FEDERAL COURT OF AUSTRALIA

 

Australian Competition & Consumer Commission v Pauls Ltd [2002] FCA 1586

PRACTICE AND PROCEDURE – submission by all respondents of no case to answer – whether the respondents should elect that they will or will not call evidence before making a no case submission.

TRADE PRACTICES – Section 45A – “understanding” and “contract” and “control” – whether the parties arrived at an arrangement or understanding – whether a question of “control” arose as a consequence of the parties entering into the contract. 

Trade Practices Act 1974 (Cth), ss 45(2), 45A(1)

Federal Court Rules, O 35 r 1

Humphrey v Collier [1946] VLR 391 referred to

Residues Treatment & Trading Co Limited v Southern Resources Ltd (1989) 52 SASR 54 referred to

Muller v EbbW Vale Steel, Iron & Coal Co Ltd [1936] 2 ALL ER 1363 referred to

Copper Industries Pty Ltd (in liquidation) v Hill and Hill (1975) 12 SASR 292 referred to

Rasomen Pty Ltd v Shell Company of Australia Ltd (1997) 75 FCR 216 referred to

Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd (2000) 169 ALR 344 applied

Protean (Holdings) Ltd v American Home Assurance Co [1985] VR 187 applied

Prentice v Cummins (No 4) [2002] FCA 1215 referred to

Radio 2UE Sydney Pty Ltd v Stereo FM Pty Ltd (1982) 44 ALR 557 applied

Briginshaw v Briginshaw (1938) 60 CLR 336 cited

Jones v Dunkel (1959) 101 CLR 298 referred to

Top Performance Motors Pty Limited v Ira Berk (Queensland) Pty Limited (1975) ATPR ¶40-004 referred to

Australian Competition and Consumer Commission v CC (NSW) Pty Ltd (1999) 92 FCR 375 applied

Rural Press Ltd v Australian Competition & Consumer Commission [2002] FCAFC 213 cited

AUSTRALIAN COMPETITION & CONSUMER COMMISSION v PAULS LTD, MALANDA DAIRYFOODS LTD, AUSTRALIAN CO-OPERATIVE FOODS LTD, ALAN ALEXANDER MCCRAY, BARRY ROBERT JARDINE, RICHARD GORDON LEONG SEE & SYDNEY RICHARD MORGAN

 

No D 23 of 2001

O’LOUGHLIN J

ADELAIDE (HEARD IN DARWIN)

19 DECEMBER 2002

IN THE FEDERAL COURT OF AUSTRALIA
NORTHERN TERRITORY DISTRICT REGISTRY	D 23 OF 2001

 

BETWEEN:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPLICANT
AND:	PAULS LIMITED FIRST RESPONDENT   MALANDA DAIRYFOODS LIMITED SECOND RESPONDENT   AUSTRALIAN CO-OPERATIVE FOODS LIMITED THIRD RESPONDENT   ALAN ALEXANDER MCCRAY FOURTH RESPONDENT   BARRY ROBERT JARDINE FIFTH RESPONDENT   RICHARD GORDON LEONG SEE SIXTH RESPONDENT   SYDNEY RICHARD MORGAN SEVENTH RESPONDENT
JUDGE:	O'LOUGHLIN J
DATE OF ORDER:	19 DECEMBER 2002
WHERE MADE:	ADELAIDE (HEARD IN DARWIN)

 

THE COURT ORDERS THAT:

 

1.         The application be dismissed.

2.         The applicant pay the costs of all respondents, such costs are to be taxed in default of agreement. 

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

IN THE FEDERAL COURT OF AUSTRALIA
NORTHERN TERRITORY DISTRICT REGISTRY	D 23 OF 2001

 

BETWEEN:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPLICANT
AND:	PAULS LIMITED FIRST RESPONDENT   MALANDA DAIRYFOODS LIMITED SECOND RESPONDENT   AUSTRALIAN CO-OPERATIVE FOODS LIMITED THIRD RESPONDENT   ALAN ALEXANDER MCCRAY FOURTH RESPONDENT   BARRY ROBERT JARDINE FIFTH RESPONDENT   RICHARD GORDON LEONG SEE SIXTH RESPONDENT   SYDNEY RICHARD MORGAN SEVENTH RESPONDENT

 

JUDGE:	O'LOUGHLIN J
DATE:	19 DECEMBER 2002
PLACE:	ADELAIDE (HEARD IN DARWIN)

REASONS FOR JUDGMENT

A submission of no case to answer

1                     In these proceedings, the applicant, the Australian Competition and Consumer Commission (“the ACCC”), has sought declaratory and injunctive relief against the respondents as a consequence of certain commercial transactions to which they were said to have been parties during 1996.  In the most general of terms, the ACCC has alleged that the respondents engaged in price-fixing arrangements with respect to the supply of milk in the Northern Territory of Australia (“the Territory”).  These are most serious allegations that have attacked the commercial morality of the respondents; they could moreover, if proved, lead to the imposition of very substantial pecuniary penalties.

2                     There are seven respondents to the proceedings.  The first of them is Pauls Limited (“Pauls”); the second is Malanda Dairyfoods Limited (“Malanda”) which is now a wholly owned subsidiary of the third respondent, Australian Co-operative Foods Ltd (“ACF”).  Four senior executives (or former executives) of the corporate respondents have also been named as respondents in the proceedings.  The first of them is Mr Alan Alexander McCray; he is the fourth named respondent and he was, until December 1997, employed by Pauls, initially as its Group Overseas and Corporate Development Manager and subsequently as its General Manager International.  Mr Barry Robert Jardine, the fifth respondent, is another senior executive of Pauls; he is and was, at all material times, that Company’s Corporate Secretary.  The two remaining respondents were officers of Malanda and ACF respectively.  Mr Richard Gordon Leong See, the sixth respondent, was, until November 1998, the Chief Executive Officer and Managing Director of Malanda, while Mr Sydney Richard Morgan, the seventh respondent, was employed by ACF as its General Manager, Planning and Development and, as from September 1998, as its General Manager, Corporate Development.

3                     Mr A Robertson SC and Mr AI Tonking appeared as counsel for the ACCC.  Mr G Gibson QC together with Mr R Wilson appeared for the first, fourth and fifth respondents, that is, Pauls, and Messrs McCray and Jardine.  Mr F Douglas QC with Mr RJ Wright appeared for the second and third respondents, Malanda and ACF.  Mr J Bell QC and Mr M Martin appeared for Mr See, the sixth respondent, and finally, Mr M Speakman appeared for the seventh and last respondent, Mr Morgan.

4                     As the respondents had denied the many allegations that had been made against them, the trial was set down for hearing to commence in Darwin on 12 August 2002; three weeks were set aside, but a no case submission by all of the respondents commenced on the second day of the hearing.

the question of election

5                     Whether a judge should call upon counsel (who intends to make a submission that his client has no case to answer) to make an election that he will or will not call evidence, is a matter that is left to the discretion of the judge.  Much will depend upon the basis upon which the submission is made but it could not be said that there is a rule of practice to the effect that the moving party should not be put to his or her election.  In fact, in Humphrey v Collier [1946] VLR 391 at 402-403 Gavan Duffy J (with whom Herring CJ and Macfarlane J agreed) said that cases where counsel was not put to an election before submitting no case to answer:

“… would, indeed, be exceptional and as a general rule there is great and evident advantage in not deciding such a point until all the evidence has been given …”

Nevertheless, even though his Honour thought that such should be the general practice, he went on to add at 402:

“… but I do not think the presiding Judge should be left without discretion in the matter.  There might be occasions when a strict adherence to it would result in unnecessary loss of time and money.”

6                     In Residues Treatment & Trading Co Limited v Southern Resources Ltd (1989) 52 SASR 54 Perry J at 67-68 concluded that there was no general practice permitting a submission of no case to answer without putting the moving party to an election.  On the contrary, he found that there was much persuasive authority in favour of the view that, generally speaking, an election was called for.

7                     In days of old, when alternative pronouns were not the subject of thought, Branson J proffered a more flexible approach in Muller v EbbW Vale Steel, Iron & Coal Co Ltd [1936] 2 ALL ER 1363 at 1365-1366.  He said:

“It seems to me that it must be a matter for the judge who is to try the case to decide for himself whether, in the particular case before him, and having regard to all the circumstances of it, it is likely to save the litigants before him expense and time and trouble to deal with the case by way of ruling upon the submission without putting any terms upon counsel upon either side, or whether it is better to say:  ‘In this case I think it would be desirable that before I rule I should hear the whole of the evidence’.”

That passage was adopted by Walters J in Copper Industries Pty Ltd (In Liquidation) v Hill and Hill (1975) 12 SASR 292.  His Honour there said at 294:

“In my view, however, there is no rule of law or practice in this Court which precludes a Judge, trying a case alone, from ruling on a question of law which may arise at the close of the plaintiff’s case, without subjecting the defendant to the necessity of electing whether he will call evidence or not …  The position would be otherwise if the basis of the submission were that the evidence was so ‘vague or ambiguous’, or ‘so weak and indefinite that the Court should not accept it’.  If such a submission were made, an election would properly be a condition precedent to the Judge’s hearing the submission of no case to answer and ruling upon it.”  (References to authorities have been omitted).

 

Walters J did not require the defendant to make an election because the basis upon which the defendant submitted that there was no case to answer was that:

“… even accepting, at its face value, the evidence led for the plaintiff, it was insufficient in law to support any one of the causes of action set up against the defendants.”  (at 293)

8                     When the ACCC’s case against the respondents was completed, counsel for all respondents joined in submitting that the ACCC had failed to make out a case against any of the respondents; they further submitted that their respective clients should be permitted to make their no case submissions without being required to make elections whether they would or would not call evidence.  The respondents relied upon statements of principle that have been established by the Full Court of this Court in Rasomen Pty Ltd v Shell Company of Australia Ltd (1997) 75 FCR 216 (“Rasomen”) and applied by Sackville J in Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd (2000) 169 ALR 344 (“Amcor”).  Rasomen concerned an appeal to the Full Court of this Court from a decision of a single judge, where the trial judge had dismissed the applicant’s case following a no case submission on the part of the respondent.  The applicant appealed, contending, inter alia, that the trial judge erred in not requiring the respondent to elect to call no evidence.  The Full Court dismissed the appeal and endorsed the approach of the trial judge.  The relevant approach was that espoused by Tadgell J sitting as a member of the Full Court of the Supreme Court of Victoria in Protean (Holdings) Ltd v American Home Assurance Co [1985] VR 187 (“Protean”) at 237:

“The judge is entitled, for reasons that seem appropriate to him, to decline out and out to entertain such a submission at the stage at which he is asked to do so.  Normally, however, the Judge would not feel justified in refusing outright to hear a submission of no case if to hear it would carry the prospect of justly facilitating the disposition of the litigation.  Usually there would be three courses open to him, short of refusing altogether to entertain the submission, namely:-

1.       He might decline to entertain the submission at that stage unless the moving party were to elect before making it not to call any evidence, either generally or on the issue on which the ruling was sought;  or

2.       He might allow the submission to be made without putting the moving party to any election at that stage but leaving, until he had heard it, the question whether or not he would rule on it without requiring an election to be made; and having heard the submission, and any answer to it by the respondent party, he could either rule on it or not, perhaps requiring an election to be made as a prerequisite to his doing so;  or

3.       He might indicate that he would both entertain the submission and rule on it without requiring an election to be made by the moving party.”

9                     It was not disputed that this court has power to entertain a no case submission.  Sackville J in Amcor at [59] – [60] was of the opinion that O 35 r 1 of the Federal Court Rules, which:

“… gives the court power at any stage of the proceedings, on the application of any party, to pronounce such judgment or make such orders as the nature of the case requires, notwithstanding that the applicant does not claim such an order in the originating process”

provides the Court with ample authority to hear the submission of no case to answer.  I agree with his Honour.

10                  The case of Amcor concerned proceedings commenced by the ACCC against two companies and their respective general managers.  The ACCC alleged that the respondents had entered into an arrangement or arrived at an understanding that contained an exclusionary provision in contravention of subpar 45(2)(a)(i) of the Trade Practices Act 1974 (Cth) (“the Act”).  At the hearing, the ACCC’s case was completed on the first day of the trial.  At that time, counsel for each of the respondents invited the Court to entertain a no case submission and further submitted that they should be permitted to make that submission without being forced to make an election as to whether or not they should call any evidence.  Sackville J followed the Full Court in Rasomen in applying the second approach of Tadgell J in Protean.  His Honour accepted at [66] that in a trial where a no case submission is made:

“… there must be unusual circumstances to warrant the respondents being permitted to make their no case submission without being required not to adduce any evidence.”

