway to make such a contract or arrangement, or reach such an understanding.  The findings I have made in relation to what passed between the participants to the relevant conversations are not sufficient to support the conclusion that there was an attempt by Safeway or Mr Jones to make a contract or arrangement or reach an understanding.  Mr Jones did not imply in the conversations he had with the representatives of the plant bakers that they should act in any particular way in relation to the relevant independent store.  Apart from requesting a case deal Mr Jones did not suggest that the plant bakers should take any steps in relation to the prices at which the independent stores were selling bread.  I adopt and apply the observation of Toohey J in Trade Practices Commission v Tubemakers of Australia Ltd (supra).  His Honour said at 736:

“I have no difficulty with the proposition that a statement relied upon to found an allegation of attempt must carry within its terms the potential for an arrangement or an understanding.  A statement made quite unilaterally of intention to do something or to refrain from doing something, with no suggestion express or implied that others might act in the same way, is hard to visualise as an attempt to make an arrangement or arrive at an understanding for the control of discounts on the sale of steel products.”

 

961               Even if I am wrong, and there was sufficient evidence to justify a finding that in any of the nine incidents a contract or arrangement was entered into, or an understanding was reached, or that there was an attempt to do so, I am not satisfied that it contained a provision in either of the terms alleged by the Commission.  Certainly no proposition in the terms alleged was proffered by Mr Jones or anyone else on behalf of Safeway.  The evidence was insufficient to enable me to draw an inference from the relevant conversations and conduct that occurred that a provision in the terms alleged was proposed.  The incidents that occurred must be examined in the light of the policy which had been formulated and introduced by Mr Brookes.  The provisions alleged by the Commission did not form any part of that policy.

962               Having rejected the submission that there was a contract or arrangement entered into, or an understanding reached, containing either of the provisions alleged by the Commission, it is not necessary to consider whether those provisions had the purpose of substantially lessening competition.  I consider the issue of purpose elsewhere in relation to the allegation of contraventions of s 46 of the Act.

SECTION 47 – DID SAFEWAY ENGAGE IN THE PRACTICE OF EXCLUSIVE DEALING?

963               The Commission has alleged that in each of the ten incidents Safeway engaged, or attempted to engage, in the practice of exclusive dealing in contravention of s 47(1) of the Act.  In particular ss 47(4) and (5) were relied upon.

964               Section 47 relevantly provides:

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

…

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

 

(a)        acquires, or offers to acquire, goods or services; or

(b)        acquires, or offers to acquire, goods or services at a particular price;

 

on the condition that the person from whom the corporation acquires or offers to acquire the goods or services or, if that person is a body corporate, a body corporate related to that body corporate will not supply goods or services, or goods or services of a particular kind or description, to any person, or will not, or will not except to a limited extent, supply goods or services, or goods or services of a particular kind or description:

 

(c)        to particular persons or classes of persons or to persons other than particular persons or classes of persons; or

 

(d)        in particular places or classes of places or in places other than particular places or classes of places.

 

(5)       A corporation also engages in the practice of exclusive dealing if the corporation refuses:

 

(a)        to acquire goods or services from a person; or

(b)        to acquire goods or services at a particular price from a person;

 

for the reason that the person or, if the person is a body corporate, a body corporate related to that body corporate has supplied, or has not agreed not to supply, goods or services, or goods or services of a particular kind or description:

 

(c)        to particular persons or classes of persons or to persons other than particular persons or classes of persons; or

 

(d)        in particular places or classes of places or in places other than particular places or classes of places.

…

(10)     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), (3), (4) or (5) or paragraph (8)(a) or (b) or (9)(a), (b) or (c) 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; or

 

(b)        the engaging by the corporation in that conduct, and the engaging by the corporation, or by a body corporate related to the corporation, in other conduct of the same or a similar kind, together have or are likely to have the effect of substantially lessening competition.

…

(13)     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 other than subsection (8) or (9) applies, shall be read as a reference to competition in any market in which:

(i)         the corporation engaging in the conduct or any body corporate related to that corporation; or

(ii)        any person whose business dealings are restricted, limited or otherwise circumscribed by the conduct or, if that person is a body corporate, any body corporate related to that body corporate;

 

supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the conduct, supply or acquire, or be likely to supply or acquire, goods or services; and

 

(c)        a reference to competition, in relation to conduct to which subsection (8) or (9) applies, shall be read as a reference to competition in any market in which the corporation engaging in the conduct or any other corporation the business dealings of which are restricted, limited or otherwise circumscribed by the conduct, or any body corporate related to either of those corporations, supplies or acquires, or is likely to supply or acquire, goods or services would, but for the conduct, supply or acquire, or be likely to supply or acquire, goods or services.”

 

965               In the case of each incident involving an independent store the Commission alleged that Safeway had engaged, or attempted to engage, in the practice of exclusive dealing in that:

·                   it had offered to acquire, or attempted to offer to acquire, bread products from the particular plant baker on condition that the plant baker would not supply bread products to the particular independent store except where the independent store did not, in relation to such products, undercut Safeway or sell bread at prices cheaper than Safeway’s retail prices in the retail market in which the independent store was located.  Section 47(4)(a) was relied upon;

 

·                   it had refused to acquire bread products from the particular plant baker for the reason that the plant baker had supplied, or had not agreed not to supply, bread to the particular independent store during the period that the independent store undercut Safeway on the bread or sold the bread at prices cheaper than Safeway’s retail prices in the retail markets in which the independent store was located.  Section 47(5)(a) was relied upon.

 

966               In relation to the Preston Market incident the Commission alleged that Safeway had offered to acquire, or attempted to offer to acquire, bread products from Tip Top on condition that Tip Top would not supply certain bread products to consumers at its Preston Market stall.  It was alleged that in each case Safeway’s conduct had the purpose of substantially preventing, hindering or otherwise lessening competition in the retail market in which Safeway and the particular independent store or Tip Top participated.

967               The Commission submitted that s 47(4) was contravened because in each incident Safeway had offered to acquire bread products on condition that the plant bakers would not supply bread products to the independent stores except to a limited extent; that limited extent being that the store did not sell the bread at a price cheaper than the price at which the relevant Safeway store sold bread.  (I will consider the Preston Market incident separately). 

968               The critical issue to determine in the context of s 47(4) is whether the condition imposed by Safeway was that the plant baker in each instance only supply bread to the relevant independent store “to a limited extent”.  The Commission submitted that the expression “will not except to a limited extent, supply goods …” covered the situation where Safeway required the plant bakers to supply independent stores only where the stores did not undercut Safeway’s price.  Safeway submitted that the expression did not include a condition of the type pleaded or submitted by the Commission.

969               There is very little authority on the proper construction of the expression “except to a limited extent” in s 47.  In O’Brien Glass Industries Ltd v Cool & Sons Pty Ltd (1993) 48 ALR 625, the trial judge had found that O’Brien had a general practice of giving and offering discounts to retailers in relation to the supply of windscreens on the condition that they purchased all or the substantial majority of their purchases of windscreens from O’Brien.  The trial judge found that in the particular case before him, O’Brien had offered Cool & Sons Pty Ltd a discount on condition that it bought most of its windscreens from O’Brien.  The trial judge found that a contravention of s 47(2) of the Act was made out.  This finding was not disturbed on appeal.  Fox J (with whom Sheppard J agreed) said at 628:

“For there to be an exclusive dealing, s 47(2) requires that the supply (or offer to supply) or the giving of a discount (or offering of one) be ‘on the condition’ that the offeree ‘will not, or will not except to a limited extent’, acquire goods from a competitor.  I think his Honour’s findings of fact in this case involve the conclusion that there was a ‘condition’ in the sense referred to in s 47(2) and that it was related to a future inhibition (see SWB Family Credit Union Ltd v Parramatta Tourist Services Pty Ltd (1980) 32 ALR 365).  In any event, the evidence which he accepted seems to me plainly to involve that result.  The terms of sale were agreed before delivery:  the discount was agreed on the condition that ‘all or the substantial majority’ of the windscreens would be acquired from O’Brien.  There has not been any argument concerning the words ‘except to a limited extent’ in s 47(2).  Comment was made on behalf of O’Brien on the imprecision of the criterion which his Honour enunciated, but indefiniteness of that degree does not, in my view, defeat the operation of the section, and the restraint imposed did not permit outside acquisition beyond a ‘limited extent’”.

 

That observation was made in the context of a quantitative limitation but it demonstrates the nature of a factual situation covered by the expression “to a limited extent”.

 

970               The expression “to a limited extent” does not sit easily with a condition that a supplier will supply whatever quantity of goods are required by a purchaser but only if the purchaser did not sell below a particular price.  Such a condition sits more easily within the framework of the resale price maintenance provisions found in ss 48 and 96 of the Act.  There is terminology used in s 47 that recognises a distinction between a condition that seeks to impose a limitation on the amount of goods supplied, involving a refusal to supply, and a condition which seeks to impose a term on which goods are to be resupplied by the purchaser.  Sections 47(2)(e) and (f) cover situations where conditions as to the resupply of goods are imposed.  So does s 47(8)(a)(ii).  Further, the reference in s 47(4)(b) to a corporation acquiring or offering to acquire goods “at a particular price on the condition …” lends support to the conclusion that the expression “will not, or will not except to a limited extent” refers to a blanket refusal to supply goods or to an agreement to the supply of a quantitatively limited amount of goods.  I do not consider that the expression “will not except to a limited extent” is easily adapted to, or covers, a situation where the condition imposed by the acquirer or offeror is that the supplier not supply goods where the purchaser from it undercuts the acquirer or offeror or sells goods at prices cheaper than the acquirer or offeror’s prices for its goods.

971               It follows that the conduct of Safeway in the nine incidents (other than the Preston Market incident) did not contravene s 47(4) of the Act.

972               Whether the Preston Market incident resulted in a contravention of s 47(4) gives rise to different considerations.  The allegation of exclusive dealing in relation to the Preston Market incident relied on a finding that Safeway and Tip Top made, or attempted to make, the contract or arrangement, or reached, or attempted to reach, the understanding alleged in par 7 of the statement of claim.  I have found that that case has not been made out.  Even if it had been made out, a contravention of s 47(4) would not have been established by reference to the agreement, arrangement or understanding as to the prices to be charged by Tip Top at the Preston Market stall.  The reference in s 47(4) to goods “of a particular kind or description” is not apt to describe an agreement not to sell goods for less than a particular price.  An agreement that particular types of bread not be sold by Tip Top for less than a particular price is not the imposition of a condition that Tip Top will not supply bread “of a particular kind or description”.

973               There is an alternative way of analysing the allegation of exclusive dealing in relation to the Preston Market incident, namely that the allegation is based not on a finding of the contract or arrangement or understanding alleged in par 7 of the statement of claim but rather on conduct whereby Tip Top agreed to reintroduce Tip Top bread into Safeway Preston on condition that Tip Top ceased selling branded bread at the Preston Market stall.  Such an allegation appeared to be covered by pars 16D(a)(ii) and 16E(a)(ii) of the statement of claim which pleaded that in engaging in the conduct alleged in par 7 Safeway had engaged, or attempted to engage, in the practice of exclusive dealing in that it had acquired or offered to acquire or attempted to acquire or offer to acquire bread products from Tip Top on condition that Tip Top would not supply certain bread products to consumers at its Preston Market stall.  It was also alleged that this conduct had the purpose of substantially preventing, hindering or otherwise lessening competition in the retail markets in which Safeway and the Preston Market Stall participated.

974               The conduct alleged in par 7 related to the Preston Market incident.  There was included in the particulars under par 7 particulars relating to Mr Feldgen meeting Mr Lovett at the Preston Market stall and telling him to remove branded bread from the stall.

975               The Commission submitted that exclusive dealing was constituted by Safeway acquiring or offering to acquire bread from Tip Top on condition that it did not supply goods of a particular description, namely proprietary bread (or generic brands with a retail price of less than $1.50 for Code C and $1.90 for Code D) to consumers in a particular place, being the Tip Top Preston Market stall.  What in fact occurred was that Tip Top removed branded bread from the stall, and Safeway recommenced stocking Tip Top products at Safeway Preston.  The sequence of events that occurred between Mr Feldgen and Mr Lovett was that they visited the Preston Market stall, Mr Feldgen asked what Tip Top Sunblest bread was doing there, Mr Lovett said there had been a mistake and that it would not happen again.  On the following day when they visited the stall again and Mr Feldgen approved of the prices, Mr Lovett asked if Tip Top could go back into the store and Mr Feldgen said Tip Top could start delivering on Monday. 

976               I am satisfied that this sequence of events warrants the conclusion that Safeway, by recommencing the stocking of Tip Top products at Safeway Preston, offered to acquire, and acquired, Tip Top bread on condition that Tip Top would not supply branded bread to customers at its Preston Market stall.  Those customers were “particular persons or classes of persons” for the purpose of s 47(4)(c) of the Act and the Preston Market stall was “a particular place” for the purpose of s 47(4)(d) of the Act.  Although the condition as to the non‑supply of branded bread at the stall was not stated explicitly as a condition on which the restocking of Tip Top bread would commence, I find that that condition is to be found in the sequence of events in which Mr Feldgen and Mr Lovett participated together.  I draw in aid s 47(13)(a) of the Act.

977               However, this finding is not sufficient to establish a contravention of s 47(1) as that sub‑section does not apply to conduct referred to in s 47(4) unless the engaging by Safeway in that conduct had the purpose, or had or was likely to have had the effect of substantially lessening competition:  s 47(10)(a) of the Act.  Mr Feldgen had no authority from Safeway to impose that condition on Tip Top for the reasons to which I have already referred in my consideration of the Preston Market incident.  Further, for the reasons to which I have already referred Mr Feldgen did not have, for the purposes of s 84(2) of the Act, actual or apparent authority to agree with a plant baker the terms and conditions on which bread was to be reintroduced into a Safeway store.

978               This alternative way of analysing the allegation of exclusive dealing in relation to the Preston Market incident was given little consideration in the submissions.  However, it was advanced in the statement of claim and was covered by the Commission’s submissions. 

979               The Commission also submitted that s 47(5) was contravened in each incident (apart from the Preston Market incident) with the arguable exception of the Ferntree Gully incident.  In the case of the Ferntree Gully incident, the Commission submitted that Safeway attempted to contravene s 47(5)(a).  The Commission said that in each case (except for Ferntree Gully) Safeway refused to stock a plant baker’s bread because the particular baker had supplied generic or plain wrap bread to an independent store.  The refusal was constituted by the deletion of the plant baker’s products.

980               A distinction needs to be drawn for the purposes of s 47(5) between:

·                   A refusal to acquire goods from a person because the person has supplied goods to particular persons (which is covered by s 47(5)); and

 

·                   A refusal to acquire goods from a person because the person has supplied goods to particular persons for particular prices (which is not covered by s 47(5)).

 

It is the latter situation that was the case made by the Commission against Safeway.  It was said that Safeway punished the plant bakers for selling bread to the independent stores at prices that enabled the independent stores to sell bread more cheaply than Safeway.  It was not said that Safeway was punishing the plant bakers simply because they had sold bread to the independent stores.  On any view of the evidence, what crystallised issues and led to telephone calls to the plant bakers was the fact that the independent stores had been put in a position by the plant bakers, by the giving of a cost price, that enabled them to sell bread more cheaply than Safeway.

 

981               Safeway submitted that s 47(5) only covered a situation where there was a refusal to acquire goods because there had been a supply of goods to another person and did not cover a situation where the refusal occurred because there had been a supply of goods to another person at a particular price.

982               A contravention of s 47(5) is predicated on the existence of a proscribed reason for the refusal to acquire goods.  It is stated in clear terms – it is because of the fact of the supply of goods simpliciter or the lack of agreement not to supply goods simpliciter rather than the fact of the supply of goods on particular terms or conditions or the lack of agreement not to supply goods on particular terms or conditions.  The structure and content of s 47 is such that each of the practices proscribed in subs (2) to (9) is a practice in which the issue is the supply or acquisition of goods simpliciter rather than the supply or acquisition of goods on particular terms or conditions whether as to price or otherwise.  The reason proscribed in s 47(5) is the reason “that the person … has supplied goods”, not the reason that the person has supplied goods at a particular price.  Section 47(5) recognises in subpar (b) that exclusive dealing may occur where a person refuses to acquire goods “at a particular price from a person”, yet it does not provide that the proscribed reason include the reason that the body corporate has supplied goods at a particular price to a person.  This recognition supports the conclusion that s 47(5) does not cover a situation where the reason for the refusal to acquire goods is that the supplier has supplied goods to another person for a particular price.

