FEDERAL COURT OF AUSTRALIA
Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd  FCA 826
FULL JUDGMENT– REPLACES REDACTED VERSION
SEE ORDERS 26 JULY 2006
TRADE PRACTICES – COMPETITION – whether deeds settling objections or threatened objections to applications by third parties for licences under the Liquor Act 1982 (NSW) contained provisions which were exclusionary provisions and which had the purpose of substantially lessening competition.
HELD: the second respondent, Woolworths Limited, had contravened s 45(2) of the Trade Practices Act 1974 in respect of two unrelated episodes at Campbelltown and Tweed Heads in that provisions of the deeds in those episodes were exclusionary provisions; and Woolworths Limited had contravened s 45(2) of the Trade Practices Act 1974 in respect of four unrelated episodes at Campbelltown, Rockdale/Arncliffe and Tweed Heads in that provisions of the deeds in those episodes had the purpose of substantially lessening competition.
Trade Practices Act 1974 (Cth) ss 4D, 4F, 4G, 45(2), 45(3)
ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No1) (1990) 27 FCR 460 discussed and applied
Dowling v Dalgety Australia Ltd (1992) 34 FCR 109 referred to
Eastern Express Ltd v General Newspapers (1992) 35 FCR 43 referred to and applied
Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia (2002) 122 FCR 110 applied
News Ltd v Australian Rugby Football league Ltd (1996) 64 FCR 410 referred to
News Ltd v South Sydney District Rugby League Football Club Ltd (2003)215 CLR 563 discussed
Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1987) 17 FCR 211 discussed
Queensland Wire Industries Pty Ltd v The Broken Hill Proprietary Company Ltd (1988) 167 CLR 177 discussed
Re Queensland Co-operative Milling Association Ltd; Re Defiance Holdings Ltd (1976) 25 FLR 169 discussed
Rural Press Ltd v Australian Competition and Consumer Commission (2002) 118 FCR 236 discussed
Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53 discussed and applied
Sampi v State of Western Australia  FCA 777 referred to
Singapore Airlines Ltd v Taprobane Tours WA Pty Ltd (1991) 33 FCR 158 discussed and applied
Stirling Harbour Services Pty Ltd v Bunbury Port Authority (2000) ATPR 41-752 discussed
Taylor v Toohey (No 2) unreported, New South Wales Court of Appeal, 29 August 1986
Tillmans Butcheries Pty Ltd v Australian Meat Industry Employees Union (1979) 42 FLR 331 referred to
Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission (2003) 131 FCR 529 discussed
Breyer S, “Five Questions about Australian Anti-Trust Law” (1977) 51 ALJ 28 at 33-4
Brunt M, Economic Essays on Australian and New Zealand Competition Law, Ch 5 “Market Definition Issues in Australian and New Zealand Trade Practices Litigation (1991)”
Corones SG Competition Law in Australia (3rd Ed)
Neale The Antitrust Laws of the United States of America (2nd Ed, 1970)
Norman and Williams “The Analysis of Market and Competition and the Trade Practices Act: Towards the Resolution of Some Hitherto Unresolved Issues” (1983) 11 Australian Business Law Review 390 at 400-401
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v LIQUORLAND (AUSTRALIA) PTY LTD AND ANOR
NSD 769 of 2003
30 JUNE 2006
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NSD 769 of 2003
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
LIQUORLAND (AUSTRALIA) PTY LTD
DATE OF ORDER:
26 JULY 2006
THE COURT ORDERS THAT:
1. The whole of the reasons for judgment delivered on 30 June 2006 be published without restriction upon the distribution of any of the paragraphs mentioned in orders 5-7 made on 30 June 2006, noting that there is no objection by any party or persons to this course.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALESDISTRICT REGISTRY
NSD 769 of 2003
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
LIQUORLAND (AUSTRALIA) PTY LTD
DATE OF ORDER:
30 JUNE 2006
THE COURT ORDERS THAT:
1. The parts of Administrative Exhibit A13 set out at  of the reasons herein be rejected.
2. The template sent to the Court by the Applicant under cover of letter of 1 August 2005, with the parts identified in  of the reasons herein as rejected, be admitted into evidence and marked Administrative Exhibit A14.