 

Nonetheless, his Honour considered at [66] that the circumstances of the case were sufficiently unusual and that “it was in the interests of justice for the respondents to be permitted to follow that course”.  On the question whether to require the parties to elect, Sackville J outlined several reasons why the Court might depart from the general rule that the party making the no case submission should be required to elect not to call any evidence.  They were set out at pars [67]-[73] of his Honour’s judgment and included the following subjects which are relevant to these proceedings:

·                     where very serious allegations have been made against the moving party:  for example fraud or serious allegations of contraventions of the Act.  Quite apart from the exceptionally heavy pecuniary penalties that might be imposed, adverse findings might seriously affect the business reputations of the respondents [67] – [68];

·                     where the no case submission could be heard without having to assess the creditability of the witnesses [69];

·                     where all the respondents seek to put a no case submission [70];

·                     where addressing the no case submission might save time and costs [71];  and

·                     where the applicant has been on notice prior to the commencement of the hearing that the respondents propose to make a no case submission [72].

11                  That the matter remains one that is within the discretion of the judge is exemplified by the fact that recently Sackville J ruled in another case that he would not permit the respondents to make a no case submission unless they first elected to call no evidence:  Prentice v Cummins (No 4) [2002] FCA 1215 (“Prentice”).  Prentice was decided on 2 October 2002, after I had reserved judgment in this matter, and I am grateful to Mr Robertson for drawing it to my attention and the attention of other counsel.  It was a case where a trustee in bankruptcy had alleged, inter alia, that the bankrupt had fraudulently disposed of assets; the trustee was seeking their recovery from the recipient of the disposition.  The reasons why his Honour considered it appropriate to adhere to the general rule of practice that a party should not be permitted to make a no case submission unless he or she elects not to call evidence may be summarised as follows:

·                    although there were allegations of fraud in the case, they related to the conduct of the bankrupt; there were no allegations of fraud against the respondents – the recipients of the dispositions;

·                    the no case submission related to only some of the issues in the case; other issues would remain and would be the subject of further evidence from the respondents; in other words, a successful no case submission would not bring the case to an end; and

·                    any savings in Court time by receiving the no case submission without an election was likely to be insubstantial.

12                  After receiving submissions from counsel, I chose to take the second path that had been outlined by Tadgell J in Protean.  The respondents were invited to make their no case submissions;  the ACCC was then invited to respond and the respondents to reply.  At the conclusion of those submissions, I reserved my judgment, both on the question of the no case submission and on the question whether the respondents would be required to make an election.

13                  With respect to the election issue, the facts of this case compare appropriately with those in Amcor.  Relevantly, this is a case where serious allegations of contraventions of Part IV of the Act have been made;  the no case submission can be addressed without the Court having to assess the credit of any witness; all of the respondents are seeking to put a no case submission; addressing the no case submission might well save time and costs, and finally, the ACCC was put on notice prior to the commencement of the hearing that such a submission would be made (albeit as recently as the week prior to the hearing).  I have accordingly concluded that I do not require the respondents to elect not to call further evidence.

BACKGROUND

The Parties and Associated Companies

14                  Before embarking upon an inquiry into the allegations that have been made against the respondents and the substance of the no case submission, it will assist if I first say a little about the history of each of the corporate respondents and some of their associated companies.  In the first place, it was common ground that Pauls, Malanda and ACF were, at all material times, trading corporations within the meaning of the Act.  Until 30 March 1998, Pauls was known as QUF Industries Ltd and much of the documentary material that is relevant to these proceedings refer to that name.  I will, however, continue to refer to the corporation as “Pauls” unless circumstances dictate that I should refer to its former name.

15                  The events that are significant for the purposes of these proceedings occurred in mid-1996 but they had their origins in meetings and correspondence in the latter part of 1995.  At that time, Pauls carried on business out of premises in Bishop Street, Darwin in the Territory.  It owned and operated a milk processing plant and a packaging facility for the processed product.  It distributed its packaged milk as a wholesaler throughout the Territory.  At the same time, in 1996, Malanda owned and operated a milk processing plant at Malanda in northern Queensland.  Both Messrs See and Morgan were, at times, alternate directors of Malanda.  In November 1995, they were each appointed as an alternate for a Mr Alan Tooth and in April 1996 they were each appointed as an alternate for a Mr Ian Langdon.

16                  Mr Trevor Marslen deposed in an affidavit that was received into evidence as Exhibit A1, that he was a director and the General Manager of Ascot Haulage (NT) Pty Ltd (“Ascot Haulage”) and a director of Ascot Cartage Contractors Pty Ltd (“Ascot Cartage”).  He said that from 1974 to 1996 Ascot Cartage, trading as “Ascot Milk Distributors”, had purchased pre-packaged “Malanda” brand milk from the Malanda factory in Townsville.  Ascot Cartage then transported the packaged milk to the Territory where it was responsible for its distribution.  However, according to Mr Marslen, as a result of discussions that had begun in 1995, the distribution of the Malanda product by Ascot Cartage ceased and was replaced by an agreement with Malanda for the transport by Ascot Haulage of bulk unprocessed milk from Malanda to Pauls’ factory in Darwin.

17                  In February 1995, ACF held 33.6 per cent of the issued shares in Malanda.  In the ensuing two years it increased its holding.  For example, in its newsletter for March 1996 ACF reported that it then held “approximately 44% of the equity of [Malanda], the processing arm of the Atherton Tablelands dairy farmers”.  By 2 January 1997, it had acquired the whole of the issued capital in Malanda.  However, so it was claimed, Malanda and ACF were not, during the times that are relevant to these proceedings, related corporations. 

18                  In addition to the three corporate respondents, it is also necessary to make mention of some subsidiary companies in the ACF group.  In addition to Malanda, ACF is the ultimate holding company of other companies including Queensco-Unity Dairyfoods Cooperative Association Limited, Northchoice Foods Pty Ltd and Australian Farmers Trading Pty Limited.  ACF completed its acquisition of Queensco-Unity Dairyfoods Cooperative Association Limited on 29 February 1996, at which point in time Northchoice Foods Pty Ltd and Australian Farmers Trading Pty Limited were wholly owned subsidiaries of that company. 

The Katherine Dairy

19                  In 1986 members of the Rowlands family incorporated Rowlands Corporation Ltd and thereafter carried on a business at Katherine in the Territory under the name of “Rowlands Dairy”.  The dairy included a milk processing plant and both the dairy and the plant were located at Florina Road, Katherine.  It will be convenient to refer to these functions from time to time as the “Katherine dairy” (or “the Katherine farm”) and the “Katherine plant”.  Within a few years, the company ran into financial difficulties and, as a result, its shares were acquired in 1991 by Darling Downs United Foods Co-operative Association Limited (“Darling Downs”).  Rowlands Corporation Ltd, now a wholly owned subsidiary of Darling Downs, was renamed Northchoice Foods Pty Ltd (“Northchoice”), whilst Darling Downs later changed its name to Queensco–Unity Dairyfoods Co-operative Association Limited (“QUD”).  Northchoice operated the business of the Katherine dairy; it owned the livestock and the plant and equipment that were located at the dairy, but QUD owned the land (ie the farm) upon which the dairy was located.  In December 1996, only some nine months after it acquired QUD, ACF disposed of the Katherine enterprise.  QUD sold the land together with all improvements to Brigalow Farms Pty Ltd (“Brigalow”) and Northchoice sold to Brigalow its herd of 1,593 milking cows.  Moveable assets to a value in excess of $400,000 were also sold at the same time.  Pauls acquired some of those assets to the value of $147,075, some were sold to Brigalow, some were “sold” internally to various entities in the ACF Group and others were disposed of through a broker.

20                  The documentary material revealed very little information about Brigalow.  Its letterhead gave its address as Castle Cove, New South Wales, and in early 1994 at least, it was obviously a supplier of milk to Pauls in Darwin.  On 29 January 1995, Brigalow wrote Pauls regarding “the Milk Supply Agreement” dated 4 February 1994, requesting certain variations.  It discussed a “project” that was obviously known to Pauls but which is not apparent from a reading of the letter.

21                  At the beginning of 1996, the Katherine dairy was the only source of raw milk in the Territory.  However, as its output of processed milk was insufficient to meet demands, Pauls brought in supplies of raw milk to the Territory from South Australia and Queensland.  For example, Dairy Vale Foods Limited (“Dairy Vale”), a South Australian company, was a supplier of milk to Pauls in the Territory at about that time.  However, it had recently increased its price.  In a letter dated 26 September 1995, Dairy Vale wrote Pauls in which it advised that “the current price of 58.43c per litre FIS Darwin, is not workable”.  Pauls was informed that, as from 1 November 1995, the new price would be 61.43c per litre FIS Darwin.  However, Dairy Vale offered Pauls the opportunity of arranging and paying for freight costs, in which case Dairy Vale would quote 37.54c per litre ex Adelaide.  Those prices indicate that 23.89c per litre was written into Dairy Vale’s figures as the cost of freight from Adelaide to Darwin. 

22                  In addition, at the same time, Malanda, in north Queensland, was a source of both raw and processed milk to the Territory.  In the net result, milk in the Territory, in early 1996, was produced, processed and packaged by the Katherine dairy under the trade names “Rowlands” and “Fitzgerald”; raw milk was also acquired, processed and packaged by Pauls at its Darwin plant under the trade name “Pauls”.  Malanda was the remaining principle source of milk.  There were other minor sources, but they were relatively small ones.  They included Entee Food & Beverage Wholesalers Pty Ltd (“Entee’), National Foods Milk Ltd (“National Foods”) and Dairy Vale.  National Foods sold milk and dairy products in the Territory that had been processed, manufactured and packaged in South Australia;  it also supplied fresh processed bulk milk to Entee for packaging into Entee’s products which were then sold in the Territory.  Entee was National Foods’ distributor, distributing National Foods’, as well as its own, products in the Territory.

The Milk Market

23                  In par 10 of its Amended Statement of Claim, the ACCC laid out its understanding of the control and distribution of milk in the Territory as at 29 February 1996.  For that purpose it referred to the demand for milk in the Territory as “the Milk Market” and it alleged that the Milk Market was comprised of blended milk, packaged milk and reconstituted milk.  The case for the ACCC was to the following effect:

·                    approximately 36 per cent of the Milk Market was supplied in the form of blended milk that was produced by Pauls at its Darwin plant;

·                    approximately 56.5 per cent of the Milk Market was supplied in the form of packaged milk by a variety of suppliers who principally consisted of Pauls, Malanda and Northchoice.  However, there were other suppliers who supplied minimal quantities;

·                    approximately 7.5 per cent of the Milk Market was supplied in the form of reconstituted milk that had been prepared in the Territory from milk concentrate.  The allegation was that this concentrate had been imported into the Territory from Western Australia by Entee.

24                  The break-up of the supply of packaged milk in the Territory was alleged by the ACCC to have been at 29 February 1996:

·                    as to about 11 per cent of the Milk Market by Pauls using raw milk that had been imported from South Australia;

·                    as to about 18 per cent of the Milk Market by Malanda using milk that had been processed and packaged in north Queensland;

·                    as to about 25 per cent of the Milk Market by Northchoice using milk that had been produced on the Katherine farm and then processed and packaged at the Katherine plant;

·                    as to about 2.5 per cent of the Milk Market by other suppliers.

25                  These allegations, as detailed in par 10 of the amended statement of claim, were either denied or not admitted by the respondents.  Although it would not be appropriate for me to make findings in respect of disputed issues at this stage of the proceedings, it is, in my opinion, appropriate to consider the no case submission by treating the evidence that has been adduced by the ACCC at its highest level.  For the purpose of assessing the strength of the no case submissions I will proceed, where appropriate, upon the premise that allegations in the pleadings are accepted unless plainly contradicted by other material that was before the Court.