983               I have approached this construction of s 47(5) bearing in mind the observation of Gibbs J in Beckwith v The Queen (1976) 135 CLR 569 at 576:

“The rule formerly accepted that statutes creating offences are to be strictly construed, has lost much of its importance in modern times.  In determining the meaning of a penal statute the ordinary rules of construction must be applied, but if the language of the statute remains ambiguous or doubtful the ambiguity or doubt may be resolved in favour of the subject by refusing to extend the category of criminal offences …”

(See also Waugh v Kipen (1986) 160 CLR 156 at 164).  In Trade Practices Commission v Legion Cabs (Trading) Co‑Operative Society Ltd (1978) 35 FLR 372 at 382, Franki J considered that s 47 “should be construed in a similar way to a section imposing criminal liability.”  His Honour then referred to the passage to which I have referred in Beckwith v The Queen (supra), as stating the proper interpretation of statutes imposing a criminal liability.  I have, with respect, adopted the same approach as Franki J to the construction of s 47.

 

984               This construction of s 47(5) is consistent with the construction I have placed on the words “will not, or will not except to a limited extent” in s 47(4). 

985               The practices proscribed by ss 47(2) to 47(9) are concerned with the fact or circumstance of the supply of goods or services or the lack of supply of goods or services.  Those subsections are concerned with the fact or circumstance of supply itself rather than with supply at a particular price.  Section 47(5) does not cover a situation where there is a refusal to acquire goods from a person because the person has supplied goods to particular persons for particular prices. 

986               It follows that the conduct of Safeway in the nine incidents relating to independent stores did not contravene s 47(5) of the Act.

SECTION 48 – DID SAFEWAY INDUCE OR ATTEMPT TO INDUCE Resale Price Maintenance?

987               I turn to the issue of resale price maintenance and the allegations of contraventions of ss 48 and 96 of the Act.  The case made by the Commission was that Safeway, in each incident (other than Preston Market), induced, or attempted to induce, one of the plant bakers to engage in one or more of the acts of resale price maintenance set out in s 96(3) of the Act.  Section 76(1)(d) of the Act provides that the Court may order a person to pay a pecuniary penalty if the Court is satisfied that the person:

“has induced, or attempted to induce, a person, whether by threats or promises or otherwise, to contravene”

 

a provision of Pt IV of the Act.

988               Section 96(3) sets out the acts which are proscribed acts of resale price maintenance in the following terms:

“(a)     the supplier making it known to a second person that the supplier will not supply goods to the second person unless the second person agrees not to sell those goods at a price less than a price specified by the supplier;

 

(b)       the supplier inducing, or attempting to induce, a second person not to sell, at a price less than a price specified by the supplier, goods supplied to the second person by the supplier or by a third person who, directly or indirectly, has obtained the goods from the supplier;

 

(c)        the supplier entering into an agreement, or offering to enter into an agreement, for the supply of goods to a second person, being an agreement one of the terms of which is, or would be, that the second person will not sell the goods at a price less than a price specified, or that would be specified, by the supplier;

 

(d)       the supplier withholding the supply of goods to a second person for the reason that the second person:

(i)         has not agreed as mentioned in paragraph (a); or

(ii)        has sold, or is likely to sell, goods supplied to him or her by the supplier, or goods supplied to him or her by a third person who, directly or indirectly, has obtained the goods from the supplier, at a price less than a price specified by the supplier as the price below which the goods are not to be sold;

 

(e)        the supplier withholding the supply of goods to a second person for the reason that a third person who, directly or indirectly, has obtained, or wishes to obtain, goods from the second person:

(i)        has not agreed not to sell those goods at a price less than a price specified by the supplier; or

(ii)        has sold, or is likely to sell, goods supplied to him or her, or to be supplied to him or her, by the second person, at a price less than a price specified by the supplier as the price below which the goods are not to be sold; and

 

(f)        the supplier using, in relation to any goods supplied, or that may be supplied, by the supplier to a second person, a statement of a price that is likely to be understood by that person as the price below which the goods are not to be sold.”

 

989               Tip Top engaged in conduct in contravention of s 96 in relation to the Ferntree Gully and Albury May and November incidents.  The practice of resale price maintenance was carried into effect in the Ferntree Gully and Albury November incidents and the Albury May incident resulted in an attempt by Tip Top to carry the practice into effect.  Sunicrust and Buttercup did not engage, or attempt to engage, in any acts of resale price in relation to any incident.  In those cases where the plant bakers did not carry out any acts which constituted resale price maintenance within s 96(3), the Commission’s case was that Safeway attempted to induce the plant bakers to engage in the practice of resale price maintenance in contravention of s 96(3).

990               The Commission submitted that in each case Safeway committed the following acts:

(a)        it induced, or attempted to induce, the plant baker to make it known to the particular independent retailer that it would not supply the secondary brand, plain wrap or generic bread unless the retailer agreed not to sell that bread at a price less than Safeway’s price for its cheapest grocery bread.  The Commission relied on s 96(3)(a);

 

(b)        it induced, or attempted to induce, the plant baker to make it known to the particular independent retailer not to sell the secondary brand, plain wrap or generic bread supplied by it at a price less than Safeway’s price for its cheapest grocery bread. The Commission relied on s 96(3)(b);

 

(c)        it induced, or attempted to induce the plant baker to enter into an agreement, or to offer to enter into an agreement, for the supply of bread to the particular independent retailer, being an agreement, a term of which was that the independent retailer would not sell the secondary brand, plain wrap or generic bread to the public at a price less than the price specified by the plant baker being Safeway’s price for its cheapest grocery bread. The Commission relied on s 96(3)(c);

 

(d)        it induced, or attempted to induce the plant baker to withhold the supply of the secondary brand, plain wrap or generic bread to the particular independent retailer because the independent retailer had not agreed to sell the bread at a price less than a price specified by the plant baker being Safeway’s price for its cheapest grocery bread. The Commission relied on s 96(3)(d);

 

(e)        it induced, or attempted to induce the plant baker to use in relation to secondary brand, plain wrap or generic bread supplied, or that may be supplied, by the plant baker to a particular independent retailer, a statement of price, that was likely to be understood by that person, as the price which the bread was not to be sold.  The Commission relied on s 96(3)(f).

 

991               An act of inducement, or an attempt to induce, may take a variety of forms and is not limited to situations where the inducement is coupled with a threat or a promise.  This is made clear by the phrase in s 76(1)(d) “threats or promises or otherwise”.  What inducement does involve is some affirmative or positive act, or course of conduct, directed to the person who is said to be the object of the inducement.  Thus, “mere persuasion, with no promise or threat, may well be an attempt to induce”:  The Heating Centre Pty Ltd v Trade Practices Commission (1986) 9 FCR 153 at 164.  In Yorke v Lucas (1983) 49 ALR 672 (affirmed on appeal (1985) 158 CLR 661) the Full Court of the Federal Court observed at 681‑682 that:

“Inducing a contravention in the context of s 75B(b) connotes, in our view, some act of compulsion by force or threat of force or some act of persuasion or stimulation aimed at ensuring that an act is committed which constitutes a contravention.  The word ‘incite’ is akin to ‘induce’, though ‘induce’ probably covers a wider field.  ‘Incite’ is a word familiar to the criminal law and involves some deliberate act of rousing, stimulating, urging or spurring on:  Young v Cassels (1914) 33 NZLR 852, per Stout CJ (at 854).  Thus something more than innocent participation by the defendant is involved in the notion of inducing a person to commit a contravention.”

 

This observation is equally applicable to inducing a contravention in the context of s 76(1)(d).

 

992               In each of the nine incidents Safeway either deleted the plant baker’s products from the relevant Safeway store or threatened such a deletion.  The Commission submitted that Safeway knew that the deletions caused harm to the plant bakers and knew that the threat of deletion would induce the plant bakers either to withdraw supply from the relevant store or to induce that store to raise its price.  It was said that Safeway had knowledge that the deletion, or the threat of deletion, was aimed at ensuring that acts of resale price maintenance would occur and that it wanted them to occur.

993               In order for the conduct relied upon by the Commission to constitute engaging in resale price maintenance for the purposes of s 96(3) it is necessary to establish that the plant baker made known or stated to the retailer the minimum “price specified” or “statement of a price” below which the retailer was not to sell bread.  In order for Safeway to have induced or attempted to induce that conduct it is necessary to establish that Safeway induced or attempted to induce, the plant baker to make known or state to the retailer that specified price or statement of price.  Further, in order for Safeway to have induced or attempted to induce, the plant baker’s conduct for the purposes of s 76, it must be established that Safeway knew the essential facts constituting the contravention:  Yorke v Lucas (1985) 158 CLR 661 at 669‑670.

994               Safeway contested the submission that it intended to harm the plant bakers by its bread policy and its deletion component.  As I have found earlier, the purpose of the bread policy created by Mr Brookes was to enable Safeway to be competitive in its bread sales and was not punitive.  Mr Brookes recognised that a plant baker, when confronted with the implementation of Safeway’s bread policy, could contravene the Act by withdrawing products or raising the prices it charged the retailer.  However, he disavowed encouraging the plant baker to undertake such activity.  There is no evidence that he did so directly or explicitly and I am not satisfied that Mr Jones, or anyone else at Safeway, encouraged the plant bakers to undertake such activity.  Although Mr Maine gave evidence of a conversation with Mr Jones in which Mr Jones said, “you’ve got cheap bread in Albury and Ferntree Gully.  Get it out of there”, I have already found that I am not satisfied that Mr Jones made that statement (pars 843 and 937 above).

995               The Commission submitted that Mr Brookes knew that a consequence of his policy was that the plant bakers might take action in breach of the Act.  The evidence does not support the submission in those terms.  The following exchange in the cross‑examination of Mr Brookes is relevant in this context:

“Didn’t it cross your mind that the implementation of the policy might involve Woolworths being seen by the baker to interfere in the baker’s dealings with Woolworths’ competitors?---No, I did not.  I was conscious that a bread vendor could go and breach the act as listed in point 3.  But I never thought they would be silly enough to do that.

 

[GOLDBERG J]:        You say you were conscious of that?---Conscious that when we placed pressure on manufacturers – and again I’d be fibbing to say that when I spoke to a bread vendor or when I encouraged Mark to speak to bread vendors, that one of the options that they could take would be to go and either reduce deals to the independent, or stop selling that line to the independent.  But that was the case with every one of the 1500 manufacturers we dealt with.  I never expected them to go around and actually see the independent and do anything such as withdraw product or put prices up.  So I was conscious – I’d be fibbing to say I wasn’t conscious that it was an option open to them, but didn’t encourage them to do it, for a start, and certainly didn’t ask any of them to take such activity.”

The reference to point 3 was a reference to a passage in the Woolworths Compliance Manual which stated that a buyer was not entitled to try and interfere in a supplier’s dealings with Woolworths’ competitors and that a buyer should not try to influence the supplier not to supply other organisations or to influence the price at which the supplier sells to other organisations.  It is putting the evidence too highly to say that he knew that a consequence of his policy was that the plant bakers might breach the Act.  Of course, there was a difference between the 1,500 manufacturers Safeway dealt with and the plant bakers because the policy Mr Brookes had formulated was unique to the bread category.  Nevertheless, I accept this evidence of Mr Brookes.  I do not consider that he intended the plant bakers to withdraw bread from the independent stores or increase the prices charged to them.

 

996               I am not satisfied that Safeway, Mr Brookes or Mr Jones intended to have the plant bakers undertake any conduct that constituted a contravention of s 96(3) of the Act, that is participate in resale price maintenance.  Although Mr Brookes and Mr Jones recognised that it was an option for the plant bakers to undertake that conduct, I find that they did not seek to induce or persuade them to do so in the terms alleged by the Commission.  They did not seek to do so explicitly or directly, nor did they seek to do so indirectly.

997               Each of the nine incidents must be considered separately to determine whether each incident involved acts of resale price maintenance.  I have considered each incident and reached the conclusion that in none of them did Safeway induce, or attempt to induce, acts of resale price maintenance by the plant baker.  For the reasons given in my consideration of each incident, and in my consideration of Ms Austin’s evidence, I do not consider that Safeway, Mr Brookes, Mr Jones or Ms Austin undertook any conduct which was aimed at ensuring that a result was achieved which constituted an act of resale price maintenance.

998               The Commission submitted that it was sufficient to constitute an inducement or an attempted inducement pursuant to s 76(1)(d) if there is:

“some act of compulsion by force or threat of force or some act of persuasion or stimulation aimed at ensuring that an act is committed which constitutes a contravention.”

 

(Yorke v Lucas (supra) at 681).  That proposition is not controversial but, for the reasons to which I have referred, I am not satisfied that Safeway, Mr Brookes, Mr Jones or Ms Austin were seeking to ensure that the plant bakers engaged in resale price maintenance in contravention of s 96(3).

 

999               An intention to commit a contravention or an offence may be established even though there is no intent to bring about the particular consequence which is proscribed so long as it can be established that the act or conduct is carried out with knowledge or foresight of the probable consequences of the act or conduct.  In Giorgianni v The Queen (1985) 156 CLR 473, Wilson, Deane and Dawson JJ said at 506:

“For the purposes of many offences it may be true to say that if an act is done with foresight of its probable consequences, there is sufficient intent in law even if such intent may more properly be described as a form of recklessness.”

 

In the present circumstances I am not satisfied that it was a probable consequence of the deletion policy or any of the nine incidents that the plant bakers would engage in resale price maintenance in contravention of s 96(3).  Buttercup and Sunicrust did not do so.  There were other alternatives open to the plant bakers other than engaging in resale price maintenance, such as suffering the deletion, which in some cases was for a very short time, or offering a case deal.

 

1000            The Commission also relied upon a passage in He Kaw Teh v The Queen (1985) 157 CLR 523 where Brennan J said at 569:

“Intent, in one form, connotes a decision to bring about a situation so far as it is possible to do so – to bring about an act of a particular kind or a particular result … Intent, in another form, connotes knowledge.”

 

But in the present circumstances, it is necessary to ask the question “Knowledge of what?”, because although Mr Brookes and Mr Jones recognised that raising prices charged by the plant bakers to the stores of Safeway’s competitors was an option open to the plant bakers, there were other options available, such as offering Safeway a comparable case deal, which Mr Brookes and Mr Jones also recognised.

 

1001            Brennan J’s explanation of the circumstances in which intention connotes knowledge makes it clear that what is required is that the actor have knowledge that particular events will occur.  In the present circumstances what Mr Brookes and Mr Jones knew was not sufficient to warrant the conclusion that they, or either of them, intended the plant bakers to engage in resale price maintenance because the purpose of what Mr Jones did was to enable resale price maintenance to occur.  A telephone call from Mr Jones complaining about an independent store selling cheap bread and a deletion of the plant baker’s products from the competing Safeway store does not constitute an inducement by Safeway of the plant bakers to carry out any act of resale price maintenance.

1002            In its final submissions the Commission submitted that Safeway induced, or attempted to induce, the plant bakers:

(a)        to cease supply to independent retailers who sold bread at prices lower than Safeway’s prices by telling the plant bakers that they were out of the particular Safeway store or telling them to get their bread out of the Safeway store, or words to that effect; and

 

(b)        to induce independent retailers to sell bread at a price not less than Safeway’s retail price for its cheapest grocery bread.

 

The Commission contended that the price of Safeway’s cheapest grocery bread, from time to time, was a published notorious fact.

 

1003            There were two principal difficulties with this submission.  First, this was not the manner in which the resale price maintenance case was pleaded, and secondly, such an allegation did not identify any “price specified” or “statement of a price” (for the purposes of s 96(3)(a)‑(f)) below which the independent retailers were not to sell bread.

1004            In order to establish a contravention of s 96(3) it is not necessary that a particular monetary amount be specified by the supplier.  A price can be specified for the purposes of s 96(3) by reference to a formula or an identifiable standard.  In Trade Practices Commission v Bata Shoe Company of Australia Pty Ltd (No 2) (supra), Lockhart J found that a number of statements made by a supplier fell within the terms of s 96(3) notwithstanding that no monetary amount was referred to.  The statements were to the effect that goods would be supplied if the retailer was to “sell at somewhere near the selling price of Gowings Ltd in Sydney” (153) and that the supplier would supply goods if the retailer “would sell [the footwear] at a price comparable to the maximum price in South Australia”, that is, the maximum price permitted under South Australian price legislation.  Those prices were ascertainable.  Lockhart J said at 159:

“The fact that a price is stated to be within a range of a particular figure, or that otherwise an element of approximation is introduced, does not detract from the true character of the price as being a specified price.”

 

1005            In Trade Practices Commission v Mobil Oil Australia Ltd (supra), Toohey J accepted that the statement of a particular monetary price was not required in order for there to be a contravention of s 96.  His Honour said at 183:

“As to price, counsel acknowledged that in several decisions (in particular Trade Practices Commission v. Stihl Chain Saws (Aust.) Pty Ltd (1978) A.T.P.R. 40‑091; Trade Practices Commission v Bata Shoe Company of Australia Pty Ltd (No. 2) (1980) 44 F.L.R. 149; and Peter Williamson Pty Ltd v. Capitol Motors Ltd (supra) [(1982) 41 A.L.R. 613]) the Federal Court has construed the notion of specified price to include a price not specified in precise terms but within a range of a particular figure or otherwise having an element of approximation.  Equally, I would suggest, a price may be specified by reference to some standard well known to the parties, from which a price may be ascertained.”

 

(See also The Heating Centre Pty Ltd v Trade Practices Commission (supra) at 157.)

1006            However, where a particular monetary amount is not specified and an approximation or range is relied upon to establish a “price specified” or a “statement of a price” by the supplier for the purposes of s 96(3), it is necessary that the evidence establish that the approximation or range does, in fact, identify a relevant range of prices.  The onus was on the Commission to lead or identify such evidence.  This was recognised by the Full Court in Trade Practices Commission v Penfolds Wines Pty Ltd (1991) 104 ALR 601 at 612:

“Reliance was placed upon Trade Practices Commission v Bata Shoe Co of Australia Pty Ltd (No 2) (1980) 44 FLR 149 and Peter Williamson Pty Ltd v Capitol Motors Ltd (1982) 41 ALR 613; 61 FLR 257.  They are authorities for the proposition that the fact that a price is stated to be within a range of a particular figure or that otherwise an element of approximation is introduced does not detract from the true character of the price as a specified price.  And that proposition can be accepted without reservation.  It does not, however, set out the criteria for identifying a mere approximation or the limits of the range within which a price may be said to be ‘specified’.  That was not the subject of any inquiry or evidence in this case.  The onus was on the Commission, if there were a variance which was not obviously trivial between the direct deal prices and those which Penfolds was prepared to tolerate, to support by evidence the characterisation of the variance as mere approximation.  The limits of the range of prices which may be treated as approximating a specified price will, no doubt, depend upon what is significant to competition in the relevant market.”

 

It was not open to the Commission on the pleadings to contend that Safeway engaged in resale price maintenance by inducing, or attempting to induce, the plant bakers to induce independent retailers to sell bread at a price not less than Safeway’s retail price for its cheapest grocery bread.  The resale price maintenance allegations pleaded against Safeway were quite different.  For example, the allegation in:

 

·                   the Albury May incident was that Tip Top induced, or attempted to induce, Bob’s IGA not to sell or advertise for sale Tip Top branded bread at less than $1.39 per loaf;

 

·                   the Albury November incident was that Tip Top induced, or attempted to induce, Bob’s IGA not to sell Tip Top Eureka plain wrap bread at less than $1.39 per loaf;

 

·                   the Traralgon incident was that Tip Top induced, or attempted to induce, Sunicrust to cause or compel West End Foodtown to increase the retail price at which such bread was being sold.  No price was pleaded.

 

1007            Even if that case could be raised and argued on the pleadings, it is not made out by the evidence in any of the incidents relied upon as constituting an inducement or an attempted inducement by Safeway to induce the plant bakers to engage in resale price maintenance.  The Commission submitted that the price of Safeway’s cheapest grocery bread from time to time was a published notorious fact.  No such price was pleaded and the evidence showed that Safeway’s cheapest grocery bread and its price varied from store to store and from week to week.  Unlike what occurred in Trade Practices Commission v Bata Shoe Company of Australia Pty Ltd (No 2) (supra), there was no such price which was ascertainable as applying generally.

1008            But what is more important, unlike Trade Practices Commission v Bata Shoe Company of Australia Pty Ltd (No 2) (supra), Safeway did not make the purchase of bread by it from any plant baker dependent upon the plant baker getting the independent store to sell its bread at any price, whether approximate or within a range.  Putting the Commission’s case at its highest, Safeway deleted a plant baker’s product from its stores because the plant baker was supplying cheap bread to an independent store or because that store was selling its bread more cheaply than the particular Safeway store was selling its bread.  There was no evidence in any of the incidents relied upon by the Commission that Safeway sought to get the plant baker to get the independent store to sell its bread at any approximate price or within a range of prices.

1009            For example, the Commission’s case in relation to the Frankston incident was that Mr Jones told Mr Cooper: 

“There’s some cheap bread in the Frankston area.  On the basis of that you’re out of the Woollies and Safeway store.”

 

Mr Cooper understood Mr Jones to be referring to Quadara selling bread at 99c a loaf.  There was no statement by Mr Jones, explicitly or inferentially, that Mr Cooper should get Quadara to sell its bread at any price, either approximate or within a range.

 

1010            The Commission’s case was similar in relation to the Cheltenham incident.  It was that either Mr Jones or Ms Austin told Mr Cooper: 

“There’s a problem down at Southland.  You’re out.”

 

Mr Cooper was aware of the issue at Southland which was that Black & Gold bread was being sold by Cheapa Food Barn for 99c a loaf.  As with the Frankston incident, there was no statement by Mr Jones or Ms Austin, explicitly or inferentially, that Mr Cooper should get Cheapa Food Barn to sell its bread at any price, either approximate or within a range.  The Vermont incident was no different.

 

SECTION 46 – DID SAFEWAY TAKe ADVANTAGE OF MARKET POWER FOR A PROSCRIBED PURPOSE?

1011            Section 46(1) of the Act provides:

“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.”

 

In ascertaining the relevant purpose of a person or a corporation, a court is not limited to that person’s or corporation’s evidence as to his, her or its purpose.  It can be inferred from conduct.  Section 46(7) of the Act provides:

 

“Without in any way limiting the manner in which the purpose of a person may be established for the purposes of any other provision of this Act, a corporation may be taken to have taken advantage of its power for a purpose referred to in subsection (1) notwithstanding that, after all the evidence has been considered, the existence of that purpose is ascertainable only by inference from the conduct of the corporation or of any other person or from other relevant circumstances.”

 

1012            The Commission relied on s 46(1)(a) of the Act in support of its submission that each of the nine incidents (that is, excluding the Preston Market incident) constituted a contravention of s 46.  The Commission relied on s 46(1)(c) in support of its submission that each of the ten incidents constituted a contravention of s 46.  Accordingly, it was necessary for the Commission to establish that:

·                   Safeway had a substantial degree of power in a market at the relevant times;

 

·                   Safeway took advantage of that market power;

 

·                   Safeway did so for the purpose of:

-           substantially damaging the independent stores;

-           deterring or preventing Tip Top and the independent stores from engaging in competitive conduct in a market.

 

1013            It was an integral part of the Commission’s s 46(1)(c) case that the purpose of Safeway’s bread policy was to punish the plant bakers and to deter them and independent stores from engaging in competitive conduct.  The Commission alleged that each of the incidents was an implementation of that policy in contravention of s 46(1)(c).  The consequence of my finding that the policy and the purpose of the policy was not in the terms alleged by the Commission is that the contraventions of s 46 alleged are not made out insofar as they are based on the implementation of the policy alleged by the Commission.  A similar consequence follows from my findings that no contraventions of ss 45, 47 or 48 have been made out.  As no contraventions of ss 45, 47 and 48 have been established the s 46 case predicated on such contraventions must fail. 

1014            However, the contravention of s 46(1)(a) alleged, that Safeway took advantage of its substantial degree of market power to damage substantially the independent stores, must still be considered by reference to the nine incidents involving the independent stores. 

Relevant principles

1015            A key element in the analysis of the conduct alleged to be in contravention of s 46 is the identification and definition of the market in which it was said Safeway had a substantial degree of power.  The market advanced by the Commission was the market in Victoria for the supply of bread products on a wholesale basis to food retailers and the retail level.  I will refer to this market as “the wholesale market”.  It was said that Safeway engaged in the conduct in its capacity as an acquirer of bread in the wholesale market and that it was in this capacity that Safeway refused to acquire proprietary branded bread from the plant bakers while they continued to supply cheap generic or secondary branded bread to the independent stores.

1016            Although I have identified the three factors to be established in order for there to be a contravention of s 46(1), there is an overlap in the issues to be considered in answering the questions:

·                   Did Safeway have a substantial degree of power in a market at the relevant time?

 

·                   Did Safeway take advantage of that market power?

 

·                   If it did, did it do so for the proscribed purpose?

1017            A number of principles are well‑established in relation to the definition and scope of the matters that arise for consideration under s 46.  The first step in a consideration of a contravention of s 46 is to identify the relevant market in which it is said the alleged contravener had a substantial degree of market power.  The purpose of seeking to define and identify the relevant market is not an end in itself, but rather the start of the process of identifying the power Safeway had in the particular field of economic activity, that is the power Safeway had in the relevant market, and whether it has taken advantage of that power for the purpose of deterring or preventing persons from engaging in competitive conduct in any market:  Re Queensland Co‑Operative Milling Association Ltd (1976) 8 ALR 481 at 561; Dowling v Dalgety Australia (1992) 34 FCR 109 at 132. 

1018            The overlap of the analysis of the factors in a s 46 contravention was recognised by the High Court in Queensland Wire Industries Pty Ltd v The Broken Hill Proprietary Company Limited (1989) 167 CLR 177.  Mason CJ and Wilson J said at 187‑188:

“The analysis of a s. 46 claim necessarily begins with a description of the market in which the defendant is thought to have a substantial degree of power.  In identifying the relevant market, it must be borne in mind that the object is to discover the degree of the defendant’s market power.  Defining the market and evaluating the degree of power in that market are part of the same process, and it is for the sake of simplicity of analysis that the two are separated.  Accordingly, if the defendant is vertically integrated, the relevant market for determining degree of market power will be at the product level which is the source of that power:  see the discussion of market power below.  After identifying the appropriate product level, it is necessary to describe accurately the parameters of the market in which the defendant’s product competes:  too narrow a description of the market will create the appearance of more market power than in fact exists; too broad a description will create the appearance of less market power than there is.”

 

Deane J said at 195:

“In the case of an alleged contravention of the provisions of s. 46(1), there will ordinarily be little point in attempting to define relevant markets without first identifying precisely what it is that is said to have been done in contravention of the section.”

 

Dawson J said at 200:

“In truth, the need to define the relevant market arises only because the extent of market power cannot be assessed otherwise than by reference to a market.”

 

This approach was restated recently by Finkelstein J in Australian Competition and Consumer Commission v Boral Ltd (2000) 106 FCR 328.  His Honour said at 413:

 

“Generally, an analysis of abuse of market power involves a two-stage process:  first, it is necessary to determine whether a firm has market power, second it is necessary to examine whether that power has been abused.  However, when the existence of market power is defined by reference to a firm’s ability to exclude competition, the two step investigation is not appropriate.  The evaluation of market power and the abuse of that power is part of one analysis.  The existence of market power based on this approach cannot be examined independent of the alleged exclusionary conduct.  It is the exclusionary conduct that establishes market power, not the reverse.”

 

Relevantly, for present purposes, the definition of the relevant market is critically dependent upon the context in which the issue of market definition arises.

 

1019            Although the term “market” as used in the Act and, in particular, s 46, may not be “susceptible of precise comprehensive definition when used as an abstract noun in an economic context”:  Queensland Wire (supra) per Deane J at 195, there is little controversy as to the concept it describes.  The concept is addressed in a limited respect in s 4E of the Act which provides:

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

 

A classic formulation of the concept of a market is found in Re Queensland Co‑Operative Milling Association Ltd (supra) at 517:

 

“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 product for another in their output mix, or 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?”

 

In Queensland Wire, members of the High Court implicitly approved of this formulation emphasising the significance of substitution (at 188 per Mason CJ and Wilson J, 199 per Dawson J, 210 per Toohey J).  At 188 Mason CJ and Wilson J observed that Queensland Co‑operative Milling Association explained that “the defining feature of a market is substitution”.

 

1020            Substitutability is important in this case because of the evidence as to the effect on sales of premium proprietary branded bread when other bread products, whether they be premium proprietary brands, secondary brands or generic brands, were discounted.

1021            Market power can be defined as the ability to act in the market unconstrained by any action that may be taken by other competitors in that market.  Section 46(3) of the Act provides:

“In determining for the purposes of this section the degree of power that a body corporate or bodies corporate has or have in a market, the Court shall have regard to the extent to which the conduct of the body corporate or of any of those bodies corporate in that market is constrained by the conduct of:

 

(a)       competitors, or potential competitors, of the body corporate or of any of those bodies corporate in that market; or

 

(b)       persons to whom or from whom the body corporate or any of those bodies corporate supplies or acquires goods or services in that market.”

 

Section 46(4)(c) provides that in s 46:

“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 and services in that market.”

 

These provisions make it clear that market power may be possessed by an acquirer of goods or services as well as by a supplier of goods or services.

 

1022            In Queensland Wire, Mason CJ and Wilson J (at 188) defined market power by reference to the ability of a firm to raise prices above the supply cost without rivals taking away customers in due time.  However, I do not consider that their Honours were providing an exclusive definition of market power but were rather defining market power for the particular context under consideration, namely whether a supplier of goods in a market had market power.  A more general and comprehensive definition of market power was given in Queensland Wire by Dawson J at 200:

“The term ‘market power’ is ordinarily taken to be a reference to the power to raise price by restricting output in a sustainable manner… But market power has aspects other than influence upon the market price.  It may be manifested by practices directed at excluding competition such as exclusive dealing, tying arrangements, predatory pricing or refusal to deal … The ability to engage persistently in these practices may be as indicative of market power as the ability to influence prices.  Thus Kaysen and Turner define market power as follows:

 

‘A firm possesses market power when it can behave persistently in a manner different from the behaviour that a competitive market would enforce on a firm facing otherwise similar cost and demand conditions.’ (Kaysen and Turner, Antitrust Policy (1959), p. 75)”

 

1023            As appears from his Honour’s observations, it is the ability of a firm in a market to act in a manner in which it could not act, if faced with competition, which determines whether, and to what extent, the firm has market power.  This passage was quoted by the majority of the High Court (Gleeson CJ, Gummow, Hayne and Callinan JJ) in Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 178 ALR 253 at 264 in elucidation of the meaning of the concept of market power.  The majority continued:

“The notion of market power as the capacity to act in a manner unconstrained by the conduct of competitors is reflected in the terms of s 46(3).  Such capacity may be absolute or relative.  Market power may or may not be total; what is required for the purposes of s 46 is that it be substantial.  There has been no attempt in this court to challenge the finding that Melway’s market power is substantial.”

 

The majority also said at 264:

“Section 46 of the Act requires, not merely the co‑existence of market power, conduct, and proscribed purpose, but a connection such that the firm whose conduct is in question can be said to be taking advantage of its power.”

 

This criterion of market power was adopted earlier in Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 35 FCR 43 by Lockhart and Gummow JJ (with whom Beaumont J agreed) at 62:

 

“Market power is concerned with power which enables a corporation to behave independently of competition and of the competitive forces in a relevant market.”

 

1024            I do not consider that market power is to be determined simply by reference to the ability of a firm to have an effect on prices and output of the goods it purchases.  There are other ways in which a purchaser in a market can act unconstrained by competition other than by reference to having an effect on price and output.  There are terms of trade such as extracting terms as to payment within a specified period, or requiring suppliers to contribute to the cost of the acquirer promoting their products or requiring the supplier to do, or refrain from doing, other acts. 

1025            The economists called by the Commission recognised that the concept of affecting price in the context of market power had a broader connotation than simply the amount of money for which an article was bought or sold.  Professor Phillip Williams was asked whether he accepted that monopsony power could be defined as the power of a buyer to purchase goods for less than the price that would prevail in the competitive market.  Professor Williams responded:

“Your Honour, monopoly power is often defined in this rather simple term in terms of raising price compared with a competitive market, similarly monopsony power is often defined in a parallel way as being able to get a lower price than would be available in a competitive market.  But in the real world, as distinct from the most elementary textbooks, we find that monopoly power is used to dictate terms other than price and similarly, monopsony power is used to extract conditions other than merely the price.  So I think a lot of economists may define it just with reference to a price, but if they were shown a real world example when terms other than price were being negotiated, they would immediately correct themselves and say, ‘Well, clearly it includes – when I said price it was rather a wrapped‑up term for just the general overall conditions of the sale.’”

 

Professor Williams put the matter more succinctly when he said:

“Monopsony power is better defined as a buyer’s ability to extract terms more favourable to itself than it could extract in a competitive market.”

 

1026            Professor Stephen King took a similar approach.  He accepted that the orthodox definition of monopsony power was the power which enabled a buyer to purchase goods for less than the price that would prevail in a competitive market.  However, he maintained that when economists referred to “price” they included all relevant features, matters such as a 30 day credit term and requirements of things that the seller or buyer must do.