26                  The historical situation may be summed up, for the purposes of these reasons, upon the basis that was pleaded by the ACCC in pars 11 and 11A of the amended statement of claim (although I recognise that many of these issues were denied by the respondents).  Until late in 1996:

·                    Pauls owned and operated the Pauls plant in Darwin;

·                    Malanda owned and operated the Malanda plant in Queensland;

·                    QUD and Northchoice, members of the ACF Group, owned and operated the Katherine farm, dairy and plant in Katherine;

·                    ACF knew, at the time of its acquisition of QUD in February 1996, that the Katherine dairy was running at a loss.  In fact, the loss for the 1995-1996 year had been approximately $2.124m.

·                    The Board of Directors of QUD were considering three possibilities:

·                    close down its operations in the Territory and sell all assets on a “fire sale” basis; it was estimated that this course of action would result in a loss of approximately $4.5m;

·                    sell the assets of the Territory operations on a “walk-in-walk-out” basis.  No assessment of the likely result of that action was recorded;

·                    close the Katherine factory and have its milk processed either by Malanda in Queensland or Pauls in Darwin.  Processing at Malanda was estimated to bring about an annual loss of $226,197 compared with an estimated annual profit of $221,192 if the milk were to be processed by Pauls in Darwin;

·                    until about 8 October 1996, the Pauls plant and the Katherine plant were the only commercial milk processing plants that were located in the Territory;

·                    until about 23 September 1996, Pauls, Malanda and Northchoice supplied, in competition with each other to persons in the Territory, about 90 per cent of all wholesale packaged milk and blended milk;

·                    from about 23 September 1996 until about 3 December 1996, Northchoice and Malanda supplied unprocessed milk in competition with each other to Pauls for processing and packaging at the Pauls plants.

27                  The case for the applicant consisted of the tender of the affidavit of Mr Trevor Marslen and the tender of four lever-arch volumes of documents (which for convenience will be referred to as the “Court Book”).  Counsel for the respondents informed the Court that there were several objections to the contents of the Court Book, but all parties were prepared to proceed upon the premise that, for the purposes of the no case submission only, the Court would be at liberty to refer to the entire contents of the Court Book and to regard them as admissible, for all purposes, against all respondents.  It is now necessary to have closer regard to the evolution of the relationships between the three corporate respondents. 

THE HISTORY

28                  Malanda and ACF had been engaged in merger discussions for quite some time.  They had also corresponded about suggested and probable changes to the milk market in the Territory.  Thus on 18 September 1995, Mr See wrote on behalf of Malanda to Mr Morgan of ACF on a variety of subjects including the involvement of Pauls in possible changes in the Territory; he said:

“Again a number of discussions have taken place with [Pauls] and an option has now been developed.  This matter is essentially in the hands of the [Pauls] Board.  The economics of the change in broad terms justify the rationalisation of the Katherine farm operation.  At the end of this month the respective finance people will be comparing processing and packaging costs to decide upon the most appropriate place for milk packaging to take place.”

29                  A meeting took place on 11 October 1995 between five representatives of Malanda and ACF.  Malanda was represented by Messrs See and Campbell;  ACF was represented by Messrs Morgan, Keevers and Tooth.  The notes of that meeting recorded that Mr Keevers of ACF had said that:

“… the action to combine resources in order to reduce costs looks very favourable in regard to Katherine with estimated savings around $600,000 pa.”

30                  Mr Keevers subsequently composed and distributed a confidential memorandum entitled “Northern Territory Proposal”.  It contemplated the closure of the Katherine Farm with an estimated saving of about $500,000 per annum; the raw milk that Northchoice and Malanda would need for their Territory markets would be sourced from the Atherton Tablelands but, at least initially, it would be processed and packaged at the Katherine plant.  Mr Keevers wrote that “The market”, meaning, presumably, the Territory market, was in the vicinity of 8.5 million to 9 million litres per annum with the ACF Group controlling 5 million litres and Malanda controlling 3.3 million litres.  Mr Keevers’ second proposition allowed for the “relocation” of the Katherine milk processing and packaging operation to Malanda in Queensland.

31                  The same five representatives to whom I have earlier referred met again on 7 December 1995.  The minutes of the meeting recorded that Mr Keevers’ confidential memorandum had been completed and distributed.  It would seem that Mr Keevers’ first proposition that called for the closing of the Katherine farm was the preferred view, as the minutes recorded that Mr Keevers’ “overview” had been completed and distributed and that:

“A more detailed study is being undertaken in order to establish how best to sell, run down, dispose of 1,681 cows, and establish alternative uses for the farm.”

32                  A meeting took place on 26 February 1996 and, according to the case that was advanced on behalf of the ACCC, the persons who attended that meeting were a Mr McCallum of Pauls and a Mr Whatley of Northchoice.  It would appear from the notes of that meeting that the discussions included matters concerning the operation of the Katherine Dairy.  It was recorded that the Katherine operation was said to be of “poor design” and “poorly managed” with “little or no maintenance”.  The notes continued thereafter with a list of the matters to which Pauls would need to give attention if it were to become “a successful Milk/Dairy Products supplier” in the Territory.  They included such matters as:

·                    obtaining a source of “longterm raw milk supply at a price within 2 cents per litre of its major competitor/s”;

·                    an ability “to supply the market with fresh milk, premium milk, skim, low fat & cream”;

·                    the provision of “a comparable tasting fresh milk to our major competitor/s”;

·                    obtaining “Bulk raw milk from Dairy Vale or Malanda:  Source milk from NT Dairy, possible Rowlands Katherine”;

·                    the need to reduce operating costs by 15.5 cents per litre; and finally

·                    the object of dominating the “fresh milk market (over 60%) and be price leader”.

33                  At the conclusion of those notes (which extended to four pages of typing) there was a cryptic handwritten entry, which, according to the case for the ACCC, was in the handwriting of Mr McCray of Pauls:

“Negotiate deal ACF/QUD/BF/Malanda/Ascot …”

(BF was said to be Brigalow Farms and the reference to Ascot was presumably a reference to Ascot Cartage.)

34                  That meeting took place on 26 February 1996, a few days before ACF concluded its take-over of QUD.  The ACCC submitted that it was reasonable to infer that Mr Whatley of Northchoice was, at that meeting, also representing the interests of QUD, Northchoice’s holding company.

The Events of April 1996

35                  On 1 April 1996, Mr Whatley of Northchoice wrote to Mr Cohalan of Pauls in the following terms:

“Thank you for your enquiry regarding the supply of raw white milk on a contract basis.  I am pleased to submit the following information for your consideration.

We understand that your requirement is for 11,000,000 litres per annum, to be delivered to your Bishop St. premises via a triple road train, ie 3 x 25,000 litre tankers or 75,000 litres per delivery.  Deliveries would be arranged on an ‘as needed’ basis. 

Given the delivery arrangements detailed above we would be able to provide the raw milk to you at a price of 52c per litre F.I.S.

We further understand that should you decide to accept our offer it would then become subject to a long term supply contract, that would include a clause allowing for an annual price revue.

I trust that the information supplied in this letter proves to be sufficient to allow you to proceed with your evaluation.  Should you have any queries or if I can provide additional information please do not hesitate to contact me.”

36                  An internal memorandum of Pauls (the date of which is uncertain but it may have been April 1996) noted that it had proposed to move the Company’s emphasis away from blended milk so that it could concentrate on the processing, packaging and distribution of fresh milk.  The memorandum said in part:

“A decision to concentrate on a fresh milk range has been made.  This will allow us to direct our efforts, and seek a price premium.”

 

Earlier the author of the memorandum had written:

“We are seeking 3 to 5 years supply arrangements and bulk tanker transport, which would reduce the cost of fresh milk by 8%.  Subject to negotiations currently in progress, this change is likely to occur within the next 6 months.”

37                  The position that was taken by the ACCC was that Pauls, having decided to concentrate on the processing, packaging and distribution of fresh milk, needed supplies in bulk of raw unprocessed milk.  Pauls had therefore inquired of Northchoice about its ability to supply raw white milk “on a contract basis” and Mr Whatley’s letter of 1 April 1996 was the result of that inquiry. 

38                  Mr Robertson SC, during the course of his opening, pointed to the price of 52 cents per litre in Mr Whatley’s letter, noting that it was to become a constant price which was to be found in all subsequent negotiations between the corporate respondents. 

39                  ACF caused a report to be compiled on the future of Northchoice; it was undated but an imprint of a facsimile transmission appears to be 9 April 1996, suggesting that the report was prepared on or prior to that date.  It is, in my opinion, a document of some importance for it disclosed the extent of Northchoice’s losses which were said to be in excess of $2 million per annum.  The primary objective of the report was said to be to “stop” Northchoice’s losses but a further objective was expressed in these terms:

“… determine if ACF has a long term future in the Northern Territory ie:  is it a long term viable part of a strategy to become a national milk processor.”

Several options were discussed in the report including the possibility of closing down the Katherine farm and plant and “walk[ing] away” or selling the operation on a “walk-in-walk-out basis”.  Other options were based on carrying on either the whole or part of the Katherine operations in combination with Malanda.  One such proposal was to:

“… combine ACF’s and [Malanda’s] Northern Territory processing and distribution in the Northern Territory but close the Katherine processing plant and combine processing with [Pauls] in Darwin.”

The report then went on to conclude that this option would entail the retention and continued operation of the Katherine Farm; it noted that Malanda would supply 8 million litres of raw milk per year with the Katherine Farm supplying 3 million litres in the same period.  Under that proposal, the report concluded that Malanda and ACF would be responsible for their own sales and marketing.

40                  According to the ACCC, this report and its reference to 11 million litres of raw milk, should be read in conjunction with the letter of 1 April 1996 from Mr Whatley of Northchoice to Mr Cohalan of Pauls.  Upon that premise, the price of 52 cents per litre that was referred to in Northchoice’s letter was, so it was argued, the price that was advanced by Northchoice to Pauls in relation to both Northchoice’s and Malanda’s proposed supplies of raw unprocessed milk.  The respondents, on the other hand, argued that the contents of ACF’s report on the future of Northchoice showed that the motivation for ACF investigating what action might be taken was the need to stop Northchoice’s losses; it was not a purpose that was proscribed by any provision of the Act.

41                  The next document to consider was described as a “Situation Report”.  Once more, it is an undated document, but there is an endorsement of a facsimile transmission from Pauls dated 16 April 1996 and a typed entry “updated 16 April 1996”.  The document was obviously prepared on or before that date.  The author of the document was not identified but the ACCC submitted that it was composed by an officer of Pauls.  I will proceed upon that premise.  The subheading to the document was entitled “[m]atters to consider in regard to proposed agreement between” Pauls and ACF.  Five subject matters were listed in the situation report under the heading:  “Items as Basis for Agreement.”

42                  Those five items were as follows:

·                    ACF was to agree to supply to Pauls, who was to agree to accept, a five year supply of raw milk to be delivered to Pauls at Darwin at 52 cents per litre.

·                    Pauls was to agree to pack, and ACF was to agree to accept, that all major milk lines were to be packaged at Pauls’ plant.

·                    ACF was to agree to supply Malanda’s “Dairy product and Cheese range” and Pauls was to agree to distribute those processed products throughout the Territory.

·                    Pauls was to agree to bulk load ACF’s processed milk five days per week onto ACF’s delivery vehicles.

·                    ACF and Pauls were to continue independently, to advertise, promote and distribute their product range in all major centres.

(There were other references in this situation report to the processing and distribution of products other than milk – such as juices and cheeses – but I have omitted reference to them).  This “Situation Report” was, according to the submissions of the ACCC, the beginning of Pauls’ interest in obtaining a raw milk supply and the beginning of Malanda’s and ACF’s interest in having their raw milk processed and packaged by Pauls.  However, I am satisfied that it was also a part of ACF’s attempt to arrest Northchoice’s losses in the Katherine operations.

43                  Mr McCray of Pauls wrote Mr Keevers of ACF on 19 April 1996.  He referred to “recent discussions concerning operations in the Northern Territory” and “your quotation of April 1 last for bulk milk at 52 cents per litre …”.  (The quotation had actually been submitted to Pauls on the letterhead of Northchoice and signed by Mr Whatley of that company).  Mr McCray advised that, subject to his company obtaining details of some costs from its suppliers, Pauls could process and package a two litre plastic bottle of milk (which it described as “the important volume line”) at a cost of $1.575 per unit.  The break down of that figure was expressed in terms of costs per one litre of milk.  They were as follows:

Raw material                                        53.5 cents per litre

Packaging                                               8.6 cents per litre

Factory and Despatch                           16.65 cents per litre

                                                            78.75 cents per litre

Twice times the figure of 78.75 cents is $1.575 for the two litre unit and the increase of 1.5 cents per litre for the raw material was, as I understand it, to cover the cost of mileage.