1027            Professor David Teece, an economist called by Safeway, said that traditionally market power as a purchaser (or monopsony power) was defined as the ability to reduce price and output below competitive levels.  But as can be seen from the authorities to which I have referred, that ability is only one aspect of a purchaser’s market power.  This is recognised by s 46(3) of the Act.  Professor Teece recognised this when he accepted that although market power required an ability to have an impact on prices in the market, it could also exist if there was an ability to have an impact on the terms of trade in the market, although he did not accept that it was an indicator of market power that a purchaser could affect the terms of trade with an individual supplier.

1028            In order for a contravention of s 46 to be established, the alleged contravener must have a “substantial” degree of market power.  There is little dispute about the extent to which that power must be substantial.  It must be “considerable or large”:  Dowling v Dalgety Australia Ltd (supra) at 139; Eastern Express Pty Ltd v General Newspapers Pty Ltd (supra) at 63.  In Queensland Wire, Dawson J said that “Market power is thus the advantage which flows from monopoly or near monopoly” and that the provisions of s 46(3) are consistent with that notion.  As Beaumont J pointed out in Australian Competition and Consumer Commission v Boral Ltd (supra) at 369, Dawson J had in mind the fact that in the circumstances before him BHP was a near monopolist.  I agree, with respect, with Beaumont J’s view that near monopoly power is not essential in order for s 46, in its present form, to have operation.

1029            In determining whether an alleged contravener has market power, a consideration of the extent and degree to which barriers to entry into the market exist looms large.  Market share itself does not necessarily indicate market power:  Queensland Wire (supra) per Mason CJ and Wilson J at 189.  Perhaps the most important factor in determining the existence of market power is the extent to which there are barriers to entry.  The relevance of barriers to entry was identified in Queensland Wire (supra) per Mason CJ and Wilson J at 189‑190:

“A large market share may well be evidence of market power (see Roche), but the ease with which competitors would be able to enter the market must also be considered.  It is only when for some reason it is not rational or possible for new entrants to participate in the market that a firm can have market power:  see Continental Can.  There must be barriers to entry.  As Professor F. M. Scherer has written, ‘significant entry barriers are the sine qua non of monopoly and oligopoly, for … sellers have little or no enduring power over price when entry barriers are nonexistent’:  Scherer, IndustrialMarket Structure and Economic Performance, 2nd ed. (1980), p.11.  Barristers to entry may be legal barriers – patent rights, exclusive government licences and tariffs for example.  Barriers to entry may also be a result of large ‘economies of scale’.  Where the economies of scale in a market are such that the minimum size for an efficient firm is very large relative to the size of the market, it may be that potential competitors will be dissuaded from entering the market by the apprehension that only one firm would survive.”

 

(For a recent detailed analysis of the concept of barriers to entry see:  Australian Competition and Consumer Commission v Boral Ltd (supra) per Finkelstein J at 413‑414).

 

1030            It was established in Queensland Wire (supra) that taking advantage of market power for the purposes of s 46 did not involve any moral consideration of fairness but rather related to economic considerations.  As Mason CJ and Wilson J pointed out (at 191) it “does not require a hostile intent inquiry”.  The relevant question to ask rather is whether the alleged contravener has used its substantial market power for a proscribed purpose:  Queensland Wire (supra) per Mason CJ and Wilson J at 191, Deane J at 194, Dawson J at 202, Toohey J at 213; Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (supra) at 260.

1031            In Melway (supra) the majority of the High Court adhered to the decision in Queensland Wire (supra) that the expression “take advantage of” in s 46 meant no more than “use” and did not require any predatory or blameworthy conduct.  The majority emphasised the inter‑relationship between taking advantage of market power on the one hand, and that action occurring for the purpose of preventing another entity from engaging in competitive conduct in a market on the other hand.  The majority rejected the respondent’s submission that equated the exercise of market power with deciding whether to grant or withhold supply.  The majority continued at 269:

“As Dawson J explained, in Queensland Wire, market power means capacity to behave in a certain way (which might include setting prices, granting or refusing supply, arranging systems of distribution), persistently, free from the constraints of competition.  This is the generally accepted meaning of the concept, and it is reflected clearly in the provisions of s 46(3).  Barriers to entry into a market by competitors are a common reason for the existence of market power.  They could exist, as in the present case, because of technological factors, or they might result, for example, from legislation which gives a statutory monopoly.  Freedom from competitive constraint might make it possible, or easier, to refuse supply and, if it does, refusal to supply would constitute taking advantage of market power.  But it does not follow that because a firm in fact enjoys freedom from competitive constraint, and in fact refuses to supply a particular person, there is a relevant connection between the freedom and the refusal.  Presence of competitive constraint might be compatible with a similar refusal, especially if it is done to secure business advantages which would exist in a competitive environment.”

 

1032            It is a critical issue in any s 46 analysis to determine the purpose for which the alleged contravener has taken advantage of its market power.  There are two statutory provisions that bear upon this issue:  s 4F(1) (par 954 above) and s 46(7) (par 1011 above).  The lack of direct evidence as to purpose is not determinative of the existence of a proscribed purpose as the purpose may be inferred from conduct or other relevant circumstances in accordance with s 46(7).  A person may engage in conduct for more than one purpose, but what is important in terms of determining whether there has been a contravention of s 46 (or s 45) is that there be found a purpose which was a substantial purpose for engaging in the proscribed conduct.

1033            It is important to emphasise that it is the purpose of the conduct, rather than the effect of the conduct, that is significant for the purposes of s 46.  This distinction, when considered in conjunction with s 46(7) of the Act, means that it is the subjective purpose of the alleged contravener that is to be determined.  The relevant purpose is not to be determined by objective considerations, although, as s 46(7) allows, subjective purpose may be inferred from conduct and other circumstances.  That it is subjective purpose that is to be determined is made clear in a number of cases. 

1034            In ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (1990) 27 FCR 460 the Full Court (Lockhart, Gummow, von Doussa JJ) said at 474:

“There was no dispute that in s 46 ‘purpose’ was to be ascertained ‘subjectively’ rather than ‘objectively’.”

 

In Eastern Express Pty Ltd v General Newspapers Pty Ltd (supra) Lockhart and Gummow JJ observed (at 66):

 

“The determination of purpose for the operation of s 46 is to be ascertained subjectively, in the sense that what is to be ascertained is the intent of the corporation engaging in the relevant conduct …. ‘Purpose’ in s 46 is not concerned directly with the effect of conduct, but with ‘purpose’ in the sense of motivation and reason, although, as mentioned earlier, purpose may be inferred from conduct ….”

 

In Queensland Wire (supra) Toohey J said at 214:

“the reference to ‘for the purpose of’ carries with it the notion of an intent to achieve the result spoken of in each of the paragraphs in s 46(1)”.

 

In Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (supra), the majority of the High Court said at 262:

 

“Purpose, in this connection, [s 46] involves intention to achieve a result.”

 

(See also Tabrobane Tours WA Pty Ltd v Singapore Airlines Ltd (1990) 96 ALR 405 at 417; Dowling v Dalgety Australia Ltd (supra) at 143; News Ltd v Australian Rugby Football League Limited (supra) at 576; Plume v Federal Airports Corporation [1997] ATPR 41‑589 at 44,131.)

 

1035            In General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164 at 186‑187 Davies and Einfeld JJ appeared to take a different approach to the determination of “purpose”, suggesting that the ultimate test of whether there was a contravention of s 46 was an objective test.  Their Honours’ consideration of this issue is not easy to reconcile with the other decisions to which I have referred which express the view that the relevant purpose is to be determined subjectively.  Davies and Einfeld JJ recognised that the term “purpose” had subjective implications, and I understand their Honours to be saying no more than the relevant purpose is to be determined subjectively, albeit that it may be inferred from the conduct of the alleged contravener and other relevant circumstances in accordance with s 46(7) of the Act.

Did Safeway have a substantial degree of market power in the relevant market and did it take advantage of that power?

1036            The Commission submitted that the relevant market in respect of which it said Safeway had a substantial degree of market power was the wholesale market for the acquisition of bread in Victoria.  It was said that Safeway was an acquirer of bread in that market.  Safeway, in contrast, submitted that the relevant market to consider was the total bread market at both wholesale and retail levels.

1037            There was little dispute between the parties as to the existence of the factors that led to the conclusion that there was a market in Victoria for the supply, on a wholesale basis, of bread products to food retailers.  It was accepted that at relevant times:

·                   There was a demand for the supply of bread products on a wholesale basis in Victoria.

 

·                   There were no products (other than other bread products) that were substitutable, or in close competition, with bread products in Victoria.

 

·                   Tip Top, Sunicrust and Buttercup, in supplying bread products in Victoria on a wholesale basis had not been constrained to any significant degree by the prices at which other non‑bread products were supplied by other wholesalers in Victoria.

 

·                   Tip Top, Sunicrust and Buttercup had been in close competition with each other in supplying bread products in Victoria on a wholesale basis.

 

I am also satisfied, although it was not specifically admitted by Safeway and Mr Jones, that:

·                   The demand for the supply of bread products on a wholesale basis in Victoria was derived from the demand for bread products by customers of food retailers in Victoria.

 

·                   Consumers of bread products in Victoria were unlikely to switch from bread products to other products to any significant extent.

 

1038            The critical issue between the Commission and Safeway was the identification of the boundaries or scope of the market in respect of which it was said that Safeway had a substantial degree of market power.  Safeway, in substance, submitted that there was a total bread market which comprehended both wholesale and retail levels.  Safeway adopted this position because of what it said was the interaction and impact of activities at the retail level with the wholesale level.  Safeway also submitted that hot bread shops should be included in the market because of their ability to constrain the conduct of other sellers at the retail level.

1039            As was pointed out in Queensland Wire (supra) at par 1018 above, the definition of the market and the assessment of the relevant degree of market power are part of the same analytical process.  The conduct of Safeway in issue is that relating to the terms of its dealings with the three plant bakers in relation to its acquisition of bread.  Accordingly, the relevant functional level is the wholesale level.  It is at that level that the relevant alleged abuse of power or proscribed purpose arose.  I do not therefore consider it appropriate to define the market more widely to include the retail functional level notwithstanding that the extent of competition at that level may have had a constraining effect on the ability of any wholesaler to charge a monopoly price or on the ability of any purchaser at the wholesale level to influence the terms of trade at the retail level.  It does not necessarily follow from the fact that it may be appropriate to include at the retail functional level all sellers of bread, supermarket chains, independent stores, in‑store bakeries and hot bread shops, that it is appropriate to include any of those retail outlets in the upstream market at the wholesale level to determine the extent of Safeway’s market power and any use of it that occurred at that level.

1040            Safeway was a significant purchaser of bread from manufacturers of bread throughout Victoria, and it retailed bread through over 130 stores throughout Victoria.  The three major plant bakers, Tip Top, Sunicrust and Buttercup manufactured approximately 80% of all bread products manufactured for retail supply in Victoria. 

1041            There was considerable evidence and debate as to whether hot bread shops, independent bakers and in‑store bakeries should be included in the market for the acquisition of bread by wholesale.  The Commission and its economist witnesses excluded hot bread shops from consideration in determining the existence and extent of Safeway’s market power.  They contended that the hot bread shops did not constrain prices or terms of trade at the wholesale level because they were not perceived to be in competition with the supermarket chains at the retail level, having regard to the nature and variety of the bread products they sold.

1042            However, both Professor King and Professor Williams accepted that if the plant bakers were correct that the hot bread stores were competing at the retail level with the stores selling plant baked bread, then the hot bread shops would constrain prices at the wholesale level.  Professor Williams accepted that if it was established that hot bread shops and independent bakers were alternative sources of supply to independent supermarkets against whom Safeway purported to exercise market power, it would be necessary to take into account those sources of supply in defining the wholesale market.  Professor Williams had not taken those sources of supply into account as he assumed hot bread shops had no relevant constraining effect.  He had accepted that if it was established that independent bakers and hot bread shops had a significant constraining effect upon the way Safeway exercised its power derived from the wholesale market, then it was necessary to take into account the products sold by the independent bakers and hot bread shops in determining the extent of Safeway’s power in that wholesale market.

1043            Safeway submitted that the existence of competition from hot bread shops in the retail market had a flow‑on effect into the wholesale market for the acquisition of bread, which denied Safeway having substantial power in that market.  The argument went this way – the price at which a retailer bought bread in the wholesale market dictated the retail price, and if a retailer was competing against hot bread shops, the hot bread shops acted as a constraint on the ability of a retailer to charge what it liked so that the influence of the hot bread shops acted as a constraint on the terms of trade and price to be exacted by sellers in the wholesale market upstream.  It was in support of that argument that Safeway relied on the material supplied to the Trade Practices Commission and the Commission’s conclusions in relation to the Goodman Fielder Limited/Bunge Industrial Pty Ltd joint venture proposal in 1995.

1044            The influence of hot bread shops is a relevant consideration to take into account in determining whether a merger of flour millers who are vertically integrated can affect the price that retailers who purchase bread from them are able to charge at the retail level.  However, in the merger context the Commission was concerned to determine whether the plant bakers had the power to raise prices at the wholesale level and thereby lessen competition at the retail level.

1045            In the present circumstances a different issue arose – it was the power of Safeway to influence the terms of trade upon which the plant bakers sold bread at the wholesale level.  That issue is not concerned with the power of Safeway to raise prices at the retail level, those prices being constrained by the conduct and prices of the hot bread shops as well as other retail outlets.  Put shortly, competition in the retail market did not provide any significant restraint on the ability of Safeway to exercise a substantial degree of market power as an acquirer of bread in the wholesale market and to obtain terms of trade at that level, nor did it provide any significant restraint on the plant bakers from whom Safeway acquired bread in relation to the terms of trade they imposed on purchasers from them.  I therefore do not accept that the relevant market for the purpose of considering Safeway’s market power in the present context is the total bread market comprising transactions at both the wholesale and retail levels.

1046            There was conflicting evidence as to the significance and relevance of hot bread shops.  There was some evidence that bread purchased from a hot bread shop was to be eaten on the day of purchase as it became stale more quickly than plant baked bread.  There was also evidence that the attraction of hot bread shops was the wide product range they offered and that their prices were frequently higher than the prices of comparable bread sold in supermarkets.  Mr Brookes did not see the hot bread shops as a serious threat to Safeway’s business because of their pricing structure and their product range although he regarded it as important to be competitive with them on price, particularly in relation to Code C 680g bread. 

1047            In 1994 and 1995 Bakers Delight operated a substantial chain of franchised hot bread shops in Victoria.  At that time approximately 20% of its sales comprised plain white blocks of bread.  Safeway used its in‑store bakeries as its means of meeting competition from the hot bread shops.  Mr Lord, the Managing Director of Bakers Delight, said that Bakers Delight discounted 680g bread from time to time, and he agreed that his organisation competed with other sellers of bread.

1048            Mr Jones recognised hot bread shops as a source of competition for Safeway.  He recorded this view in a presentation to Safeway store managers in April 1994 when he said that:

“The market of bread is predominantly heading in the area of ‘fresh’ ie Instore bakeries, hot bread shops, such as Brumbys’.”

 

1049            The view that hot bread shops were providing increasing competition at the retail level of bread sales was shared by a number of retailers.  A number of Safeway employees saw hot bread shops as competitors at the retail level.  So did the plant bakers.

1050            Mr Kadir, Tip Top’s National Sales Director, said that the products of hot bread shops competed at the retail level with comparable products sold by Tip Top to its retail customers for resale.  He said that industry journals showed that in 1994 and 1995 hot bread shops accounted for 30% of the total retail sales of bread products.  He saw the sales of hot bread shops affecting the retail sale of Tip Top brands.  His views on the impact of sales of hot bread shops on the retail sales of Tip Top bread were confirmed by a Tip Top monthly business report in May 1994 and a Tip Top Business Plan in April 1995.  Those reports showed that in 1995 there were 804 hot bread shops in Victoria and 167 in‑store bakeries.  Mr Kadir’s views were shared by Mr Guthridge, Tip Top’s General Manager and Mr Maine, Tip Top’s State Sales Manager.

1051            The other plant bakers held similar views.  Mr Linton, Buttercup’s Victorian Sales Manager, saw the retail market share of the three plant bakers declining due to the activities of the hot bread shops and the in‑store bakeries.  This view was shared by Mr McLeish and Mr McDowall of Sunicrust.  Sunicrust’s Business Plans for 1994 and 1995 recorded the extent to which competition from hot bread shops and in‑store bakeries was taking retail market share away from the three major plant bakers.

1052            The involvement of hot bread shops in the market for the retail sale of bread was recognised by the plant bakers and the Trade Practices Commission at the time of the consideration by the Commission of the proposed joint venture by Goodman Fielder Limited and Bunge Industrial Pty Ltd in 1995.  The submission to the Commission to enable it to consider the impact of the Act on the proposal included material provided to the Commission on a confidential basis.  It was admitted in evidence in confidential exhibits.  It is not necessary to rehearse that material.  It is sufficient for present purposes to note that the Commission accepted that one of the markets in which the proposed joint venture would operate was the supply of bread which included bread supplied by plant bakers, hot bread stores and in‑store bakeries.

1053            In May 1995 George Weston proposed to acquire the baking and milling assets of Waterwheel Holdings Limited in Victoria and presented a confidential submission to the Trade Practices Commission.  Again the Commission took the view that one of the relevant markets was the product market for the supply of bread which included bread supplied by plant bakers, hot bread stores and in‑store bakeries.

1054            I am satisfied that hot bread shops and in‑store bakeries should be included in the market which existed in 1994 and 1995 for the retail sale of bread.  However, notwithstanding the extent of price competition at the retail level between hot bread shops and retailers of plant baked bread, and the influence that that may have had on the level of prices which plant bakers might be able to charge at the wholesale level, I do not consider that hot bread shops should be included as suppliers in the wholesale market for the acquisition of bread.

1055            There was little evidence that hot bread shops undertook wholesaling activities.  The Trade Practices Commission’s staff discussion paper, prepared to enable the Commission to consider the proposal put forward by Goodman Fielder Limited and Bunge Industrial Pty Ltd, stated that there was a growing trend for route trade customers to be supplied by local hot bread shops and that local hot bread stores were taking an increasing share of small local routes.  Safeway submitted that a number of Tip Top monthly business reports in 1995 noted that Tip Top had been able to supply customers who had previously been supplied wholesale by hot bread shops.  Those reports showed that there were some examples of Tip Top supplying retailers who had been supplied by hot bread shops, but the reports do not warrant Safeway’s submission, or the conclusion, that Tip Top “regularly won business supplying customers who had been supplied wholesale by hot bread stores”.

1056            Safeway relied upon a Sunicrust document prepared in October 1995 which noted that “Hot bread shops continue to penetrate the traditional plant baker’s market particularly in route trade, food service, and Sunday supply to grocery outlets”.  But there was no evidence as to the areas, or extent, of that penetration or the level that it had attained.

1057            In relation to the issue of its market power, Safeway placed substantial significance on the conclusions reached by the Trade Practices Commission in 1995 in its consideration of whether the joint venture proposal by Goodman Fielder Limited (which included Buttercup) and Bunge Industrial Pty Ltd (which included Sunicrust) might contravene s 50 of the Act.  The proposal was that a joint venture company would acquire their baking, milling and wheat starch operations.  The Commission ultimately concluded that the merger would not substantially lessen competition in the market for the wholesale supply of bread products.  It concluded that hot bread shops should be considered as part of the market for the retail sale of bread products as they were providing significant competition to the retail sellers of bread purchased from the two wholesalers.  Because of price competition at the retail level between retail outlets such as chain stores and independent supermarkets on the one hand and hot bread shops on the other hand, the plant bakers were constrained at the wholesale level in the prices they could charge the retailers because of the price competition these chain stores and supermarkets would meet from the hot bread shops. 

1058            However, the conclusions of the Commission in the context of a s 50 analysis do not translate easily into a s 46 context.  The issue before the Commission in the merger context was whether the combined market power of the two organisations, Goodman Fielder Limited and Bunge Industrial Pty Ltd, would have such an effect on the price of bread in the retail market that competition in that retail market would be lessened substantially.  The issue before the Court in a s 46 context is different.  Unless hot bread shops are to be taken into account and considered in the context of the wholesale market for the acquisition of bread products from bread manufacturers, they are not a relevant consideration at the level of analysis relating to taking advantage of market power or to whether the proscribed purpose existed.

1059            I exclude bread manufactured by hot bread shops in this context of the wholesale market as I do not consider that their output had an impact on the manner in which, and the extent to which, Safeway made purchasing or sale decisions or exercised its power in the wholesale, or for that matter any retail market.  Further, hot bread shops were not an alternative source of distribution for the plant bakers as they were vertically integrated – they baked their own bread.  Although there was evidence that some of the plant bakers were concerned about the growth of hot bread shops and the effect their sales were having and might have on the plant baker’s market share, the hot bread shops were viewed as being in a niche market that did not compete directly with supermarkets in the sale of bread products.  Most, if not all, of the Safeway stores that identified their relevant nominated competitors for bread products did not nominate a hot bread shop although there were hot bread shops in close geographic proximity to a number of the Safeway stores.

1060            In order to determine the extent of Safeway’s power in the wholesale market for the acquisition of bread, it is not sufficient simply to look at the purchases made by Safeway from the three plant bakers.  It is necessary to determine Safeway’s market share by reference to the total volume of supply in the wholesale market.  That market in Victoria included not only bread supplied by the three major plant bakers, but also the bread supplied by the independent plant bakers and in‑store bakeries.  On this basis, Safeway’s share of the wholesale market was reduced from the figure of 25% propounded by Professor Williams to something under 20%, around 16%.

1061            Professor Williams was of the view that Safeway had a substantial degree of market power because of the amount of bread it purchased from the three major plant bakers.  But Tip Top, Buttercup and Sunicrust were not the only suppliers of bread in the wholesale market.  There were other independent bakers.  The existence of the independent bakers in the wholesale market is significant because, if taken into account in the wholesale market, the result is that a lower market share for Victoria was held by Safeway in 1994 and 1995.  In 1995, Tip Top, Sunicrust and Buttercup sales accounted for 50.6% of total average weekly sales of bread products, independent plant bakers accounted for 9.2%, hot bread shops accounted for 31.6%  and in‑store bakeries accounted for 8.5%.  Further, in 1995, there was excess capacity in the bread manufacturing market (excluding hot bread shops) of which the independent bakers accounted for 17.5%.

1062            Professor Williams did not take into account independent bakers in determining the nature and extent of the wholesale market for the acquisition of bread products because of the product differentiation that existed in the market in relation to the various brands marketed by the plant bakers.  But, as Professor Teece correctly observed, product differentiation does not mean that each plant baker was a market unto itself.  The evidence was clear – there was an elastic demand for the various brands of bread (but inelastic as a whole) when analysed with respect to each brand.  Variations in retail prices had a significant effect on sales of premium branded bread and a substantial proportion of the sales of particular brands of the three major plant bakers was sold when the brand was the subject of the regular cyclical promotional sale at a discounted price.  There was a significant body of evidence which demonstrated that whenever a particular brand of bread, premium, secondary or price‑fighting was sold at a significant discount, its sales increased substantially and the sales of the brands not discounted suffered and were reduced.

1063            The existence of in‑store bakeries was not a constraint upon Safeway in the wholesale market.  There were two types of in‑store bakeries.  There were those that baked bread on the premises and those which did not have any production facilities.  The in‑store bakeries that baked their own bread on the premises and which were called warm spots, had no need to acquire bread from the plant bakers.  The in‑store bakeries with no production facilities, which were called cold spots, did not operate as a constraint as they were mostly contained in the supermarkets operated by Safeway, Coles and Franklins.

1064            The remaining area of potential purchase from plant bakers was what was called the route trade, which consisted of small retail outlets such as milk bars and convenience stores.  The evidence was that the route trade, as a source of purchase from plant bakers, had been declining over the years, and the route trade was not itself an alternative purchaser from a plant baker who did not accept Safeway’s terms of trade. 

1065            It was submitted by Safeway that the existence of independent plant bakers other than Tip Top, Sunicrust and Buttercup in the wholesale market constrained the ability of Safeway to exercise its market power in the wholesale market in relation to the major plant bakers because the terms of trade that the Commission alleged Safeway sought to impose upon the plant bakers could not be achieved as the independent plant bakers were an alternative source of supply for such independent retail outlets.  Those terms of trade were that the plant bakers should not supply cheap or discounted bread to independent stores who could then sell bread cheaply or at a discount by retail.

1066            However, it did not appear from the evidence that the independent plant bakers provided an alternative source of supply, without increased cost, to independent stores throughout Victoria.  The independent bakers were not able to cover the wholesale market statewide as did the three major plant bakers.  There was also evidence that the bread of some of the independent bakers was not of the same quality as that of the three major plant bakers and that independent bakers could not supply the volume of bread at the price sought by independent retailers.  I am not, therefore, satisfied that the independent plant bakers were a viable source of supply for independent retailers who were seeking to acquire cheap bread to sell at a discount in the retail market.

1067            There was a fundamental disagreement between the Commission and Safeway as to the relevant type of potential entrant to the market to be considered in assessing the barriers to entry to the market in respect of which it is said Safeway had a substantial degree of market power.  The Commission submitted that Safeway could not be constrained in the exercise of its market power, except by a new entrant of comparable size which would provide a viable alternative outlet for a plant baker’s bread products if it decided not to deal with Safeway because it did not want to accept Safeway’s terms of trade.  Safeway submitted that having regard to the conduct pleaded, the relevant barrier to entry was the cost of setting up a retail store in competition with a Safeway store.  Safeway contended that if a single Safeway store deleted a plant baker’s bread products, the plant baker could easily find an alternative outlet or alternative outlets by looking for some local retail outlets to take additional stock.

1068            Safeway’s submission failed to take into account the fact that its market power derived not just from its ability to delete products from an individual store but from its ability to negotiate statewide terms of trade, prices, discounts and rebates as a result of the overall purchases it was prepared to make on a statewide basis.  If a plant baker was not prepared to accept any terms of trade required by Safeway it could only replace Safeway’s purchases by going to a large number of individual retail outlets.  The extent of the policy as formulated by Mr Brookes, demonstrated that Safeway’s market power was derived from its ability to implement purchasing decisions statewide and not just by reference to the decisions to be taken by individual stores.

1069            As I have noted earlier, the extent of market share is not a necessary or definitive factor for the determination of market power.  Professor Williams considered that Safeway’s proportion of the wholesale market in 1995 for the acquisition of bread from the three major plant bakers, independent plant bakers and in‑store bakeries, which was of the order of 23%‑25%, taken together with the extent of the excess capacity that existed at that time, meant that retail stores were not a real alternative source of purchase for a plant baker if the plant baker did not like the terms of trade that Safeway was seeking to impose on it.  The consequence was, it was said, that there was little constraint on Safeway’s ability to negotiate lower or better terms of trade.  According to Professor Williams there was a significant barrier to entry into the market for the wholesale acquisition of bread, having regard to the size of the new entrant which would be required to compete with Safeway on a statewide basis and that would have the opportunity to obtain trading terms comparable to that of an integrated grocery chain.

1070            Safeway complained that the barriers to entry relied upon by the Commission were not pleaded in the statement of claim.  It is true that the nature of the barriers to entry relied upon by the Commission was not spelled out in the statement of claim in the terms in which the submission was made, that is, that Safeway could only be constrained by a new entrant of comparable size, but the issue and relevance of a barrier to entry of that type was recognised by Safeway’s expert witnesses and the issue was canvassed fully in evidence‑in‑chief and in cross‑examination of all relevant expert witnesses.

1071            Professor Williams was of the view that the relevant barrier to entry to consider was that of a new entrant to the grocery level who could constrain Safeway’s power as a buyer in the wholesale market.  Professor Williams adopted the analysis of barriers to entry undertaken by the Trade Practices Tribunal in Re Queensland Independent Wholesalers Ltd (1995) 132 ALR 225 at 271‑272.  In that case, the main barrier to entry was the size of operation required by a new entrant into the grocery distribution market.  However, there was a recognition that there can be a threat of entry into the market by a number of firms of smaller size than Safeway which might constrain Safeway to act competitively.  This issue was succinctly analysed by Professor Maureen Brunt in the following terms:

“The essential test for whether or not there is a significant barrier to entry can be expressed simply enough:  it is whether the threat of entry of whatever kind will constrain incumbents to behave competitively.  It follows that neither initial entry nor eventual established supply must necessarily be of the full‑line variety.  Leading firms can be constrained by a collection of more specialized rivals.  Firms may enter at one scale and one product‑range and grow to another.”

 

Annual Proceedings of the Fordham Corporate Law Institute – International Antitrust Law & Policy, 1992, at 158.

 

1072            I am satisfied that Safeway’s market power as an acquirer in the wholesale bread market could not be constrained, except by a new entrant of a size and store coverage comparable to that of Safeway.  Any new entrant that could impinge upon or erode Safeway’s market power would have to be able to set up a network of stores of significant size throughout Victoria.

1073            Safeway’s market power in this wholesale market was derived from a number of sources and factors.  It purchased significant proportions of the output of the three major plant bakers and was the largest individual purchaser of plant baked bread in Victoria.  The evidence was not uniform but there was little dispute that around 1994 and 1995 Safeway was purchasing between 21% and 25% of the total of plant baked bread in Victoria.  In particular, approximately 19.2% of Tip Top’s production of bread products was supplied to Safeway, approximately 50% of Sunicrust’s Melbourne metropolitan production of bread products was supplied to Safeway and approximately 17% of Buttercup’s production of bread products was supplied to Safeway.

1074            Although the overall demand for bread at the retail level was price inelastic it was apparent that demand was elastic between different brands of bread.  It was apparent that there was a significant lack of consumer loyalty to individual brands.  The volume of sales of a particular plant baker’s bread varied depending upon whether it was being sold on a cyclical or periodic promotion.  As a result, Safeway was able to maintain its large volume of bread products although from time to time it reduced its purchases of a particular plant baker’s products but at the same time increased its purchases of another plant baker’s products.

1075            Safeway was therefore able to influence the terms on which bread products were supplied to it whilst at the same time maintaining the level of bread products it was offering for retail sale.  An example of this ability is found in the co‑operative promotional allowances that Safeway sought and obtained from the plant bakers as part of the terms of trade negotiated for the purchase of bread products.  These allowances were not unique to Safeway.  Other retailers sought, and were given, promotional allowances by the plant bakers.  It is not to the point that Safeway did not necessarily dictate to the plant bakers the terms and extent of the promotional allowances.  The extent and level of promotional allowances was a matter for negotiation between the plant bakers and Safeway.  However, more bread was sold on promotional sales than on non‑promotional sales.  Although the size of the promotional allowance varied with each retailer, a promotion by Safeway was important for a plant baker because of the quantity of bread sold on promotion.  According to Mr Linton, Buttercup’s Victorian Manager, promotions by Safeway were especially important for the plant bakers as Safeway sold more bread on promotion than the other major retailers.  Mr Cooper, from Buttercup, said that promotional sales represented a significant part of Buttercup’s volume and that Safeway had the highest incremental increase in volume on promotional sales.  Buttercup’s profits improved when there was a substantial increase in volume during promotional activity.

1076            It was also an important factor in determining the existence and extent of Safeway’s power in the market for the wholesale acquisition of bread that at relevant times each of the three plant bakers had significant excess capacity.  A significant reduction in purchases by a buyer of the size of Safeway could not be replaced by sales to another similar organisation.  Although there were other significant purchasers and buying groups who purchased bread products from the major plant bakers, the excess capacity still existed after their purchases were taken into account.

1077            Although there were numerous, indeed many, individual retail outlets to whom the plant bakers might turn if Safeway sought to influence the terms of trade adversely to the plant bakers’ interests, the extent of market power Safeway possessed is to be measured not by reference to an individual transaction in relation to an individual store but by reference to the extent of its buying power overall.

1078            The Commission contended that it was an indication of Safeway’s market power in the wholesale market for the acquisition of bread that it was seeking, by the use of that power, to raise the costs of its rivals in the retail market and thereby, prices in the retail market.  There was an issue between the parties and their respective economist witnesses, first as to whether the theory of raising rivals’ costs was a valid economic theory and, secondly, whether, in any event, the facts before the Court fitted the model.  The economist witnesses called on behalf of Safeway (Professor Teece and Mr Richardson) argued that the Commission’s case against Safeway was, in substance, that Safeway was seeking by the implementation of its policy to raise the costs of its competitors or rivals.  Professor Teece regarded travelling along the road of the theory of raising rivals’ costs as travelling across treacherous ground but was prepared to accept that the theory was available for application.  However, he noted the observation in FM Scherer & David Ross Industrial Market Structure and Economic Performance, 3^rd ed 1990, at 479 that “the broad concept [of raising rivals’ costs] has not been tested or accepted by the U.S. courts.”

1079            Professor Teece said that if either Safeway did not have monopsony power or if there was not an absence of an alternative supplier to the de‑listed suppliers upstream, then the factual basis for the theory was not established.

1080            I do not need to enter into a consideration of whether raising rivals’ costs is a viable theory of anti‑competitive behaviour as s 46 does not require an effect on the relevant market or on competition to be demonstrated, rather it requires a demonstration of a proscribed purpose.  The effect of the intended purpose or conduct is not a relevant line of inquiry.  In any event, the Commission’s case was not that Safeway had the power to raise rivals’ costs but rather, that the purpose of its policy was to raise rivals’ costs.  As I have already found, that was not the purpose of the policy.