44                  The Board of Directors of Pauls considered the future of the company at its April 1996 meeting.  The minutes of that meeting contained the following entry:

“The combination of intense competition and cost increases in raw materials and packaging materials continued to put pressure on milk earnings in the Northern Territory.  A potential long term fresh milk supply ex Malanda and possible contract packing for ACF and Malanda were being investigated.”

The Memorandum of Understanding 23 April 1996

45                  It was alleged in par 12 of the amended statement of claim that between April 1996 and May 1996, Pauls, Malanda and ACF “made an arrangement or arrived at an understanding (‘the Arrangement’)” with respect to the supply, the processing and the packaging of milk in the Territory”.  The Arrangement, as pleaded was to the following effect:

“(a)     ACF Group would supply, or would procure or seek to procure that Malanda and the owner for the time being of the Katherine Farm would supply, to Pauls at Darwin, all the unprocessed milk requirements of ACF, Pauls and Malanda for the production of packaged milk products for sale in the Northern Territory for a minimum period of five years at an initial delivered price of 52 cents per litre;

(b)     Pauls would process and package all of ACF’s, Pauls’ and Malanda’s requirements of packaged milk products for sale in the Northern Territory for an agreed charge with the ACF Group to cease processing and packaging milk in the Northern Territory; and

(c)      the parties would enter into a formal agreement reflecting the Arrangement and including all necessary incidental matters to be agreed to give effect to the Arrangement.”

46                  The terms of the Arrangement were said to be partly in writing and partly oral and, in so far as the Arrangement was in writing, it was said to be contained in a document that was described as a Memorandum of Understanding (“the MOU”).  The MOU was allegedly reached at a meeting on 23 April 1996 and was said to have been made by Pauls, Malanda and ACF.  It was not signed by or on behalf of any of the participating parties, but it contained a heading that showed that it related to the:

“Supply of raw milk, Processing and Packaging for each Company’s Northern Territory requirements.”

47                  The Arrangement was said to have been made between:

·                    Pauls by its representatives including Mr McCray;

·                    Malanda by its representatives including Messrs See and Morgan; and

·                    ACF by its representatives including Mr Morgan.

It was then pleaded that the three corporate respondents, by their subsequent activities (which were particularised) gave effect to the arrangement.

48                  The provisions of the MOU that are most relevant for the purposes of these proceedings are as follows:

“1.       The ACF Group will undertake to supply all three companies’ raw milk requirements, and arrange delivery to Darwin for a period of at least five years, with the option for further extensions.

            Initial pricing to be as detailed in Northchoice Foods Pty Ltd letter to KJ Cohalan faxed to Bishop Street on 1^st April 1996.

2.       QUF Industries Ltd [ie Pauls] agree to process and package the volume lines of all three companies pasteurised milk products at its Bishop Street plant and to load them onto each companies’ vehicles on a schedule yet to be finalised.

          The charges for this to be as set out in QUF’s letter to J Keevers faxed to Tingalpa on 19 April 1996.

3.       …

4.       …

5.       …

6.       QUF have undertaken to enter into appropriate confidentiality agreements to assure the other Companies that they will not copy or divulge formulations made known to them, under this arrangement. …

7.       In drawing up a draft agreement consideration will be given to other examples of supply and processing agreements containing wording which would seem to be relevant …

8.       The parties are yet to detail such matters as:

·                   Priorities and procedures in the event of interruption to supply.

·                   Scheduling of deliveries of raw milk.

·                   Availability and costs of any surplus equipment, another might utilise.

·                   Raw material and finished goods quality standards

·                   The details of day to day operations, ordering etc under the arrangement intended.

9.       The future of MDL/ASCOT distribution arrangements is yet to be resolved, which is required before the finalisation of freight costs and possible start time.

10.     The parties agreed that a firm decision to proceed or not will be made no later than Wednesday 15 May 1996.”

49                  The MOU concluded with a note of those who were in attendance at the meeting.  They were Messrs AA McCray and KJ Cohalan of Pauls, Messrs R See and R Campbell of Malanda and Messrs J Keevers and D Whatley of ACF.  (Mr Morgan of ACF, the seventh respondent was not present).  Counsel for the ACCC acknowledged that the MOU of 23 April 1996 remained subject to a firm decision, but so he submitted, that decision was made on 20 May 1996.

50                  All respondents admitted the existence of the MOU.  The three corporate respondents, together with Messrs McCray and Jardine, further acknowledged that it reflected discussions that had taken place between representatives of the parties to that date.  Furthermore, all respondents, other than Mr See, asserted that ACF intended, prior to April 1996, to cease processing and packaging milk at the Katherine facility.

The Events of May 1996

51                  Mr Keevers of ACF wrote Mr McCray of Pauls on 7 May 1996, thanking him for the copy of the MOU.  He said:

“We acknowledge the contents of same and confirm that subject to decisions to be made by the A.C.F. Board and Senior Executive this week, we should be in a position to advise our intentions by 15^th May, 1996.”

Mr Speakman, counsel for Mr Morgan of ACF, submitted, and I agree, that this letter was notable for its lack of finality and its lack of commitment.

52                  Mr See, in his capacity as the Chief Executive of Malanda submitted a report to his Board of Directors on 15 May 1996.  Included in that report was the following statement about Pauls and the ACF Group:

“We understand that a decision on Northern Territory will be made at the ACF May Board Meeting.  One option being looked at in depth is for the Northern Territory [ie Katherine] farm to continue operating, approximately 8 million litres being supplied by Malanda in bulk tanker, the Northern Territory packaging operation [ie the Katherine plant] closing and the packaging of all Rowlands and Malanda brands by [Pauls] Darwin, who will receive all the bulk milk from the farm and Malanda.”

53                  A meeting was held on 20 May 1996 between Mr McCray of Pauls and Messrs Morgan and Keevers of ACF.  No representative of Malanda was present at that meeting.  The author of the handwritten notes of that meeting was not identified, but the ACCC submitted that it was Mr Morgan.  I do not think that the identity of the author is a matter of concern for I think that is sufficient to say that the matters that were noted as having been discussed at the meeting were generally consistent with the existing proposal for the processing of raw milk to be carried out by Pauls at its Darwin plant.  For example, one notation called upon Pauls to indicate whether it was interested in acquiring any equipment from the Katherine plant and another allowed for the proposal that ACF (it should have been QUD) would sell the Katherine farm.  I do not, however, accept the ACCC’s submission that it was “clear from the meeting that there’s a decision to proceed” with the MOU.  I do not consider that the memorandum is sufficiently definitive to come to that conclusion; the most that could be said of it is that two of the corporate respondents, Pauls and ACF, met on 20 May 1996 and continued discussions which, if they were ultimately to be implemented, would require the support and involvement of Malanda.

54                  On 24 May 1996, ACF wrote to Mr McCray of Pauls.  The letter was signed by Mr Morgan.  It commenced by saying that ACF wished to pursue a “Tripartite Contract Packaging Agreement”, the parties to which would be Pauls, Malanda and ACF.  The agreement was intended to be:

“… for all of our annual requirements for market milk and fruit juice supplied to the Northern Territory Market.”

ACF also sought from Pauls a “supply agreement” for the supply by ACF and Malanda to Pauls of all the raw milk requirements for Pauls’ Territory Market.  ACF anticipated that this would be 3 million litres per annum.  It contemplated that both “Agreements” could be incorporated in the one document.  Several other matters of importance were referred to in the letter, including the possibility of the sale of the Katherine farm.  The letter proposed a term of five years with provision for a renewal for a like period. 

55                  Mr Robertson submitted that the activities of 20 May 1996 (including the letter of 24 May) were sufficient to establish that a decision had been made by the parties and that the evidence was sufficient to convert a proposal into an arrangement or an understanding.  As he put it, the MOU was circulated, agreed to on 20 May and confirmed by the letter of 24 May.  Upon that premise, the ostensible requirement that the formal approval of the ACF Board should be treated as a condition precedent was an argument, so it was said, that should not be accepted;  it should not be accepted because of the involvement of Malanda’s and ACF’s senior management in the negotiations.  Mr Robertson submitted that this proposition should be accepted notwithstanding the fact that there were matters, such as the fate of the Katherine farm, that were yet to be decided. 

56                  Messrs Biggs & Biggs, the solicitors for Pauls, prepared a draft of the proposed Contract and forwarded a copy of it to Mr McCray under cover of a letter dated 28 May 1996.  The draft, which contemplated that the three corporate respondents Pauls, Malanda and ACF would be the parties, failed to recognise that Northchoice (rather than ACF) was to be a supplier of raw milk to Pauls.  For example, one of the preambles to the draft recited that “ACF (it should have been Northchoice) wishes to cease processing milk in the Northern Territory”.  Elsewhere, in cl 3.1.1, it contained a provision that ACF (again, it should have been Northchoice) was to supply to Pauls at Pauls’ plant such quantities of milk as may be required from time to time by Pauls to process and package its products and “the Milk Products”, a term that was defined to mean, inter alia, various white and flavoured fresh milk products that were to be processed and packaged by Pauls for ACF and Malanda.

57                  The draft contained provisions that reaffirmed previous discussions and correspondence to the effect that Pauls estimated that it would require 11 million litres of unprocessed milk per annum and that it would pay 52 cents per litre for that milk.  A second draft that was circulated by the same solicitors on 31 May 1996 retained those provisions.

58                  A Malanda “Inter Office Communication” dated 29 May 1996, authored by Mr See, neatly summed up the position (as Malanda saw it) at that time:

“The NT operation has now been decided.  Essentially 8m litres p.a. of bulk tanker milk will be sold by Malanda to [Pauls] Darwin who in turn will contract pack our requirements, QUDs plus their own.  The packaging operation in Katherine will close with the farm continuing in the interim supplying 3m litres p.a. to [Pauls] as well.”

59                  The position, as seen by Pauls in May 1996 can be ascertained from an internal memorandum that was compiled for inclusion in its Board papers.  Its author was not identified but the ACCC believed it to be Mr McCray.  The relevant section in the memorandum was as follows:

“We are in the course of discussing the possibility of entering into a long term raw milk supply arrangement with Rowlands/Malanda [Rowlands was Northchoice’s former name].  These two competitors are now effectively under the control of ACF.  They approached us with the possibility of their supplying the raw milk required for all 3 brands in the NT, which we would process at Bishop Street. 

Beyond that, their concept calls for each company to sell and distribute its own brands.  At the time of writing, this possibility is still in a relatively preliminary stage of discussion and a decision to proceed with such an arrangement may not be resolved until the middle of May.”

 

That report was received at Pauls’ Board meeting and the extract from the minutes of that meeting was, basically, a summary of the contents of the report including the important note that:

“Distribution and sale of the opposition brands would remain under the control of Rowlands and Malanda.”

The Events of June to August 1996

60                  On 3 June 1996, an Executive Report of ACF was compiled about the future of Northchoice.  After noting that Northchoice’s losses for the month of May were expected to exceed April’s losses, the report recorded that unspecified persons had met with Pauls.  I would think that that would have been a reference to the meeting of 20 May that was attended by Mr Morgan and Mr Keevers.  The report contained the following entry:

“Met with [Pauls] resulting in draft agreement, due 4 June, 1996, for contract packing from Darwin to enable closure of Katherine factory.”

The only other entry that was of interest related to Malanda.  That said:

“Meeting with [Malanda] and Ascot on 3 June, 1996 to terminate distribution agreement in exchange for cartage agreement and arrange timing if financially viable.”

61                  Under cover of their letter of 3 June 1996, Messrs Biggs & Biggs sent a third draft of the proposed Contract to Messrs Addisons, the solicitors for ACF.  That draft still retained ACF as a party and the estimate of 11 million litres and price of 52 cents per litre remained.

62                  Malanda’s solicitors made contact with Messrs Biggs & Biggs on 6 June 1996 and although their file note is cryptic, it is obvious that they were concerned about s 45A of the Act.

63                  The minutes of Pauls’ Board meeting (which was said to have been held on 4 June 1996) noted that Malanda and ACF were to handle their own distribution, sales and marketing of products.  It was also recorded that the Board approved the implementation of the arrangement but instructed management to ensure that there was compliance with the provisions of the Act.

64                  The principal objective of the parties nevertheless remained on course as is apparent (at least from Malanda’s point of view) from Malanda’s internal memorandum to its Board of Directors on 7 June 1996.  It noted that, as from November 1996, Malanda would forward an estimated 8 million litres per annum of bulk milk to Pauls for processing and that Pauls would be packaging “the total local requirements of each of the market participants” – that is, Pauls, Malanda and ACF.  The memorandum also noted that it was expected that a quantity of milk would be supplied to Pauls from the Katherine dairy, but no mention was made of the likely volume of that supply.

65                  During the first part of June 1996, various representatives of the corporate respondents, as well as their solicitors, were questioning whether the proposals might offend the provision of the Act – and in particular s 45A.  For example, Malanda’s Board minutes of 17 June 1996 contained the following entry:

“The Managing Director advised that a potential problem had been identified with the proposed arrangements in respect of possible ACCC implications.  He advised that further legal advice was being sort in these regards.”

Nevertheless the Board resolved at that meeting:

“That the milk distribution operation in the Northern Territory be structured in such manner which provides for joint operations with ACF.”

66                  At some unspecified time in July 1996, some difficulties arose in ACF.  They caused Mr See, the Chief Executive of Malanda, to report to his Board of Directors on 10 July 1996 in these terms:

“Until ACF have resolved their final position regarding their Northern Territory operation I am unable to proceed further with negotiating the cartage contract with Ascot and the multi-party packaging agreement with [Pauls].  As I understand the ACF position, every endeavour is being made to sell all of the farm and processing assets at Katherine to one of two interested parties.  The volume of milk to be drawn from Malanda may be dependant upon the sale conditions negotiated for the property.  We will be unable to enter into an Ascot contract without some certainty as to the minimum volumes which may be transported from Malanda.  At the time of writing further legal advice on trade practice implications is being sought by ACF.”

67                  It was also at this time that Mr Cohalan of Pauls wrote Mr See of Malanda advising him that Pauls would require a minimum of 3,325,000 litres of raw milk for its own sales in the 1996-1997 year.  He estimated that this figure would progressively increase with his company’s “movement from blended milk to fresh milk and population growth”.  Mr Cohalan also wrote that:

“The quantity of milk required for contract packaging of [Malanda] and ACF was estimated by David Whately [of Northchoice] at 7,350,000 litres for 1996/97.”

68                  A Planning and Development Executive report dated 25 July 1996 which was prepared for ACF or Northchoice, or perhaps both of them, addressed the need to take “immediate action to ensure cessation” of Northchoice’s losses.  The report then identified parties who were interested in purchasing the Katherine operation and the prices that they were prepared to pay.  Matters that were canvassed in the report which are relevant to these proceedings included the following:

·                    QUD, as the holder of the trade marks “Rowlands” and “Fitzgerald” was to grant a licence to Malanda to use those marks for a specified period;  and

·                    The new owners of the Katherine operation would be required to enter into an agreement with Pauls to supply that company with approximately 4 million litres of unprocessed milk per annum.

69                  The minutes of Pauls’ July Board meeting recorded that its negotiations with Malanda and ACF “had stalled following an offer which had been received by ACF to purchase the Katherine Dairy Farm as a going concern”.  The minute noted that a “modified proposal” to obtain milk only from Malanda was being considered by management.

70                  A further draft of the proposed Contract was prepared on 25 July 1996.  It still named ACF as one of the intended parties but someone had crossed the name out and all other references to ACF.  That was a clear indication that ACF had decided by about mid July or thereabouts that it would no longer continue its negotiations with Pauls and Malanda.  Meanwhile, Pauls had prepared a “Capital Expenditure Proposal” in anticipation of it undertaking the processing and packaging of its competitors’ milk.  In an accompanying memorandum dated 31 July 1996 it was noted that:

“As part of the agreement bulk fresh milk would be supplied at 11.43 cents per litre price (18%) lower than our current fresh milk price from Dairy Vale South Australia.”

The memorandum also emphasised the need to move away from blended milk and the high costs that were associated with it:

“The Darwin milk operation designed for processing blended milk products has a high production cost.  It is proposed to move strongly toward increasing sales of fresh milk products and improving operational efficiencies by streamlining fresh milk production.”

71                  Another draft of the proposed Contract was forwarded by Mr Jardine of Pauls to Mr See of Malanda on 12 August 1996.  For the first time, ACF no longer appeared as a party.  The parties now estimated that Pauls would need to be supplied with approximately 7 million litres (instead of the previous estimate of 11 million).  However, in par 3.2.1 of the draft Malanda acknowledged that Pauls intended to enter into arrangements with “another supplier of milk” to obtain up to four million litres per annum.  (This other supplier was intended to be the new owner of the Katherine farm).  Mr See reported to his Board about this four million litres on 19 August 1996 informing them that “Agreement is close at hand with [Pauls] on the contract packaging agreement” and that Pauls:

“… will be bound to take all fresh milk in excess of 4 million litres per annum from Malanda.  Up to 4 million litres can be sourced from the new owners of the Katherine dairy.  On current volumes, approximately 7 million litres, would come from Malanda representing 3 million litres Malanda brand and 4 million litres Rowlands/Fitzgerald’s brand.”

There were still concerns about possible breaches of the Act as is evident from a facsimile transmission dated 19 August 1996 from Mr See of Malanda to Mr Jardine of Pauls; he wrote that his company’s solicitor would be contacting Mr Jardine that day to discuss further amendments to the draft contract.

The Contract 23 September 1996

72                  On 23 September 1996, Pauls and Malanda signed a Contract with respect to the processing and packaging of milk in the Territory.  In the pleadings it has been referred to as “the Contract” but in some of the papers it has been called “the Pauls/Malanda Agreement”.  I will continue to refer to it as “the Contract”.  It is to be noted that ACF was not a party to the Contract which was signed by Mr Jardine on behalf of Pauls and Mr See on behalf of Malanda.  The Contract recited that Pauls processed and distributed milk in the Territory, that Malanda distributed milk in the Territory and that Pauls and Malanda had entered into the Contract so that provision could be made for Pauls to process and package milk in the Territory for Malanda.  The Contract was to commence on 23 September 1996, the date of its execution and, unless renewed (for which provision was made) it would expire on 31 December 2001.

73                  Under cl 3 of the Contract, Malanda was under an obligation to supply to Pauls at its Darwin plant, such quantities of raw milk as may be required by Pauls to process and package the milk products that were to be ordered by Malanda from Pauls from time to time.  The parties estimated that Pauls would need to be supplied with approximately 7 million litres of milk per annum for that exercise.  Malanda was under the further obligation to supply to Pauls at its Darwin plant such quantities of milk as may be required by Pauls so that it could process and package its (Pauls’) milk products.  In return, Pauls agreed to acquire from Malanda all quantities of milk (less an amount of up to four million litres per annum) which Pauls may require from time to time to process and package Pauls’ milk products.  The expression “milk products” was defined in the Contract to mean the various white and flavoured fresh milk products that were itemised in a schedule to the Contract.

74                  Clause 4 of the Contract required Pauls to pay Malanda “the Agreed Price” for all milk delivered to and accepted by Pauls.  The agreed price for the first year of the term of the Contract was fixed at 52c per litre delivered to Pauls’ plant.  Provision was then made for variations to the agreed price in accordance with a recited formula.  Malanda, having sold raw milk to Pauls for processing and packaging, was then obliged under cl 6 of the Contract to pay Pauls for the milk products that Pauls had processed and packaged on Malanda’s behalf. 

75                  The remaining clause in the Contract that warrants mention is cl 12 entitled “Non Competition”.  It recited that Malanda acknowledged that Pauls intended to “upgrade” its plant and equipment and to purchase new plant and equipment for the purpose of meeting its obligations under the Contract.  In return, Malanda warranted that it would not, without Pauls’ consent, “carry on or be engaged or be concerned in any milk processing business for the purpose of the sale and distribution of milk products in the Territory”.  A clause in substantially the same terms had been in all drafts of the Contract and initially it was contemplated that ACF would, with Malanda, warrant jointly and severally not to compete with Pauls.  In a letter to the ACCC dated 27 July 2000, the solicitors for ACF wrote that ACF was not a party to the Contract and neither it, nor its solicitors, had been involved in its drafting.

76                  Shortly after the execution of the Contract, Pauls released a media statement.  Some of the more relevant extracts from it were as follows:

“The new deal also means Pauls (NT) will purchase all milk produced by Rowlands in Katherine and allow increased milk production and expansion of their dairy operation.

…

Although processing and packaging of NT milk will now happen at the same factory, Pauls, Rowlands and Malanda will remain in strong competition in new product development, distribution, pricing and service.

Processing and packaging is a significant factor in pricing, so the rationalisation is likely to benefit consumers in the long-term;  meanwhile, they still enjoy the benefits of competing brands with their own marketing and distribution.”

As is apparent from a reading of the media statement, every attempt was made to emphasise that the “new deal” did not have an anti-competitive effect.

The Milk Supply Agreement 2 October 1996

77                  On 2 October 1996 Pauls and Brigalow entered into an agreement (“the Milk Supply Agreement”).  ACF was not a party to this agreement even though there had been correspondence from Brigalow to ACF with respect to Brigalow entering into such an agreement.  Clause 13 of the Milk Supply Agreement stipulated that it was a condition precedent to the performance of the Agreement that Brigalow would acquire the Katherine farm.  Pursuant to cl 2.1, Brigalow agreed to provide Pauls with such quantities of milk as may be required from time to time by Pauls to meet its requirements for the production of its Milk Products.  There was, however, a provision to the effect that Pauls would not be obliged to acquire from Brigalow milk in excess of four million litres per annum.  The term of the Agreement was ten years;  the price that Pauls was to pay was fixed at 52 cents per litre and the provision for variation of the price was the same as that set out in the Contract between Pauls and Malanda.

78                  The Board of Directors of Pauls received, sometime in October 1996, a report of the progress that had occurred since its last meeting.  The relevant section in the report was:

“It is pleasing to report that Malanda have finally completed their freight negotiations, and signed the agreement to supply bulk milk for us to pack in Darwin.  Also, the terms of the agreement for the bulk supply from the farm at Katherine have been finalized, though not yet signed by either of the two potential purchasers.  An interim arrangement covering farm supply between ourselves and ACF, pending the sale, will allow our acquisition of the equipment we want from the farm processing plant, and the commencement of farm milk being packed at Bishop Street during October.”

Even though the report stated that neither of the potential purchasers had committed themselves in writing, the fact remains that Brigalow and Pauls had signed an agreement which bore the date, 2 October 1996.

The Interim Milk Supply Agreement 8 October 1996

79                  On 8 October 1996, Mr McCray of Pauls wrote Mr Morgan, addressing the letter to him at Northchoice.  The purpose of the letter was to record the terms and conditions under which, inter alia, Northchoice would supply raw milk to Pauls.  The terms of the letter were acceptable and Mr Morgan indicated acceptance by signing, as requested, a copy of the letter.  The relevant terms were as follows:

·                    Northchoice would supply to Pauls, who would accept, up to four million litres of raw milk per annum;

·                    Supply of the milk would continue until the earlier of either the sale of the Katherine farm or twelve months from the date of the agreement (presumably 8 October 1996);

·                    Pauls would package the milk under brand names as nominated by Northchoice;

·                    The price payable by Pauls was the same as it was required to pay to Malanda;

·                    Subject to the above matters, the parties would incorporate the terms and conditions of the Contract between Pauls and Malanda.

The Transport Agreement 4 November 1996

80                  On 4 November 1996, Malanda and Ascot Haulage entered into a cartage contract for Malanda’s raw milk (which was then described as “Whole Milk” and defined to mean “unpasteurised and unprocessed chilled milk”).  The recitals to the contract (which refer to Malanda as “MDL” and Pauls as “QUF”) conveniently summarise the position as it had then developed.  They were as follows:

“A.      MDLis in the business of processing and packaging Whole Milk into various Products, which Products are sold by MDLinto the Northern Territory and Western Australia. 

B.         MDL has entered into an agreement with QUF whereby MDL has agreed to supply Whole Milk to QUF at QUF’s Premises at Darwin and QUFhas agreed to process and package the Whole Milk into the Products.