1081            It was put to Professor King that Safeway could not raise its rivals’ costs unless it could be established that, because of its market power, it could cause each of the three major plant bakers plus independent bakers not to supply independent supermarkets with deals if it chose to do so.  It was an integral part of Professor King’s thesis that independent plant bakers were not a substitute for supply to the independent supermarkets.  Professor King accepted that in order for Safeway to be in a position to raise its rivals’ costs, there could be no sources of supply in the market equivalent to the three major plant bakers who refused supply to the independent supermarkets because of Safeway’s exercise of market power.

1082            Professor Williams agreed with this approach when in response to the question:

“If one finds in this context that if Safeway attempted, through the exercise of market power, to increase its rivals’ costs and if as a matter of fact it could not do so because of the existence of alternate sources of supply available to the rival, then you would have to take into account, would you not, in assessing Safeway’s power, those alternate sources of supply?”

 

Professor Williams responded:

“Yes, I do think they are relevant”.

1083            Professor King accepted that market power meant the ability of a purchaser to affect the terms of trade upon which it was supplied.  He accepted that if Buttercup was prepared to supply bread to an independent store if Tip Top refused to do so because of the terms upon which Safeway was prepared to do business with Tip Top, or because Tip Top refused to accept those terms of trade from Safeway, then Safeway had limited market power.  This was because Safeway could not affect the terms of trade in the market, although it was able to affect its own terms of trade with a particular supplier.  Put shortly, Safeway had a degree of market power in the sense that it could affect its own terms of trade but it did not have sufficient market power to influence the terms of trade throughout the whole market, nor was it able to raise its rivals’ costs.  Professor King accepted that if a plant baker, such as Buttercup, was still prepared to supply an independent store at a cheap price even though Safeway might delete its products from a particular store, then it would not have sufficient market power to raise its rivals’ costs.

1084            It is important in this context to remember that Buttercup was always an alternative source of supply to the other plant bakers for the independent stores.  It was not prepared to go along with Safeway’s policy.  It was only Tip Top which responded to Safeway’s actions by withdrawing the supply of bread at a discount.  Mr Linton, Buttercup’s General Manager for Victoria, said that his attitude was that if Buttercup products were deleted by a customer, that was a commercial reality and it would find another customer.  Mr Cooper, from Buttercup, held the view that the policy of Safeway would ultimately be ineffective and his attitude was that a deletion of Buttercup products by Safeway would not cause Buttercup much harm because the market would work itself out.

1085            The economist witnesses were in agreement that a traditional method of determining whether an organisation had market power as a purchaser, that is to say monopsony power, was to determine whether it had the ability to reduce prices (and output) below competitive levels.  Whether this power existed was answered by asking the question whether the organisation could engage in a small but significant non‑transitory decrease in price (called an SSNP).  This was not the only approach to the determination of market power as it was accepted by the economists that market power was also determined by the ability of an organisation to affect the terms of trade in the market.

1086            Safeway’s economist witnesses were critical of the Commission’s economist witnesses seizing on the extent of Safeway’s purchases from the three major plant bakers and the ability of Safeway to negotiate favourable terms of trade from those plant bakers as an indicator of the extent and substantial nature of its market power.  It was said that the Commission’s economists’ approach was confused or mistook buying power for market power. 

1087            It is important in determining the extent of market power to distinguish market power from buying power.  A particular purchaser may be able to exert buying power in relation to a particular supplier and thereby obtain favourable terms of trade but the extent of that buying power says nothing about the power of the purchaser in the overall market.  Market power is not derived from size, rather, it is derived from market share taken in conjunction with a consideration of barriers to entry.  Although there may be a significant barrier to entry for a purchaser to enter the market for the wholesale acquisition of bread or groceries on the scale of Safeway, a situation may arise where a number of new buyers might enter the market if the market price was reduced below competitive levels.

1088            It is true that monopsony power may be defined as the ability of a purchaser to obtain a market price lower than would otherwise be obtained in a competitive market, or to obtain more favourable terms of trade in the market than they would otherwise obtain in a competitive market.  But it is not an answer to a claim that Safeway had a substantial degree of market power in the wholesale market for the acquisition of bread to say that it was only able to exercise that power over 85% of the market, namely over the three major plant bakers.  Section 46 does not require a contravener to have monopolistic or monopsonistic power; it is sufficient that the contravener have something less than control of the market, so long as the market power exercisable is substantial.  The concept of a substantial degree of market power identifies a relative concept, that is to say, not total market power but something less than total market power, an amount of power that is considerable or large.  Thus, it was not to the point that Safeway did not have the ability to force down the wholesale price of bread or the ability to raise the costs of the supply of bread to its retail competitors. 

1089            Whether Safeway had substantial market power in the present case depended on the extent to which Safeway was constrained by barriers to entry and by the ability of the three major plant bakers to resist the terms of trade sought to be imposed by Safeway.  They would be able to do so if they had alternative purchasers to whom they could supply the bread deleted by Safeway or if the competing retail store could obtain cheap or discounted bread from an alternative bread manufacturer.

1090            It was not suggested by the Commission that Safeway had the ability to affect the terms of trade on which, or the price at which, Tip Top, Sunicrust or Buttercup supplied bread to Coles or to Franklins.  The Commission did not submit that Safeway’s market power in the wholesale market for the acquisition of bread was absolute.  It did not have to go so far, nor did it contend that Safeway had the ability to raise prices generally above competitive levels in the retail market.

1091            Rather, the Commission’s case was that Safeway had a sufficient degree of market power, which was substantial enough to influence the terms of trade on which Tip Top, Sunicrust and Buttercup dealt with independent retailers in the wholesale market as acquirers of bread, by imposing a term of trade on the plant bakers restricting the supply of cheap bread to those independent retailers.

1092            As I have observed earlier, the issue is whether Safeway had sufficient market power to influence the terms of trade on which the plant bakers dealt with it to an extent which it could not do in a competitive environment.  This view is consistent with the policy that lies behind s 46 in its present form which was introduced into the Act in 1986. The element of a corporation having a substantial degree of power in a market was introduced in substitution for the element of a corporation being in a position substantially to control a market.  It is apparent that the amendment introduced a lower threshold of market power in order for the section to have operation.  This was made clear in the second reading speech in relation to the Bill that introduced the amendment, where the Attorney‑General said:

“The test for the application of the section is to be reduced from that of a corporation being in a position substantially to control a market to a test of whether a corporation has a substantial degree of market power.  As well as monopolists, section 46 will now apply to major participants in an oligopolistic market and in some cases, to a leading firm in a less concentrated market.”  (Emphasis added)

 

1093            Safeway submitted that there was no evidence that it was able to obtain persistently better buying terms than independent supermarkets.  The evidence was insufficient to enable me to reach that conclusion but that does not mean that Safeway did not have a substantial degree of market power by reference to the structure of the market, the barriers to entry to the market, the excess capacity in the plant bakers and the lack of brand loyalty to the plant bakers’ premium branded proprietary bread.  It must not be forgotten that Safeway’s terms of trade with the plant bakers included a term that Safeway bought at the best price being offered in the market place.  Mr Jones gave an example of how this worked in practice when he referred to occasions when Coles would run a promotion that was cheaper than a Safeway promotion.  On those occasions he would telephone the plant bakers and they would upgrade the terms given to Safeway or say they were going to upgrade the deal.

1094            It is important to recognise that it was no part of the Commission’s case to submit that Safeway either sought or had the market power to raise the price of bread in the retail market above competitive levels.  It was clear from the evidence that Safeway could not do so, having regard to the level of competition in the retail market from the other chains such as Coles and Franklins, independent stores, hot bread shops and in‑store bakeries.

1095            Focusing on the extent of competition at the retail level has the potential to confuse the purpose for which Safeway took advantage of its market power with the identification of the market in respect of which it possessed a substantial degree of market power.  The allegation was that Safeway exercised its substantial power in the wholesale market for the purpose of preventing or deterring competitive conduct, first, in the retail market by independent stores, and secondly, in the wholesale market by the three major plant bakers in relation to the terms of trade on which they dealt with independent stores.  Whether Safeway had the ability to achieve its purpose in the retail market is not to the point.  Rather, the point for the purpose of considering a contravention of s 46 is to answer the question whether Safeway had the proscribed purpose without considering whether it was able to achieve that purpose. 

1096            The only relevance of the fact that Safeway may not have had any power in the retail market which enabled it to raise the price of bread above competitive levels is whether that absence of power translated into an absence of power at the wholesale level as an acquirer of bread, or whether it otherwise impinged upon, and neutralised, any such power it otherwise might have had at the wholesale level. 

1097            The Commission submitted that evidence of the existence and exercise of Safeway’s substantial market power in the wholesale market for the acquisition of bread was to be found in the following circumstances:

·                   Safeway obtained from each of the three plant bakers trading terms which were at least as good as the trading terms given to any other purchaser.  Safeway’s trading terms contained a provision that it would always buy at the best price.

 

·                   Safeway required the plant bakers to introduce a second delivery of bread each day to its stores.

 

·                   Safeway required the plant bakers not only to deliver the bread into the stores but to stack it on the bread racks.

 

·                   Safeway required the plant bakers to contribute substantial sums for promotional expenses.  The amount of these expenses increased throughout 1994 and 1995.  The promotional expenses were a considerable contributor to Safeway’s gross profit in the bread category.  The significance of the promotional contributions was demonstrated by the fact that during 1994 and 1995, 86%‑87% of total bread sales was derived from sales on promotion.

 

·                   The fact of the formulation and implementation of the policy which was intended to influence the terms upon which suppliers to Safeway dealt with other buyers of their products.

 

1098            Safeway criticised these indicia of market power on the basis that, rather than being indicators of market power, they were indicators that Safeway was able to negotiate favourable terms from individual plant bakers and that such ability was not the equivalent of market power.  It may well be that such indicia do not demonstrate control of the market or monopsonistic power, but they are indicators of a degree of market power having regard to Safeway’s size and the extent of its relevant market share which, of course, by itself, does not indicate market power.

1099            Identifying indicia of market power is not the end of the issue as it is necessary also to determine whether there were any significant constraints on Safeway’s ability to exercise the extent of the market power it possessed in the wholesale market for the acquisition of bread products.

1100            There was no constraint at the wholesale level because of the existence of other wholesale acquirers of bread such as Coles, Franklins and other wholesale organisations associated with banner stores.  Tip Top, Sunicrust and Buttercup, at the relevant times, had significant excess capacity, and thus the other wholesaler acquirers were purchasing all the bread they needed.  The plant bakers, if deleted by Safeway, could not find a substitute purchaser for the deleted product.  The consequences of the excess capacity was exacerbated by the low level of brand loyalty between premium brands of the plant bakers.  Although Safeway placed significant emphasis on the existence and activities of hot bread shops, they were not significant purchasers of bread in the wholesale bread market.  There was no doubt that they had substantial sales at the retail level in 1994 and 1995 but they manufactured that bread themselves.  They also suffered from excess capacity.  Hot bread shops were not therefore, in 1994 and 1995, an alternative source to be supplied by the plant bakers.

1101            For these reasons, I am satisfied that at the relevant times Safeway had a substantial degree of market power as an acquirer of bread by wholesale from bread manufacturers in Victoria.  Whether it has taken advantage of that market power for a proscribed purpose involves an investigation of two matters, first, whether Safeway has acted in a particular way, that is, taken advantage of its market power and, secondly, whether a proscribed purpose for so acting was made out. 

1102            The Commission submitted that, applying Queensland Wire, the expression “take advantage” meant no more than “use’ and that if a corporation did something which it could not do if it did not have substantial market power, then it had taken advantage of that power.  The Commission submitted that Safeway could not have undertaken the conduct complained of in a market where it was forced to act competitively and that it could not have used its buying power to induce, or attempt to induce, the plant bakers to alter the terms on which they dealt with the independent stores.  It was said that in the absence of its market power Safeway would have been a price taker (that is, it accepted the prices offered by the plant bakers) and would not have been able to impose terms of trade on the plant bakers and implement its policy.

1103            In Melway, the majority observed (at 260):

“Although there are two aspects of that prohibition [in s 46], they are inter‑related.  The practical significance of that relationship may vary according to the circumstances of particular cases, or classes of case.”

 

Although it may be appropriate, and in a given case easy, to infer purpose from conduct (allowed by s 46(7)), it is not necessarily appropriate, nor is it so easy, to infer from a finding of purpose that a firm has taken advantage of its substantial degree of market power to achieve that purpose:  Telecom Corporation of New Zealand Ltd v Clear Communications Ltd [1995] 1 NZLR 385 at 402; Melway (supra) at 262.

 

1104            Melway did not disturb the principle in Queensland Wire (supra) that the expression “take advantage of” meant “use” and did not require proof of predatory or morally blameworthy conduct:  Melway at 260.  But what Melway did develop out of Queensland Wire was the manner in which such “use” was to be established.  The majority said at 264:

“The focal point of debate was whether, even accepting the purpose for which it was found to have been done, Melway’s refusal to supply the respondent was a taking advantage of that power for the proscribed purpose.  Consistently with the approach of the court in Queensland Wire, much of the argument was directed to a consideration of how Melway would have been likely to behave, if it had lacked the power it had.  Section 46 of the Act requires, not merely the co‑existence of market power, conduct, and proscribed purpose, but a connection such that the firm whose conduct is in question can be said to be taking advantage of its power.”

 

A majority of the High Court in Queensland Wire, in answering the question whether BHP had taken advantage of its market power, asked how BHP would have been likely to behave in a competitive market and compared the answer with how it behaved in the circumstances under consideration.  The majority of the High Court in Melway was concerned to define precisely what was the nature of the competitive situation to be compared.  The trial judge and the majority of the Full Court in Melway had asked whether in a competitive environment Melway, without its market power, would have been compelled in a practical sense to supply Auto Fashions Australia.  The majority of the High Court in Melway did not agree that that was the correct question to ask, but rather asked the question whether Melway’s wholesale distributor system, which involved restriction of competition at the wholesale level, amounted to Melway taking advantage of its market power.  The majority said at 267:

 

“The most likely explanation of the assumption that, in a competitive market, a refusal of the respondent’s application for supply would be a loss of 30,000‑50,000 sales to Melway is that it was thought that s 46 required that assumption.  But the hypothesis that Melway lacks a substantial degree of power in the market does not require the assumption that the distribution arrangements or practices of Melway and its competitors are such that they are all commercially obliged to supply anyone who seeks to become a wholesaler, or that, at the wholesale level in the market, there exists a state of perfect competition, or that a decision to confine supply to one or a small number of wholesalers will result in a loss of sales.  The only purpose of the hypothesis is to seek to test whether Melway has taken advantage of its degree of market power.  It is one thing to compare what it has done with what it might be thought it would do if it lacked that power.  It is a different thing to compare what it has done with what it would do in circumstances that are completely divorced from the reality of the market.”

 

The last two sentences in this passage are significant as they emphasise the importance of the characterisation of the competitive situation to be compared and the assumptions to be built into it.

 

1105            The majority in Melway noted that the trial judge and the majority of the Full Court in Melway had not addressed what they called ‘the real question”, which was whether Melway, without its market power, “could have maintained its distributorship system, or at least that part of it that gave distributors exclusive rights in relation to specified segments of the retail market” (268).  The majority of the High Court in Melway preferred the reasoning of Heerey J, who dissented in the Full Court.  The majority said at 268:

“…He observed that Melway had adopted its segmented distribution system before it secured its position of market dominance, and there was no reason to believe that it would not be both willing and able to continue that system in a competitive market.  He pointed out that, in refusing to supply the respondent, Melway was not denying itself sales, and there was no justification for assuming that in a competitive market it would be denying itself sales.”

 

1106            The majority in Melway rejected the respondent’s argument that where the alleged taking advantage of market power was a refusal to supply, it was not necessary or relevant in determining whether the organisation had taken advantage of its market power, to establish whether it would or would not have refused supply if it lacked market power.  The argument embraced the proposition that as Melway had a substantial degree of market power, it necessarily took advantage of that power when it refused supply and that what Melway may or may not have done in a competitive environment was not to the point.  The majority rejected this argument as being contrary to the reasoning of the majority of the High Court in Queensland Wire and because it equated the exercise of market power with deciding whether to grant or withhold supply.  The majority said at 269:

“Freedom from competitive constraint might make it possible, or easier, to refuse supply and, if it does, refusal to supply would constitute taking advantage of market power.  But it does not follow that because a firm in fact enjoys freedom from competitive constraint, and in fact refuses to supply a particular person, there is a relevant connection between the freedom and the refusal.  Presence of competitive constraint might be compatible with a similar refusal, especially if it is done to secure business advantages which would exist in a competitive environment.”

 

1107            I have analysed Melway in some detail because it is important to understand what is said to be the conduct of Safeway which constituted the taking advantage of its substantial degree of power in the market.  In this context it is important to bear in mind that the allegation is not only that Safeway contravened s 46 by taking advantage of its substantial degree of market power in the wholesale market for the acquisition of bread for the alleged purpose, but is also made in the alternative that Safeway attempted to take such advantage.