C.        MDL has agreed to engage Ascot and Ascot has agreed to its engagement to transport MDL’s Whole Milk from MDL’s Premises at Malanda to QUF’s Premises at Darwin and to collect and distribute the Products throughout the Northern Territory on behalf of MDL.

D.        The parties enter into this Agreement to record the terms and conditions of Ascot’s engagement.”

The Sale to Brigalow 8 November 1996

81                  On 8 November 1996, QUD and Northchoice entered into a contract with Brigalow for the sale and purchase of the Katherine farm and dairy and some of the plant and equipment.  Settlement was due to take place thirty days later, that is on 8 December 1996.  However, as that was a Sunday, settlement was effected on the following day, Monday 9 December 1996. 

The Licence Agreement 18 November 1996

82                  On 18 November 1996, QUD and Malanda entered into a Licence Agreement for a term of five years under which QUD, as the licensor and registered proprietor under the Trade Marks Act 1995 (Cth), licensed Malanda to use the nine trade marks that were identified in the first schedule to the agreement.  Those trade marks were “Fitzgeralds”, “Rowlands” (with different devices) and some others that mostly dealt with flavoured milk.  Schedule 2 to the agreement contained the details of the royalties that were to be paid by Malanda.

THE APPLICANT’S CASE

83                  It has been alleged in the amended statement of claim that the provisions of the Arrangement had the purpose, being a substantial purpose of, and had or were likely to have the effect of “fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining” of certain prices.  Paragraphs 35, 36 and 38 were as follows:

“35      The provisions of the Arrangement pleaded … had the purpose, being a substantial purpose, of fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining of the price at which Malanda would supply unprocessed milk in competition with Northchoice, and subsequently Brigalow Farms, to Pauls for processing into Malanda Products and Pauls Products.

36      By reason of the matters pleaded … the provisions of the Arrangement had or were likely to have the effect of fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining, the price at which each of:

          (a)        Malanda;

          (b)       Northchoice in the period from about 23 September 1996 to about 3 December 1996; and

          (c)        Brigalow Farms in the period from about 3 December 1996 until the Contract is determined;

          supplied or would supply unprocessed milk in competition with each other to Pauls for processing into Malanda Products and Pauls Products.

37      …

38      By reason of the matters pleaded … the provisions of the Arrangement had the purpose, being a substantial purpose, of controlling or maintaining, or providing for the controlling or maintaining of, the price at which each of:

          (a)       Pauls supplied or would supply Pauls Products for wholesale sale; and

          (b)       Malanda supplied or would supply Malanda Products for wholesale sale,

          in the Northern Territory in competition with each other.”

84                  The allegations with respect to the Contract are to be found in pars 37, 40, 41 and 42 of the amended statement of claim.  They are as follows:

“37.    The provisions of the Contract pleaded … had the purpose, being a substantial purpose, of fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining of the price at which Malanda would supply unprocessed milk in competition with Northchoice, to Pauls for processing into Malanda Products and Pauls Products.

38.     …

39.     …

40.     By reason of the matters pleaded in paragraphs 21(a), 21(b), 27, 29 and 32, the provisions of the Contract had the effect, or the likely effect, of controlling or maintaining, or providing for the controlling or maintaining of, the price at which each of:

          (a)       Pauls supplied or would supply Pauls Products for wholesale sale; and

          (b)       Malanda supplied or would supply Malanda Products for wholesale sale,

          in the Northern Territory in competition with each other.

41.     Further and in the alternative to paragraph 39, by reason of the matters pleaded in paragraphs 21(d), 30 and 31, the provisions of the Contract had the purpose, being a substantial purpose, of controlling or maintaining, or providing for the controlling or maintaining of, the price at which Malanda would supply Malanda Products for wholesale sale in the Northern Territory in competition with Pauls.

42.     Further and in the alternative to paragraph 40, by reason of the matters pleaded in paragraphs 21(d), 30 and 31, the provisions of the Contract had the effect, or likely effect, of controlling or maintaining, or providing for the controlling or maintaining of, the price at which Malanda would supply Malanda Products for wholesale sale in the Northern Territory in competition with Pauls.”

85                  In pars 33 and 34 of the amended statement of claim, the ACCC has alleged that Pauls and Malanda (but not ACF), by carrying out their several particularised responsibilities under the Contract, have each “given effect to the Contract”.

86                  The ACCC has alleged that each of the three corporate respondents, Pauls, Malanda and ACF, made an arrangement or arrived at an understanding (being the MOU) and gave effect to the Arrangement:  contrary to the provisions of subpar 45(2)(a)(ii) of the Act.  It has also alleged that Pauls and Malanda made a Contract (being the Contract) and gave effect to the Contract:  contrary to the provisions of subpar 45(2)(b)(ii) of the Act.  As for ACF and the Contract, it was alleged against that respondent that it aided, abetted, counselled or procured, or was directly or indirectly knowingly concerned, in the contravening conduct of Pauls and Malanda in the making of the Contract and their giving effect to the terms of the Contract.  In respect of Messrs McCray, Jardine, See and Morgan, the detailed particularisation of their conduct varied from person to person but the general assertion was to the effect that they were directly or indirectly knowingly concerned in or a party to the contraventions of one or other of the corporate respondents.

87                  Subsection 45(2) of the Act provides as follows:

“(2)     A corporation shall not:

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

                     (i)         …

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

                     or

          (b)       give effect to a provision of a contract, arrangement or understanding, 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)         …

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

88                  The case for the ACCC was that the MOU amounted to an Arrangement and the allegations that have been made in the amended statement of claim centre upon the making of the Arrangement by Pauls, Malanda and ACF, the giving effect to the Arrangement by the corporate respondents, the making of the Contract by Pauls and Malanda and the giving effect to the Contract by Pauls and Malanda.  Section 45A of the Act states that price-fixing arrangements are illegal per se.  Subsection (1) of that section is in the following terms:

“(1)     Without limiting the generality of section 45, a provision of a contract, arrangement or understanding, or of a proposed contract, arrangement or understanding, shall be deemed for the purposes of that section to have the purpose, or to have or to be likely to have the effect, of substantially lessening competition if the provision has the purpose, or has or is likely to have the effect, as the case may be, of fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining of, the price for, or a discount, allowance, rebate or credit in relation to, goods or services supplied or acquired or to be supplied or acquired by the parties to the contract, arrangement or understanding or the proposed parties to the proposed contract, arrangement or understanding, or by any of them, or by any bodies corporate that are related to any of them, in competition with each other.”

THE RESPONDENTS’ REACTIONS

89                  The inquiries that were conducted by officers of the ACCC generate explanatory correspondence from some of the respondents or their solicitors.  Those letters were included by the ACCC in its compilation of the Court Book.  For example, Mr See of Malanda, the sixth respondent, wrote the ACCC on 10 March 1998 in answer to a letter of 3 March.  Some of the information that he set out in his letter is, in my opinion, relevant to the issues in this matter and is corroborative of evidence that was contained in other documents.  For example, he wrote that the Katherine “operation was unprofitable” and was, in Dairy Farmers’ view, incapable of being turned around to make a profit.  (“Dairy Farmers” was a registered business name under which ACF and some of its subsidiaries carried on business.)  He wrote that Dairy Farmers had three options, the first two of which “were not practical options because they each involved losses”.  The three options were:

·                    that Dairy Farmers could arrange for Malanda to process and pack Dairy Farmers’ Territory brands and then transport them from Malanda (near Cairns) to Dairy Farmers’ depot in Darwin;

·                    that Dairy Farmers could allow the brands “to disappear” from the market; or

·                    Dairy Farmers could enter into the Agreement with Pauls (either through Malanda or directly).

90                  Mr See also wrote that, upon Malanda securing the Contract with Pauls, Dairy Farmers ceased production of milk at Katherine and sold the farm and factory.  This last mentioned statement could have been better expressed as it was ACF’s subsidiary companies, QUD and Northchoice, who actually sold the farm and the dairy.  There were some further inaccuracies in his letter such as a laymen might make but they do not impinge upon the quality of the information that he supplied to the ACCC.  Thus he wrote that Malanda “was processing and packaging milk in Far North Queensland, and then transporting it to Darwin and selling it into the market in the Northern Territory”.  That assertion was at odds with the information that was contained in the affidavit of Mr Trevor Marslen about the involvement of Ascot Haulage.

91                  On 27 August 1999, Mr Ray Hill, the Group General Manager of Pauls, wrote the ACCC in response to letters of enquiry that had been directed to his company.  He wrote that in April 1996 Malanda approached Pauls, inquiring whether Pauls would be interested in taking over the processing and distribution of Malanda’s branded product.  At that time Malanda was only partly owned by ACF.  Mr Hill said that ACF also “expressed an interest in our processing and distributing their ‘Fitzgerald’ and ‘Rowlands’ brands”.  He said that ACF had also proposed that it enter into a raw milk supply agreement with Pauls; ACF had contemplated that the milk that it would supply to Pauls would come from both Katherine and Malanda.  Mr Hill wrote that, as a result of legal advice, Pauls responded saying that it would process and package milk under the brand names “Malanda”, “Fitzgerald” and “Rowlands”, but that it would not, under any circumstances, undertake distribution on their behalf.  Mr Hill also explained that, as ACF had licensed their milk brands to Malanda, the Contract of 23 September 1996, which Mr Hill described as a “contract packing/milk supply agreement” was only executed by Pauls and Malanda.  He added that, at about that time, ACF also negotiated the sale of the Katherine farm to Brigalow Farms and, as part of ACF’s negotiations with Brigalow, ACF sought from Pauls a milk supply agreement (which was signed on 2 October 1996) for Pauls to acquire up to 4 million litres of milk per annum for 10 years.  Mr Hill said of this agreement  in his letter that it was:

“… simply a local milk supply contract which we were able to negotiate on terms comparable with the milk supplied from Malanda.”

As was endemic to all correspondence and negotiations, no attempt was made to differentiate between ACF, Northchoice and QUD.  In most cases a reference to “ACF” is to be interpreted as a reference to the appropriate company in the ACF Group. 

92                  Messrs Addisons, the solicitors for ACF, wrote to the ACCC on 29 November 1999.  Among other things, they made several relevant submissions on behalf of their client with respect to the Contract and the alleged involvement of the client in the preparation and execution of the Contract.  A summary of the points that they made with respect to the Contract is as follows: 

·                    it does not prevent Pauls from obtaining milk from any other party;

·                    it does not prevent Malanda from supplying milk to any other party (other than for processing into Malanda’s milk products in the Territory);

·                    Pauls and Malanda are free to continue to sell, distribute and market their milk in competition;

·                    ACF had no involvement in the negotiations and drafting of the Contract between Malanda and Pauls;

·                    the only profitable way for the ACF Group to sell milk in the Northern Territory was for the milk to be processed and packed by Pauls;  and

·                    because of these factors, the Board of ACF made the decision to close the Katherine plant and sell the dairy.

THE ACCC’S SUBMISSIONS

93                  The ACCC submitted that the price of 52 cents per litre had the effect of controlling the price at which Pauls would supply its products for sale by wholesale in competition with Malanda.  It further submitted, correctly in my opinion, that it was open to the Court to infer – and I do infer – that the cost to Pauls of processing and packaging its branded products was the same as the cost to Pauls of processing and packaging Malanda’s branded products. 

94                  The ACCC made a two-pronged attack.  It submitted that there was anti-competitive behaviour by Malanda and the ACF Group when they respectively agreed to deliver their raw milk to Pauls for 52 cents per litre.  But it also submitted that there was anti-competitive behaviour involving Pauls and Malanda in their wholesale prices because, so it was alleged, Pauls acquisition cost of 52 cents per litre had a controlling effect on wholesale prices. 

95                  During the afternoon of the first day of the hearing, Mr Robertson applied on behalf of the ACCC, to tender the affidavit of Mr Marslen and the contents of the Court Book.  The respondents objected to the admission of par 4 of Mr Marslen’s affidavit and the annexures that were referred to in that paragraph.  They were letters that were written in 1992 and 1997 and, in my opinion, they offered no assistance in assessing the validity of the allegations that have been levelled against any of the respondents.  As they lacked relevance, the paragraph and the letters will not be admitted into evidence.  Subject to him having the opportunity overnight to examine for relevance some documents that had come into his possession that day as a result of the service of some subpoenas and notices to produce, and subject to another notice to produce being answered, Mr Robertson intimated that the affidavit and the contents of the Court Book constituted the case for the applicant.  Counsel for the respondents then indicated that there were some objections to some of the contents of the Court Book and that there was a need for the ACCC to identify which documents were being tendered against which respondents.  There was general agreement that these matters would be attended to overnight.  Mr Douglas then advised the Court that, upon the formal closing of the ACCC’s case, his instructions were to submit that his clients, Malanda and ACF, had no case to answer.  He added that his clients anticipated that it would be possible for the Court to rule on the no case submission without having, first, to rule on questions of admissibility of evidence.  Not all counsel for the respondents were of that opinion but, ultimately, I ruled that I would hear the submissions of all respondents and the applicant on the no case submission and whether there was a need to elect and rule on questions of admissibility at a later stage should that become necessary.  On the morning of the second day of the trial, Mr Robertson added some further documents to the Court Book and then formally closed the case for the ACCC.  So that there is no misunderstanding, the evidentiary position is as follows:

·                     The affidavit of Mr Marslen, less par 4 and its annexures, has been received into evidence as Exhibit A1;

·                     The ACCC has intimated its proposal to apply to tender the Court Book;  that application has yet to be considered.  Should the issue arise at a later stage, the ACCC would be at liberty, without restriction, to pursue its application to tender the entire contents of the Court Book (including those inserted into the Court Book during the course of the trial);

·                     The respondents have intimated that they require the ACCC to identify which of the documents in the Court Book are to be the subject of tender against their respective clients;

·                     The respondents, with the cooperation of the ACCC, did not pursue (but did not withdraw) their objections to the contents of the Court Book.  It was agreed that, for the purpose of deciding the no case submission, the Court could have regard to the entire contents of the Court Book;

·                     Should the need arise at a later stage, each of the respondents would be at liberty, without restriction, to pursue its or his objections to any part of the Court Book. 

96                  By arrangement between counsel for the respondents, Mr Douglas addressed first, submitting that the basis upon which his clients made their no case submission was that, on a consideration of the evidence that had been adduced by the applicant, taken at its highest from the applicant’s point of view, the evidence could not support the causes of action that have been pleaded against the respondents.  All other respondents supported Mr Douglas’ submissions. 

97                  The ACCC has rested its case on s 45A and its deeming effect.  No actual substantial lessening of competition at any level has been the subject of direct evidence.  All that is relied upon is a per se contravention of s 45 because of the deemed effect of substantially lessening competition that arises under subs 45A(1).  In this regard, Lockhart J stressed the care that the Court needs to take in characterising the conduct established by the evidence.  In Radio 2UE Sydney Pty Ltd v Stereo FM Pty Ltd (1982) 44 ALR 557 at 566, his Honour held:

“The court’s task is to characterize the conduct before it in a given case.  Care must be taken in performing that task because, by its very nature, the violation of s 45A is deemed, for the purposes of s 45, to substantially lessen competition per se.  Such a finding may have far reaching consequences to the competitors concerned.”

98                  On this no case application, the function of the Court is to decide what inferences should be drawn from the evidence.  It is no different from the function performed by a judge who has heard all the evidence of the parties in the ordinary way and who has to give final judgment:  Rasomen at 228 and Amcor at [76]. 

99                  In determining what inferences are to be drawn from primary facts in this case, the Court must have regard to the seriousness of the allegations, the gravity of the consequences and the inherent unlikelihood of an occurrence of the given description:  Amcor at [78];  Briginshaw v Briginshaw (1938) 60 CLR 336 at 362.  The use of legal advisers by the corporate respondents and the concerns that were expressed about the application of the Act, point to a concerted attempt by the respondents to act within the parameters of the law.  In the present case, as any conclusion of contravention would rest upon inferences from documentary records, it is not enough for the documents to give rise to conflicting inferences of equal degrees of probability:  Amcor at [79].  Nor is it sufficient if the documents do no more than provide material for various guesses as to what actually occurred.  As Dixon CJ said in Jones v Dunkel (1959) 101 CLR 298 at 305 the law:

“does not authorise a court to choose between guesses, where the possibilities are not unlimited, on the ground that one guess seems more likely than another or the others.  The facts proved must form a reasonable basis for a definite conclusion affirmatively drawn of the truth of which the tribunal of fact may reasonably be satisfied.” 

CONSIDERATION

The Arrangement

100               In addition to the contents of the MOU, the ACCC, in supplying its further and better particulars of the alleged making of the Arrangement, also relied upon the letter of 1 April 1996 from Mr Whatley of Northchoice to Pauls (in which the price of 52 cents per litre first appeared) and the notes of the two meetings of 23 April and 20 May 1996 between representatives of Pauls, Malanda and ACF. 

101               The concept of an arrangement or understanding involves something less than a binding contract but involves, nonetheless, a meeting of minds between the parties as a result of communication between them and a willingness to accept a restraint or obligation, albeit not contractually binding, to act in a certain way.  Smithers J in Top Performance Motors Pty Limited v Ira Berk (Queensland) Pty Limited (1975) ATPR ¶40-004 held that:

“An understanding must involve the meeting of two or more minds.  Where the minds of the parties are at one that a proposed transaction between them proceeds on the basis of the maintenance of a particular state of affairs or the adoption of a particular course of conduct, it would seem that there would be an understanding within the meaning of the Act.”

102               In Australian Competition and Consumer Commission v CC (NSW) Pty Ltd (1999) 92 FCR 375 (“the CC Case”), Lindgren J, in a passage cited with approval by the Full Court in Rural Press Ltd v Australian Competition & Consumer Commission [2002] FCAFC 213 at [79], summarised the effect of the authorities as follows (at 408):

“The cases require that at least one party ‘assume an obligation’ or give an ‘assurance’ or ‘undertaking’ that it will act in a certain way.  A mere expectation that as a matter of fact a party will act in a certain way is not enough, even if it has been engendered by that party.  In the present case, for example, each individual who attended the Meeting may have expected that as a matter of fact the others would return to their respective offices by car, or, to express the matter differently, each may have been expected by the others to act in that way.  Each may even have ‘aroused’ that expectation by things he said at the meeting.  But these factual expectations do not found an ‘understanding’ in the sense in which the word is used in ss 45 and 45A.  The conjunction of the word ‘understanding’ with the words ‘agreement’ and ‘arrangement’ and the nature of the provisions show that something more is required.”  (Emphasis in original.)

103               The respondents submitted that the most that the evidence could possibly establish was that, at various times, some or all of the respondents reached some limited consensus as to a proposal that was to be considered or developed further and, in relation to which, approval to proceed might be sought from the Board of Directors by each party.  At no time, so it was argued, was an arrangement or understanding made that involved Pauls, ACF or Malanda indicating a willingness to assume an obligation or to give an assurance or undertaking to behave in accordance with what is alleged in par 12 of the amended statement of claim.  Putting forward and agreeing to consider a non-binding proposal that the parties should act in a certain manner was, so it was submitted, an entirely different matter from, and does not amount to, an arrangement or understanding within ss 45 and 45A. 

104               Mr Douglas, during the course of his submissions on behalf of Malanda and ACF, submitted that there was no direct evidence that his clients pursued the effect – and thus had the purpose – that the Arrangement would fix, control or maintain the price for wholesale milk.  Mr Robertson, for his part, invited the Court to reject any suggestion that s 45A of the Act could only operate if the Court were to be satisfied of the existence of such a subjective purpose.  I believe that Mr Robertson must be correct.  The very nature of s 45A and its deeming effect contradicts the presence of a subjective state of mind.  The language of the section requires a dispassionate onlooker to stand back and make an objective assessment of all relevant facts and circumstances.  If that assessment reveals a purpose or an effect, or a likely effect of fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining of prices then the provision shall be deemed to have the proscribed purpose, effect or likely effect.  The words “likely to have the effect” can only mean, in my opinion, that one has regard, objectively, to what has happened or is likely to happen, ignoring the subjective state of mind of the relevant parties. 

105               The ACCC’s case must be that the Arrangement was made either at the meeting of 23 April 1996 or at the meeting of 20 May 1996.  As this part of the ACCC’s case is entirely documentary, its case must be based upon the contents of the MOU and the contents of the relevant documents that relate to those meetings and the inferences that can properly be drawn from that written material.  In my opinion, that material is insufficient to support the case that was advanced by the ACCC.  I have come to that conclusion because of the language of cl 10 of the MOU which stated that the parties agreed that a firm decision to proceed or not was to be made no later than 15 May 1996.  The conduct of the parties at that time is best understood as constituting meetings to discuss a proposal.  Many of the terms of the proposal were straightforward.  Notable among them was the intended price of 52 cents per litre.  But the MOU lacked that indication of commitment which, in my opinion, is necessary to tip a proposal over the line that divides it from an arrangement or understanding.  Any one of the corporate respondents at Board level could have rejected the proposal and no intending participant could have complained that a party had reneged on an arrangement.

106               Malanda and ACF further submitted that there were several areas in the MOU where matters were incomplete.  Examples were cl 2 and cl 3 where charges for certain products were yet to be finalised and agreed.  I do not think that such uncertainties necessarily assist the respondents.  In my opinion, an arrangement or an understanding, being something less than a contract, could be found to exist if it could be said that the parties had committed themselves to a particular course of action on terms, some of which were yet to be agreed.  My decision is based firmly upon the presence of cl 10;  it is the reason why I find that the discussions and documents in April and May 1996 amounted to no more than a proposal that was to be considered by the respective Boards of the corporate respondents. 

107               A memorandum dated 29 April 1996 from Malanda to ACF supports this conclusion.  It said in part:

“At a meeting in Darwin on 22.4.96 attended by Messrs:  Keevers, Whatley, See and Campbell, several alternative processing and distribution arrangements were discussed and costed.  The decision now lies with ACF and I understand a submission was required by 29.4.96 (today).”

 

There is no material before the Court that points to ACF having made any decision on or before 29 April.  Furthermore, the minutes of the meeting of its Board of Directors of 9 May 1996 does not indicate that ACF had made any decision.  It remains to mention Pauls.  Mr Cohalan’s Situation Report of 2 May 1996 to Mr Whatley of Northchoice was littered with entries with respect to matters that were yet to be finalised.  The terms of that document indicated that Pauls did not consider that the negotiations and discussions to that date were anything more than a proposal that was yet to be considered by the relevant parties. 

108               The meeting of 20 May 1996 does not help the ACCC’s case as no representative of Malanda was recorded in the notes as being present.  That absence, and the reference in the notes to the involvement of solicitors, lends some weight to the finding that an arrangement or understanding had not then been reached.  The endorsement in the notes that “ACF to come back and clarify its intentions …” is, as counsel for Malanda and ACF submitted, inconsistent with the existence of an arrangement or an understanding at that time.

109               There are further examples in the Court Book that emphasise the tentative nature of the proposal in May 1996.  They include two proposals that ACF received from a Darwin accountant on behalf of clients to purchase the assets of Northchoice and Mr See’s memorandum to Malanda’s Board of Directors dated 15 May where he wrote:

“We understand that a decision on Northern Territory will be made at the ACF May Board Meeting.  One option being looked at in depth is for the Northern Territory farm to continue operating, approximately 8 million litres being supplied by Malanda in bulk tanker, the Northern Territory packaging operation closing and the packaging of all Rowland and Malanda brands by [Pauls] Darwin, who will receive all the bulk milk from the farm and Malanda.”

That option did not, of course, eventuate as the farm and the dairy herd were ultimately sold to Brigalow.

110               These enquiries and these reports were, in my opinion, inconsistent with there being any arrangement or understanding of the type alleged in par 12 of the amended Statement of Claim.

111               As a result of the meeting of 20 May 1996, Mr Morgan of ACF had formed an opinion about the preferred course of action.  As had already been noted, he wrote Mr McCray of Pauls on 24 May, informing him that ACF wished “to pursue a Tripartite Contract Packaging Agreement” that would include Pauls, Malanda and ACF.  He also proposed that any such agreement would include the supply from ACF and Malanda to Pauls of “all fresh wholemilk requirements” for Pauls’ Territory market.  That proposal did not eventuate.  ACF ultimately sold off QUD and Northchoice and did not become a party to the contract of 23 September 1996.  As counsel for Malanda and ACF pointed out, there was no evidence that the ACF Board or its senior management decided to commit ACF to the proposal that was being developed at that stage.  That submission holds good in my opinion, notwithstanding the preparation of draft contracts for a tripartite agreement at about that time.