1108            The conduct which the Commission alleged constituted the use of Safeway’s market power or the acts of taking advantage were the facts and circumstances underlying each of the ten incidents (including Preston Market) which the Commission submitted resulted in:

·                   Price collusion between Safeway and Tip Top (only in relation to the Preston Market incident);

 

·                   Safeway inducing or attempting to induce each of the three plant bakers to engage in the practice of resale price maintenance;

 

·                   Safeway engaging or attempting to engage in the practice of exclusive dealing;

 

·                   Safeway making or attempting to make contracts or arrangements, or entering into, or attempting to enter, into understandings that had the purpose of preventing or lessening competition in the specified markets or giving effect, or attempting to give effect, to such contracts, arrangements or understandings;

 

·                   Safeway implementing the policy alleged by the Commission.

1109            The conduct that was based upon Safeway implementing the policy alleged by the Commission was also put by the Commission on an alternative basis if there was a finding that Safeway asked for a case deal before deleting a plant baker’s bread from any of its stores.  It was alleged by the Commission that if Safeway did ask for such a case deal, it did so knowing that the plant bakers would not agree because, as Safeway knew, the sale of proprietary branded bread at prices competitive with generic or secondary branded bread would damage or destroy the goodwill or value attached to the brands of the proprietary branded bread.

1110            The conduct alleged by the Commission may be comprehensively described as:  Safeway imposing a term of trade on the three plant bakers to the effect that if they sold cheap bread to independent stores who retailed it at a price less than the price charged by Safeway for its bread at a store in the vicinity of the independent store, Safeway would delete the respective plant baker’s products from the Safeway store whose bread sales were affected by the sale of the cheap bread and the deletion would stay in place until the independent store ceased selling the bread supplied by the plant baker at a cheap price.

1111            I have already found that the allegations of price collusion, inducing or attempting to induce resale price maintenance by the plant bakers, engaging or attempting to engage in exclusive dealing, making or entering into, or attempting to make or enter into contracts, arrangements or understandings which had the purpose of preventing or lessening competition and of the making of the policy, as alleged by the Commission and as alleged in its alternative formulation, have not been made out.  Accordingly it follows that Safeway has not taken advantage of its market power in the manner alleged by the Commission for the purposes of s 46(1)(c) of the Act.  Put shortly, the conduct relied upon by the Commission as constituting the acts involved as the “taking” advantage of market power for the purposes of s 46(1)(c) of the Act has not been made out.

1112            But it is still necessary to consider whether Safeway has taken advantage of its market power having regard to the factual findings I have made as to what occurred in each of the nine incidents involving independent stores.  Although contraventions of s 46(1)(c) have not been made out having regard to my findings as to what occurred in each of those nine incidents, it is still necessary to determine whether contraventions of s 46(1)(a) have occurred as such contraventions are open, on the basis of those findings, if I am satisfied that Safeway has taken advantage of its market power and has done so for the purpose of substantially damaging the independent stores.

1113            For the reasons to which I shall refer, I do not consider that Safeway has taken advantage of its market power in the wholesale market for the acquisition of bread in the sense in which the expression “take advantage” has been construed in Queensland Wire and explained in Melway.  Although Safeway has “used” its market power in the sense that it has engaged in conduct that is available to it there is no necessary connection between its market power and the conduct in which it has engaged with the plant bakers. 

1114            If the question is asked whether Safeway in a competitive environment in the wholesale market without its market power could have acted as it did and have a policy of deletion, it is necessary before answering the question to make assumptions as to the nature of the competitive environment.  To repeat the observation of the majority of the High Court in Melway at 267:

“It is one thing to compare what it has done with what it might be thought it would do if it lacked that power.  It is a different thing to compare what it has done with what it would do in circumstances that are completely divorced from the reality of the market.”

 

If Safeway were in a competitive environment in the wholesale market then it would be constrained by its competitors in relation to the terms of trade it could impose on its suppliers.  But would it act any differently than it would if it had its market power?

 

1115            If I assume for the moment that the term of trade alleged by the Commission has been made out and that the policy for which the Commission contended existed, I would still not reach the conclusion that, by imposing that term of trade and saying to the plant bakers – if you sell or continue to sell cheap bread to a competitive independent store, Safeway will not stock your products until the independent store ceases selling its discounted bread below Safeway’s prices – Safeway was taking advantage of its market power.  Consistently with the approach of the majority in Melway, I should consider what Safeway might have done if it did not possess its market power. 

1116            I reach a similar conclusion if I proceed on the alternative basis that either Safeway said to a plant baker:  Safeway is deleting your bread because you have sold, or are selling, cheap bread to a competitive independent store, or that Safeway said to a plant baker:  if you do not give me the same cost price on the branded bread you sell Safeway as you are giving to a competitive independent store on secondary branded or generic bread, Safeway will delete your bread from its store while that store buys its bread for that price.  Again, consistently with the approach of the majority in Melway, I should consider what Safeway might have done if it did not possess its market power.

1117            In Queensland Wire, it was concluded that in a competitive environment BHP would not have offered, in a commercial sense, to withhold supply of Y‑bar to Queensland Wire, because one of its competitors would have obtained the business and presumably made a profit denied to BHP.  There is no analogous conclusion to be reached in the present case.

1118            The reality of a competitive wholesale market in which Safeway did not have substantial market power would be that Safeway would still have alternative sources of supply available if a plant baker refused to stop selling bread to an independent store and Safeway stopped buying that plant baker’s bread.  The other plant bakers, who were not supplying the particular independent store with cheap bread would no doubt be willing to supply the particular Safeway store with bread, or with increased quantities if they already supplied it with bread.  In particular, Safeway would have access to the supply of the Sunicrust and Buttercup price‑fighting brands.  Safeway would still have the same number of retail outlets and there is no reason to assume that it would not receive the same tenders as it did from Sunicrust and Buttercup.  If it sought to impose the same term of trade and policy upon the plant bakers and the plant bakers resisted, it would still delete the plant bakers’ products and bring in a price‑fighting brand.  In such circumstances, it would not act any differently, as it would not, unlike BHP in Queensland Wire, be faced with a competitive situation in which it would be expected, according to accepted principles of commercial practice and reality, to act differently from the way it acted in circumstances where it possessed a substantial degree of market power in the wholesale market. 

1119            In a competitive situation Safeway might still try to impose its terms of trade and policy upon the plant bakers.  If it failed, as it did in a number of the incidents under consideration, would it forget about the deletion and abandon the idea of bringing in the bread of other plant bakers or the Sunicrust or Buttercup price‑fighting brands?  I consider the answer to be in the negative.  It would act in exactly the same way as it did in the situation where it possessed market power.  It would not (unlike BHP in Queensland Wire) be faced with any commercial imperative different from that which it faced whilst possessing a substantial degree of market power in the wholesale market.

1120            The Commission submitted that Safeway could not, in a competitive market, have used its buying power to induce, or attempt to induce, the plant bakers to alter the terms on which they dealt with the independent stores.  That may be so in the sense that it could not have achieved the result it set out to achieve.  But I do not consider that it is the appropriate question to ask.  Rather, the appropriate question to ask is whether, in a competitive environment, where it did not have a substantial degree of market power, it would have acted differently.  I have answered that question in the negative.  The issue is not whether, in a competitive environment, Safeway could have imposed on the plant bakers a requirement that they stop selling bread to an independent store, or increase their selling price to an independent store, or that they supply Safeway proprietary premium bread at the same cost price, but rather, whether Safeway would have deleted a plant baker’s bread from one of its stores when it could not achieve the result of the plant baker stopping selling bread to an independent store or increasing its selling price to that independent store or of obtaining the same cost price for proprietary premium bread.  There was no commercial imperative to act in a way different than it would have acted where it possessed a substantial degree of market power.

1121            The conclusion that Safeway did not “take advantage” of its substantial market power can be reached by another approach.  In this context it is important to keep a consideration of whether Safeway has engaged in conduct that may be said to be taking advantage of its substantial market power separate from a consideration of the purpose for which it has taken such advantage.  This other approach focuses substantially on the allegations of the Commission which rely upon contraventions of ss 45, 47 and 48 of the Act and implementation of the policy alleged by the Commission.  A contravention of those sections can occur whether or not a corporation has a substantial degree of market power.  Market power is not required in order for contraventions of those sections to be established.  Similarly, implementation of the policy of deleting products can be achieved by any supplier or wholesaler who cannot get its customer to agree to his terms, particularly where alternative products are available for purchase.

1122            The findings I have made, and the analysis I have undertaken, results in the conclusion that Safeway has not contravened, or attempted to contravene, s 46 of the Act in relation to any of the incidents in respect of which a contravention of s 46 was alleged.

Did Safeway take advantage of its market power for a purpose proscribed by s 46(1)?

1123            I turn to the final integer in the equation of a contravention of s 46, the purpose for which it is said that Safeway took advantage of its substantial degree of market power.  In the light of my conclusion that Safeway has not taken advantage of its market power, it is not necessary to address the issue of Safeway’s purpose.  However, as the issue of Safeway’s purpose loomed large in the proceeding, it is appropriate to make findings on that issue. 

1124            The Commission submitted that Safeway had three purposes:

·                   Deterring or preventing the plant bakers from engaging in competitive conduct in the wholesale market for bread:  s 46(1)(c) of the Act;

 

·                   Deterring or preventing the independent retailers from engaging in competitive conduct in the retail market for bread:  s 46(1)(c) of the Act;

 

·                   Substantially damaging the independent retailers as competitors of Safeway in the retail market:  s 46(1)(a) of the Act.

 

1125            The purpose and intention that the Commission alleged against Safeway was pleaded in the following terms:

“The purpose [of the conduct] was to –

(a)               maintain retail prices for bread products in the said retail markets at levels that would not otherwise be sustainable in a competitive environment

(b)               cause loss and injury to consumers of bread products in the said retail markets by requiring them to pay higher prices

(c)               preserve to Safeway or enhance its market share for the supply of bread products in the said retail markets

(d)               prevent Safeway’s competitors (including the said other retailers) in the said retail markets from maintaining or increasing their market share in the said retail markets.”

 

The reference to “the said retail markets” was a reference to each of the markets in which the relevant independent store was a participant.  Such purposes were denied by Safeway.  Section 46(7) enables the Court to reach a finding of the existence of a proscribed purpose even though the existence of the purpose is only ascertainable by reference from the conduct of Safeway and its employees.

 

1126            As noted earlier, it is not necessary, in order to establish a contravention of s 46, to find that the proscribed purpose was the sole purpose for the conduct;  it is sufficient that it be one of a number of purposes so long as it was a substantial purpose:  s 4F(1)(b) of the Act.

1127            The Commission submitted that both Mr Brookes and Mr Jones formulated the policy and implemented it in each of the relevant incidents with the sole or dominant intention or purpose of inducing the relevant plant baker to cease supplying cheap secondary branded or generic bread to the independent retailers.  The formulation of the policy was solely the province of Mr Brookes and the implementation of it was left to Mr Jones although Mr Brookes participated in its implementation from time to time.

1128            I have already found that the purpose of the policy as formulated by Mr Brookes was not to punish the plant bakers, but rather, to enable Safeway to be competitive in its sales of bread.  It was for that reason that it included the element of Safeway requesting case deals.  When considering the implementation of the policy it is important not to focus simply on what Mr Brookes and Mr Jones said was the purpose of the policy and the reason why it was implemented in a particular way.  As s 46(7) makes clear purpose can be inferred from conduct.

1129            The Commission submitted that Mr Brookes’ and Mr Jones’ evidence as to the purpose of the policy, when measured against the objective facts, should not be accepted as the purpose for the conduct that in fact occurred, in particular, because the conduct that in fact occurred was not consistent with the policy as formulated.  This occurred in two principal respects – more products were deleted than the policy required and the deleted products were not replaced with a price‑fighting brand of the plant baker deleted.

1130            In short, it was submitted that no evidence had been given as to the purpose for which the particular conduct that had occurred did occur.  For example, in the context of the Frankston incident, there was no evidence as to the purpose for the over‑deletion of all Buttercup products, without a case deal being first sought, when the price‑fighting brand introduced was not Buttercup’s Budget Family Fresh but rather Sunicrust’s Captain Cutless.  It was not in issue in the Frankston incident that the deletions which occurred went beyond what was required by the policy.  I have rejected Mr Jones’ explanation for the over-deletion, namely that when referring to “Buttercup bread” he was referring to 680g bread.  Mr Brookes agreed that the instruction to the two store managers was to withdraw all Buttercup bread other than Atlantic bread and specialty rye.

1131            The Frankston incident is an incident which warrants the adoption of the approach to determining the purpose of a participant in a transaction taken by Fullagar J in Pascoe v Commissioner of Taxation (supra).  An issue in that case, which involved a contested assessment to income tax, was the purpose for which a syndicate of three persons had acquired certain real estate.  Fullagar J said at 403, in relation to the evidence given by the syndicate members as to their intention at the time of the acquisition of the real estate:

“Where a person’s purpose or object or other state of mind in relation to a given transaction is in issue, the statements of that person in the witness box provide, in a sense, the ‘best’ evidence, but, for obvious reasons, they must, as Cussen, J., observed in Cox v. Smail ((1912) V.L.R. 274, at p. 283), ‘be tested most closely, and received with the greatest caution.’  In that case Cussen, J., after pointing out that states of mind in relation to acts done were generally complex, elaborately analysed the factors to be considered in determining whether an assignment of property by a bankrupt to a creditor had been made ‘with a view to’ giving that creditor a preference.  In the present case, the statements to which I have referred must be examined in the light of a number of circumstances.  The Commissioner puts it that these circumstances raise a high degree of probability that the purpose of the acquisition of the property in St. George’s Terrace was the making of a profit by sale.”

 

His Honour concluded that the evidence given as to intention was in part reconstruction rather than recollection, and he did not accept it.

 

1132            In ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No 1) (supra), the Full Court of the Federal Court, at 482‑483, accepted as quite appropriate, the position taken by the trial judge that the best evidence of the purpose of the participants involved was provided by looking at what was actually done.

1133            I am satisfied that the purpose of the Frankston deletion was not to implement the policy as formulated by Mr Brookes, but rather, was to punish Buttercup for selling bread to Quadara at a discounted cheap price and to deter or attempt to deter Buttercup from continuing to do so.  I have been able to reach that finding because of the findings I was able to make in relation to:

·                   the fact that the decision was taken to make the deletion without a case deal being sought;

 

·                   the extent of the over-deletion;

 

·                   the manner and form in which the instruction for the deletion, and its extent, was given.

 

1134            However, for the reasons to which I have already referred, the finding of that purpose does not result in the Frankston incident constituting a contravention of s 46 as Safeway did not take advantage of its substantial degree of market power for that purpose.  In a competitive environment, in which it did not have a substantial degree of market power, it would have been open to Safeway to have engaged in precisely the same conduct and it would not have been inhibited in doing so for any commercial reason which did not exist in the circumstances where it possessed a substantial degree of power in the wholesale market for the acquisition of bread.  It would have brought in other bread or a price‑fighting bread or reduced the price of other bread which it sold.

1135            My findings in relation to the other incidents do not enable me to reach a similar finding in relation to the purpose for which the relevant conduct was undertaken in those incidents other than the Albury May 1995 incident.  In the Cheltenham and Vermont incidents, the evidence did not enable me to reach a finding as to the circumstances in which the deletion occurred.  In the Traralgon incident there was evidence that a case deal was sought before the deletion and that there was a deletion of all Buttercup products whilst Mr Jones was negotiating to get the same cost price as the competitor.

1136            In the Lalor/Thomastown incident, Mr Jones asked for a case deal before the deletion occurred.  In the Geelong incident, Mr Jones asked for a case deal before he gave instructions for the deletion of Sunicrust products from seven Safeway stores in Geelong.  However, after complaint from Mr McLeish that only the Highton store could be affected by Costa’s pricing, he agreed to the reintroduction of Sunicrust products to all stores except Highton.

1137            In the Albury May 1995 incident, I found that the purpose of the deletion was to deter Tip Top from, or influence it against, selling bread to Bob’s IGA at a price that enabled Bob’s IGA to sell bread at retail prices less than the prices for which Safeway Albury was selling bread.  As with the Frankston incident, that finding does not result in a contravention of s 46.

1138            In the Albury November 1995 incident, Mr Jones asked for a case deal before the deletion occurred.  In the Ferntree Gully incident, Mr Jones asked for a case deal before giving instructions for the deletion of all Tip Top products.  Mr Parker, the store manager, refused to do so. 