112               During the course of submissions, an amount of time was devoted by counsel to the expressed and implied terms of the alleged Arrangement and to the allegation that ACF “procured” other parties to supply milk to Pauls.  In view of my finding that the ACCC has failed to prove the existence of any such arrangement or understanding, it is not necessary to address those submissions.

113               It follows, as a consequence of my finding that the three corporate respondents did not enter into a proscribed arrangement or understanding, that s 45A of the Act has no part to play and that Messrs McCray, Jardine, See and Morgan could not have been “directly or indirectly knowingly concerned in or a party to” any contravening conduct.

114               I therefore hold that, in relation to the claims for relief that were based upon the alleged existence of an arrangement or understanding, as pleaded in par 12 of the amended statement of claim, none of the respondents have a case to answer and all those claims for relief should be dismissed with costs.

The Contract

115               The basic case for the ACCC was that Pauls and Malanda, by entering into the Contract and giving effect to it, had the purpose, and the terms of the Contract had the effect, of substantially lessening competition.  If that argument (or one of its several permutations) is accepted and the Court resolves that those corporations have a case to answer, it would then be necessary to consider whether ACF and the remaining respondents aided, abetted, counselled or procured or was or were directly or indirectly knowingly concerned in the contravening conduct of Pauls and Malanda.  If, on the other hand, it is found that Pauls and Malanda did not engage in any proscribed conduct it will not be necessary to consider the roles of the remaining respondents.

116               The first of the propositions that was advanced by the ACCC can be disposed of relatively quickly.  It was pleaded that the provisions of the Contract had the purpose or the likely effect of fixing the price at which Malanda would supply raw milk to Pauls in competition, first, with Northchoice, and later with Brigalow.  For s 45A to be of assistance to the ACCC, the applicant must prove the existence of the Contract (and that has not been challenged) and it must identify a particular provision in the contract which, irrespective of the intentions of the parties:

“has the purpose, or has or is likely to have the effect, as the case may be, of fixing … the price for … goods … supplied … or to be supplied … by the parties to the contract … in competition with each other.”

There remains an evidentiary onus on the ACCC to prove the existence of such a purpose or such a likely effect and, in my opinion, this has not been achieved.  But, in any event, there is a more compelling reason why the case for the ACCC must fail.  Even if it could be said that the necessary purpose or the necessary likely effect has been established, that will amount to nought because the purpose or likely effect must relate to fixing the price for goods that are to be supplied by the parties to the Contract who are in competition with each other.  Neither Northchoice nor Brigalow was a party to the Contract (and it has not been suggested that it should be implied that they were) but they were the parties who were in competition with Malanda in the supply of raw milk to Pauls.  Pauls and Malanda were the only parties to the Contract, but Pauls did not supply itself with raw milk in competition with Malanda.  This leg of the ACCC’s argument must fail.

117               The second allegation that was advanced by the ACCC was to the effect that certain provisions of the Contract had the purpose or the likely effect of controlling or maintaining the price for wholesale milk which Pauls and Malanda sold in competition with one another.  As to this, the respondents did not dispute that Pauls and Malanda were in competition with each other in relation to the wholesale supply of processed packaged milk in the Territory.  The argument that the ACCC advanced in support of its case was based upon a two-pronged attack:

·                     the Contract established the price that Pauls would pay Malanda for raw milk;  and

·                     the Contract established the price that Malanda would pay Pauls for processed packaged milk.

The prices thus established by those provisions were said to comprise a substantial proportion of: 

·                     the costs to Pauls and Malanda of obtaining processed packaged milk;  and

·                     the price at which Pauls and Malanda could sell processed packaged milk in the Territory in competition with each other.

118               The next step in the chain was the argument that the provisions in the Contract that established the prices for raw milk and processed packaged milk had the purpose or the likely effect of controlling the price at which Pauls and Malanda could supply processed packaged milk in the Territory in competition with each other.  Upon that premise, the provisions of the Contract would fall within subs 45A(1) and would be deemed to have the purpose or likely effect of substantially lessening competition. 

119               The issue most strongly favouring the respondents is that Pauls and Malanda made no overt attempt to fix the wholesale price of milk.  The evidence points to them being free to charge what price they liked and to under-cut each other in an attempt to increase their share of the market.  However, the question remains whether some aspect of “control” can be inferred.  The cost of raw milk was fixed at 52 cents per litre;  the cost to Pauls of processing and packaging the raw milk was constant and had equal application to Pauls and Malanda.  Those two factors being a substantial proportion of the costs of producing the milk for wholesale and its subsequent distribution, the argument was that the effect, and thus the purpose, was to control or maintain the wholesale price of processed packaged milk.

120               Lindgren J considered the meaning of the word “control” in the CC case.  In that case the ACCC had alleged that certain major construction companies and their association, the AFCC, had engaged in price fixing in connection with the tenders for a project that was known as the “Commonwealth Offices – Haymarket” (“the project”).  It was alleged that, at a meeting of the tenderers, an arrangement or an understanding was reached whereby each tenderer would take into account, in the preparation of its tender, matters to be agreed at the meeting including matters such as special fees and an unsuccessful tenderer’s fee (“UTF”).  There was a proposal that the special fee, which would be paid to the AFCC, would be $1,000,000.  The pleadings then alleged:

“23      At the meeting it was then proposed that the successful tenderer should pay to each of the unsuccessful tenderers [a UTF] in the sum of $750,000.”

 

In the result, the successful tenderer paid the special fee of $1,000,000 to the AFCC and UTFs totalling $2,250,000 to the three unsuccessful tenderers.

121               Lindgren J pointed out at [20] that the ACCC’s “evidence was largely documentary and circumstantial.  It led no testimonial evidence at all from any of the four Tenderers’ representatives who were the only persons allegedly present at the … Meeting …”.  Nevertheless, his Honour was of the opinion that the evidence was sufficient to establish that there had been an arrangement between the tenderers to pay the special fee and the three UTFs.  Although his Honour did not find that each tenderer undertook that it would take its obligation to pay the special fee and the UTFs into account in calculating its tender price, he was of the view that that still remained a matter of interest to the tenderers.  On the other hand, he was of the opinion at [160]:

“… that each Tenderer had an independent expectation that as a matter of fact each of the others would, if successful, pay the UTFs (and, for that matter, the Special Fee) out of the proceeds of the job and would take its commitment to do so into account in the calculation of its tender price.” 

122               These findings led his Honour to conclude at [160] that the understanding “was likely to have an effect on price”. 

123               In discussing the subject of “control” Lindgren J said at [168 – 169]:

“The word ‘control’ is not defined in the Act.  Its natural or ordinary meaning is ‘to exercise restraint or direction over’ (the Macquarie Dictionary) or ‘to exercise restraint or direction upon the free action of’ (the Oxford English Dictionary) a person or thing.  There are degrees of control and there may be control although the ‘restraint’ or ‘direction’ is not total.  An arrangement or understanding has the effect of ‘controlling price’ if it restrains a freedom that would otherwise exist as to a price to be charged.

[The respondent] submits that the notion of ‘fixing, controlling or maintaining’ price involves a degree of ‘specificity’ as to price and a degree of ‘proximity’ between the arrangement or understanding and price.  I accept that an arrangement or understanding which no one intends, and is not objectively likely, to have any effect on price, but which, by reason of unforeseeable supervening circumstances has had that effect, is not caught.  But with respect, I do not find the general proposition relied on by [the respondent] determinative of the present case.  Of course, I accept that ‘likelihood’ is to be assessed as at the time when the arrangement is made or the understanding is arrived at.”

 

I respectfully agree with what his Honour said and I apply the principle espoused in these remarks to the facts of this case. 

124               Lindgren J at [178] concluded that the degree of control was not relevant to the issue of contravention and that, on the facts that were before him, the UTF understanding was likely to have the effect of controlling the price in that the successful tenderer was likely to pay the UTFs out of the proceeds of the job and to take them into account in calculating its tender price (at [183]).

125               However, I accept the submissions of the respondents that the facts of this case are different, to a material degree, to the facts that Lindgren J was required to consider.  In the CC case, Lindgren J had said at [168] (and I agree) that:

“An arrangement or understanding has the effect of ‘controlling price’ if it restrains a freedom that would otherwise exist as to a price to be charged.”

The commercial necessity of covering the costs of the three UTFs in the successful tender price can be seen as a severe restraint on the freedom that would otherwise exist in the calculation of the tender price.  No such restraint applies in the case that is now under consideration.  In the present case the payment that is said to give rise to the restraint on pricing freedom is the cost of raw milk to Pauls.  Unlike the UTFs, however, this cost would exist whether there was an arrangement or not.  Pauls always had to buy raw milk from someone if it were to process and sell wholesale milk.  Thus, it cannot, in my opinion, be concluded that this cost operated to restrain a freedom that would otherwise exist as to a price to be charged for wholesale milk.  The raw milk cost would always have existed as a restraint on the wholesale packaged milk selling price whether or not there had been any contract.

126               There is, in my opinion, a further flaw in the proposition that Pauls and Malanda engaged in some form of price fixing with respect to the sale and distribution of wholesale milk.  The flaw exists because the two parties do not have the same cost base.  There was no evidence that would enable the Court to find the cost to Malanda of the milk that it supplied to Pauls, but it is reasonable to infer that it would probably have been a figure that was less than 52 cents per litre.  Thus there would have been an element of profit at the stage when Malanda sold its raw milk that was not available to Pauls.  Pauls was not a producer of raw milk:  it was a processor.  Malanda was not a processor of raw milk:  it was a producer.  The different roles of the two companies coupled with Malanda’s opportunity to enjoy a profit on its sale of raw milk meant that when the companies competed at the wholesale level, Malanda had the opportunity to undercut Pauls to the extent of some (or all) of the profit that it enjoyed when it sold its raw milk.  That background, combined with the fact that there was no evidence that the parties agreed to fix the wholesale price of milk, destroys the proposition that Pauls and Malanda engaged in some form of fixing the wholesale price of milk.  It likewise destroys the proposition that one or other of them was controlling, or might be able to control, the wholesale price. 

127               The conclusion that I have reached is that the evidence adduced by the ACCC, taken at its highest, has failed to establish that the Contract had a proscribed purpose or a proscribed likely effect.  There being no case to answer by the parties to the Contract, Pauls and Malanda, it follows that their alleged accessories likewise have no case to answer.

128               I therefore hold that, in relation to the claims for relief that were based upon the Contract, none of the respondents have a case to answer and all claims for relief should be dismissed with costs. 

COSTS

129               It was submitted that dismissal of these proceedings at this premature stage would justify an order for costs against the ACCC on an indemnity basis.  I do not consider that an order in those terms would be appropriate.  The history of this matter was complex;  the proposals that passed between the corporate respondents were subject to numerous variations;  the complexity was compounded by the involvement of third parties such as Brigalow and Ascot Haulage.  In my opinion, the ACCC was, notwithstanding that the Court has found no case to answer, justified in making the enquiries and taking the action that it took.  Perhaps it might be argued that there would have come a time when the completed enquiries should have satisfied the ACCC that the respondents had not breached the Act, but that is arguable and does not justify an order for indemnity costs.  

I certify that the preceding one hundred and twenty-nine (129) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice O'Loughlin.

Associate:

Dated:              19 December 2002

Counsel for the Applicant:	Mr A Robertson SC and Mr A I Tonking
Solicitor for the Applicant:	Australian Government Solicitor
Counsel for the First, Fourth and Fifth Respondents:	Mr G Gibson QC and Mr R Wilson
Solicitors for the First, Fourth and Fifth Respondents:	Messrs Biggs & Biggs
Counsel for the Second and Third Respondents:	Mr F Douglas QC and Mr R J Wright
Solicitors for the Second and Third Respondents:	Messrs Blake Dawson Waldron
Counsel for the Sixth Respondent:	Mr J Bell QC and Mr M Martin
Solicitors for the Sixth Respondent::	Messrs McCullough Robertson
Counsel for the Seventh Respondent:	Mr M Speakman
Solicitors for the Seventh Respondent::	Messrs Clayton Utz
Date of Hearing:	12 August – 14 August 2002
Date of Judgment:	19 December 2002