Defence of Res judicata and Issue Estoppel

1139            Safeway and Mr Jones have raised a defence of issue estoppel and res judicata based on the dismissal of the claims against Mr Brookes.  On 17 March 1999 I ordered by consent that the proceeding against Mr Brookes be dismissed.  Safeway submitted that the defencearose in relation to the policy alleged against it by the Commission in relation to the incidents involving Tip Top, namely the Preston Market incident, the Albury May 1995 and November 1995 incidents and the Ferntree Gully incident. 

1140            Safeway relied on the following facts and circumstances:

·                    Prior to 17 March 1999 (the date of the consent judgment) the Commission sought penalties against Mr Brookes on the basis of his involvement and participation in the Preston Market incident, which constituted a contravention of s 45 of the Act.

 

·                    The order on 17 March 1999 dismissing the proceeding against Mr Brookes constituted a final judgment in respect of the claims made by the Commission against Mr Brookes and therefore gave rise to:

-            a res judicata in favour of Mr Brookes against the Commission in respect of all causes of action on which the claim against Mr Brookes was brought,

-            issues estoppel in favour of Mr Brookes against the Commission in respect of all issues fundamental to the judgment in his favour.

 

·                    The issues fundamental to the judgment in favour of Mr Brookes were:

-            whether Tip Top and Safeway made an agreement in relation to Tip Top’s supply of bread at the Preston Market stall;

-            whether that agreement contained provisions as to the type of bread and the prices at which Tip Top would sell bread at the Preston Market stall which provisions were exclusionary provisions within s 4D(1)(b) of the Act or had the purpose or effect of substantially lessening competition;

-            whether the agreement was carried out;

-            whether Safeway engaged or attempted to engage in the practice of exclusive dealing in contravention of s 47(1) of the Act in its involvement in the Albury May and November 1995 incidents and the Ferntree Gully incident;

-            whether Safeway had the policy alleged by the Commission;

-            whether as a consequence of the policy the plant bakers induced or attempted to induce retailers to stop discounting or were discouraged from supplying bread to retailers at discounted prices;

-            whether Safeway implemented the policy in relation to Tip Top’s Preston Market stall and thereby contravened ss 46 and 48 of the Act;

-            whether Mr Brookes intended on behalf of Safeway to make the agreement and knew the fundamental issues;

-            whether Mr Brookes’ intention was to be imputed to Safeway.

 

·                    The Commission made claims in the proceeding against Safeway founded upon Mr Brookes’ conduct, knowledge or purpose and alleged that Mr Brookes’ conduct was Safeway’s conduct and resulted in Safeway contravening ss 45, 46 and 47 of the Act.

 

·                    Safeway was a privy of Mr Brookes.

1141            I do not consider that a defence of res judicata can be maintained by Safeway or Mr Jones in respect of any of the causes of action alleged against them as a result of the judgment dismissing the proceeding that was entered in favour of Mr Brookes.  The relevant principle to be considered and applied is that where an action has been brought and judgment has been entered in that action, no other action or proceeding can be maintained on the same cause of action:  Jackson v Goldsmith (1950) 81 CLR 446 at 446‑448; Effem Foods Pty Ltd v Trawl Industries of Australia Pty Ltd (Receivers and Managers Appointed) (in liq) (1993) 43 FCR 510. 

1142            In Jackson v Goldsmith (supra), Fullagar J (who dissented on the application of the relevant principles to the facts in issue) explained the difference between res judicata and issue estoppel, at 466:

“The rule as to res judicata can be stated sufficiently for present purposes by saying that, where an action has been brought and judgment has been entered in that action, no other proceedings can thereafter be maintained on the same cause of action. …

 

The rule as to issue estoppel is generally stated in the words of Lord Ellenborough in Outram v Morewood. …  His Lordship said that parties and privies are ‘precluded from contending to the contrary of that point, or matter of fact, which having been once distinctly put in issue by them … has been, on such issue joined, solemnly found against them’.”

 

(See also Blair v Curran (1939) 62 CLR 464 at 532:  Spencer Bower, Turner and Handley, The Doctrine of Res Judicata 3^rd ed 1996 at p 2‑3)

 

1143            Although Mr Brookes was alleged to have been involved in the formulation and implementation of the policy alleged by the Commission, the causes of action alleged against Mr Brookes were different from the causes of action alleged against Safeway and Mr Jones.  The causes of action against Mr Brookes were founded upon s 76 of the Act and were based upon the allegation that he was knowingly concerned in, or party to, or aided, abetted, counselled or procured, contraventions of the Act by Safeway.

1144            The causes of action alleged against Safeway raised directly its liability for the contraventions alleged, the causes of action alleged against Mr Brookes raised his liability as an accessory to the alleged contraventions and as a person who was knowingly concerned in the contraventions.  The causes of action alleged against Mr Brookes raised a liability separate and distinct from Safeway’s liability and raised matters to be established against Mr Brookes that did not have to be established against Safeway, such as Mr Brookes’ knowledge of the essential elements of the contraventions by Safeway:  Yorke v Lucas (1985) 158 CLR 661 at 666‑671; Hamilton v Whitehead (supra) at 128.

1145            There is a further reason why the defence of res judicata cannot be maintained.  Safeway was not a privy of Mr Brookes.  A plea of res judicata can be sustained even though the cause of action sought to be barred is raised against a person different from the person in whose favour the first judgment was pronounced.  But in order for that result to be achieved there must be a privity of interest between the beneficiary of the first judgment and the person raising the defence of res judicata.

1146            Safeway did not, in relation to the causes of action against it, claim under or through Mr Brookes.  As Gummow J pointed out at first instance in Trawl Industries of Australia Pty Ltd (In liq) v Effem Foods Pty Ltd (In liq) (1992) 36 FCR 406 at 413, privity can be described as “a mutual or successive relationship to the same right of property.”  His Honour also observed that in determining whether the necessary privity in a mutual or successive relationship exists, “courts have looked to legal rather than economic indicia as the criterion of operation of the privity doctrine” (p 414):  see also Ramsay v Pigram (1968) 118 CLR 271 at 279 per Barwick CJ, 287; Spencer Bower, Turner and Handley, (op cit) at 119‑122.

1147            Safeway had no legal or beneficial interest in the outcome of the proceeding against Mr Brookes.  It had a personal interest in the outcome in the sense that it would not want one of its senior executives to be found to have contravened the Act, and it also had an interest in there not being a finding of a contravention of the Act against an employee whose intention was said to be attributed to it.  But that interest did not give Safeway a sufficient privity of interest to warrant the conclusion that Safeway was a privy of Mr Brookes for the purposes of the application of the principle of res judicata.

1148            The defence of issue estoppel raised different considerations.  The fact that the judgment obtained was by consent is no bar to a claim that an issue estoppel arises out of the judgment so long as one can ascertain what are the issues which have been determined and disposed of by the judgment:  In re South American and Mexican Company; Ex parte Bank of England [1895] 1 Ch 37 at 50; Isaacs v The Ocean Accident and Guarantee Corporation Ltd & Winslett [1958] SR (NSW) 69 at 75; Makhoul v Barnes (1995) 60 FCR 572 at 582.  However, what is critical, in order to found an issue estoppel, is to be able to establish that an issue was involved in the consent judgment and was necessarily and conclusively determined by it.

1149            Safeway submitted that the consent judgment determined the following issues in favour of Mr Brookes:

·                   Mr Brookes did not reach any agreement or arrive at any understanding with Tip Top;

 

·                   Mr  Brookes did not know that the agreements or understandings with Tip Top alleged against him were entered into or reached for the purpose of preventing or limiting the supply of bread products to customers of Tip Top;

 

·                   Mr Brookes did not know that the purpose of the policy alleged against Safeway was to punish the plant bakers, such as Tip Top, to prevent them from engaging in competitive conduct;

 

·                   Safeway did not have substantial market power, of which it took advantage, in relation to the Tip Top stall at Preston Market.

 

It followed, submitted Safeway, that there was therefore determined in Safeway’s favour, as a privy of Mr Brookes, that:

 

·                   Mr Brookes did not develop the policy alleged by the Commission for an anti‑competitive purpose;

 

·                   Mr Brookes did not reach any agreement or understanding with any Tip Top employee in relation to the Tip Top stall at the Preston Market;

 

·                   Safeway did not possess substantial market power, of which it took advantage, in relation to the Tip Top stall at the Preston Market.

 

1150            I have already found that Safeway was not the privy of Mr Brookes for the purpose of the application of the principle of res judicata.  But even if Safeway was the privy of Mr Brookes for the purpose of the application of the principle of issue estoppel, I do not consider that issues estoppel arise as a result of the consent judgment as submitted by Safeway.

1151            Although the accessorial claim made against Mr Brookes required proof of a number of matters required to prove the claims made against Safeway and Mr Jones, such as the making of the agreements as alleged, the formulation of the policy by Mr Brookes as alleged, the purpose of the policy and Safeway’s substantial degree of market power in the wholesale bread market in 1994 and 1995, it does not follow that each of those issues was necessarily and conclusively determined by the consent judgment.  The consent judgment was not given or entered on the basis of any particular finding of fact or conclusion of law.  As the claims against Mr Brookes involved a number of elements, the absence of any of those elements could have led to a judgment in favour of Mr Brookes notwithstanding the existence of other elements.

1152            Where a judgment is given in favour of an applicant or plaintiff, it is easier to determine the issues that are fundamental to the judgment than it is when a judgment is given in favour of a respondent or a defendant in respect of causes of action that require a number of elements to be established, the failure to prove any one of which will result in the claim being dismissed.  In a multi‑element cause of action, a dismissal of the proceeding without reasons will not demonstrate which elements were not made out.  The proposition is succinctly set out in Spencer Bower, Turner and Handley, (op cit) at 56‑57:

“A dismissal of an action which could succeed on establishing either x or y, is a decision negativing both, but if the action is found on x plus y, its dismissal does not necessarily involve a decision as to either, since the action may have failed because x had not been established, though y had been, or vice versa, or because neither had been established.”

 

The authors cite Re Allsop and Joy’s Contract (1889) 61 LT 213 at 215 in support of the proposition stated.  Counsel for Safeway submitted that the reasoning in Re Allsop and Joy’s Contract was not good law in Australia and was inconsistent with the reasoning of the High Court in Blair v Curran (supra).  In Re Allsop and Joy’s Contract, Chitty J said at 215:

 

“It is new to me that on the doctrine of estoppel either side can rely upon the reasons which the learned judge gives for his coming to a conclusion upon any point.  To use the language of Knight‑Bruce L.J. in Barrs v. Jackson … the estoppel is not of any matter incidentally cognisable, nor of any matter to be inferred by argument from the judgment.  Much less therefore is either side estopped by the reasons which the judge assigns for the conclusion that he comes to.  It is the conclusion that constitutes the estoppel.  Now, after what I have said, it is plain that this bill might have been dismissed on either one of the two grounds.  It might have been dismissed on the ground that the plaintiff already had the legal estate, or on the other ground that he had not the equitable estate in fee simple.  I am not at liberty, nor in my opinion would any court hereafter be at liberty, to adopt either one of these propositions as the ground and say, ‘It is this, and not that.’  Therefore I consider that the reason which Lord Romilly apparently gave for his judgment, which reason is not expressed on the face of the decree itself, does not constitute any part of this estoppel.”

 

I am prepared to accept that this reasoning is inconsistent with Blair v Curran (supra) and Jackson v Goldsmith (supra) to the extent that it stands for the proposition that one cannot look at the reasons for the decision said to raise the issue estoppel to determine what issues are necessarily and conclusively determined by the decision.  In Australia, one is not limited to looking only at the final decision, judgment or order in determining whether an issue estoppel can be raised.  A party is entitled to rely on the reasons for an earlier decision to raise an issue estoppel:  Blair v Curran (supra) at 532; Jackson v Goldsmith (supra) at 466‑467.

 

1153            However, the Australian authorities do not disavow the proposition stated in Re Allsop and Joy’s Contract that if there were alternative grounds for dismissing a proceeding, and it is not possible from the decision or the reasoning of the Court to determine what was in fact the ground on which the proceeding was dismissed, then an issue estoppel will not arise in relation to the alternative grounds.  So much is clear from the following passage in the judgment of Dixon J in Blair v Curran (supra) at 531‑532:

“A judicial determination directly involving an issue of fact or of law disposes once for all of the issue, so that it cannot afterwards be raised between the same parties or their privies.  The estoppel covers only those matters which the prior judgment, decree or order necessarily established as the legal foundation or justification of its conclusion, whether that conclusion is that a money sum be recovered or that the doing of an act be commanded or be restrained or that rights be declared.  The distinction between res judicata and issue‑estoppel is that in the first the very right or cause of action claimed or put in suit has in the former proceedings passed into judgment, so that it is merged and has no longer an independent existence, while in the second, for the purpose of some other claim or cause of action, a state of fact or law is alleged or denied the existence of which is a matter necessarily decided by the prior judgment, decree or order.

 

Nothing but what is legally indispensable to the conclusion is thus finally closed or precluded.  In matters of fact the issue‑estoppel is confined to those ultimate facts which form the ingredients in the cause of action, that is, the title to the right established.  Where the conclusion is against the existence of a right or claim which in point of law depends upon a number of ingredients or ultimate facts the absence of any one of which would be enough to defeat the claim, the estoppel covers only the actual ground upon which the existence of the right was negatived.  But in neither case is the estoppel confined to the final legal conclusion expressed in the judgment, decree or order.  In the phraseology of Coleridge J. in R. v Inhabitants of the Township of Hartington Middle Quarter, the judicial determination concludes, not merely as to the point actually decided, but as to a matter which it was necessary to decide and which was actually decided as the groundwork of the decision itself, though not then directly the point at issue.  Matters cardinal to the latter claim or contention cannot be raised if to raise them is necessarily to assert that the former decision was erroneous.”  (Emphasis added)

 

1154            This passage demonstrates that in order for an issue estoppel to arise in relation to a judgment dismissing a proceeding, one must be able to identify from the judgment itself, or the reasons for the judgment, the issues necessarily and conclusively determined in favour of the party in whose favour the proceeding was dismissed.  If the cause of action was dismissed without reasons being given, and the causes of action were based on the need to prove a number of elements so that it is not able to be established which element was not proved in the dismissed proceeding, then no issue estoppel will arise in relation to any of the elements required to establish the causes of action in respect of which the proceeding was dismissed.  To that extent the proposition in Spencer Bower, Turner and Handley, (par 1152 above) is good law.

1155            The judgment in favour of Mr Brookes could have been determined on a number of alternative grounds:

·                   Mr Brookes did not reach the agreements or arrive at the understandings alleged;

 

·                   the policy alleged was not formulated or implemented as alleged in relation to Tip Top;

 

·                   Mr Brookes did not have the requisite knowledge;

 

·                   Safeway did not have substantial market power in respect of which it took advantage in relation to Tip Top’s Preston Market stall.

 

The causes of action against Mr Brookes would have been dismissed in the absence of the Commission establishing any one or more of these grounds.  Although there were a number of issues fundamental to the proceeding brought against Mr Brookes, their nature is such that it is not possible to determine which of them necessarily were conclusively determined by the consent judgment and therefore determined in favour of Safeway.  Accordingly, the defence of issue estoppel raised by Safeway and Mr Jones is not made out.

 

Conclusion

1156            None of the contraventions of the Act alleged against Safeway and Mr Jones have been established.  Having regard to my findings and conclusions, it has not been necessary to consider a number of submissions which were predicated on findings of contraventions of the Act by Safeway.  I refer, for example, to the issue of Mr Jones’ liability pursuant to s 75B of the Act.  If Safeway is not liable as a principal, Mr Jones is not liable as an accessory.

1157            The application insofar as it relates to allegations against Safeway and Mr Jones will be dismissed.  I will hear the parties on any orders as to costs which should be made.

I certify that the preceding one thousand, one hundred and fifty‑seven (1157) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Goldberg.

Associate:

Dated:              21 December 2001

Counsel for the Applicants:	Mr J I Fajgenbaum QC, Mr R A Brett QC, Mr T J Ginnane & Mr D Star
Solicitor for the Applicants:	Australian Government Solicitor
Counsel for the First Respondent:	Mr T F Bathurst QC, Mr R M Smith SC & Mr P R Whitford
Solicitor for the First Respondent:	Clayton Utz
Counsel for the Third Respondent:	Mr L Glick
Solicitor for the Third Respondent:	Corrs Chambers Westgarth
Counsel for the Fourth Respondent:	Mr J Davis
Solicitor for the Fourth Respondent:	Norton Smith & Co
Dates of Hearing:	9-12, 15-18, 22, 24-26 February 1-4, 9-12, 17-18 March 19 April 17-20, 24-27, 31 May 1-3, 7-10, 15-18, 21-23, 25 June 12-15, 19-22 July 2-5, 9-12, 24 August 8-10, 13-15, 21-24, 27-30 September 1, 4-8, 11-15, 18-20 October 1999
Date of Judgment:	21 December 2001