3. The folder entitled “Status of Exhibits AA1 and AA2” provided to the Court in May 2006 together with letter dated 25 May 2006 from the Australian Government Solicitor to Ms Kathryn Wilson together with its enclosure be marked Exhibit AA4.
4. Until further order, these reasons for judgment in an unredacted version not be published or made available to anyone other than the Applicant, and counsel and solicitors for the second respondent (“Woolworths”).
5. Subject to order 12 below and until further order,  to ,  to ,  and  to  of the reasons herein not be published or made available to anyone other than the Applicant and Woolworths.
6. Subject to order 12 below and until further order,  to , ,  to  and the fifth sentence of  of the reasons herein not be published or made available to anyone other than the Applicant, counsel and solicitors for Woolworths and the first respondent “Liquorland”).
7. Subject to order 12 below, and until further order,  of the reasons herein not be published or made available to anyone other than the Applicant, Woolworths and Liquorland.
8. Subject to order 12 below, as soon as practicable, and in any event on or before 7 July 2006, the Applicant provide to Liquorland a copy of the reasons for judgment herein (other than the paragraphs referred to in order 5 above) and these orders and inform Liquorland that if it wishes to prevent publication of any of the paragraphs referred to in orders 6 and 7 above or any part of those paragraphs it must make application, on notice to the Applicant supported by evidence; and that if such an application is to be made it must be notified to the Applicant, the Court and Woolworths no later than 21 July 2006, in which case a directions hearing will be held for the hearing of such application on 9 August 2006.
9. On or before 21 July 2006, Woolworths notify the Applicant and the Court whether it proposes to move the Court to prevent publication of any of paragraph of the reasons herein.
10. On or before 14 July 2006, the Applicant serve on Woolworths a draft of declarations and orders that it proposes.
11. On or before 28 July 2006, Woolworths provide to the Applicant its objections, and any reasons therefor, to any such proposed declarations and orders, and any suggested version reflecting the reasons herein.
12. On or before 3 July 2006, the Applicant and Woolworths bring to the attention of the Court any further paragraph that should, prima facie, be restricted. Such assessment is not to be made by giving Woolworths (other than through its counsel and solicitors) access to the paragraphs referred to in orders 6 and 7 above. Thus, until further order to allow the Applicant and Woolworths to have this opportunity to assess the question of confidentiality, no redacted version of the judgment shall be made available either to the public or to Liquorland.
13. The proceedings be stood over for any argument as to orders, the making of orders and directions to 9.30 am on 9 August 2006.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALESDISTRICT REGISTRY
NSD 769 of 2003
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
LIQUORLAND (AUSTRALIA) PTY LTD
30 JUNE 2006
REASONS FOR JUDGMENT
The Liquor Act 1982 
A summary outline of the parties’ cases 
The relevant statutory provisions 
Ettamogah – the underlying facts 
Ettamogah – the purposes of Mr Smith and Woolworths 
Jin Ro – the underlying facts 
Jin Ro – the purposes of Mr Smith and Woolworths 
Palms Village – the underlying facts 
Palms Village – the purposes of Mr Meagher and Woolworths 
Global Beer – the underlying facts 
Global Beer – the purposes of Mr Meagher and Woolworths 
Market definition 
The resolution of the contested issues of statutory construction
and conclusions as to purposes and contraventions 
1 The applicant, the Australian Competition and Consumer Commission (the “Commission”), brought proceedings against two respondents, Liquorland (Australia) Pty Ltd (“Liquorland”) and Woolworths Ltd (“Woolworths”) alleging contraventions of s 45 of the Trade Practices Act 1974 (Cth) (the “Act”) during the period 1997 to 2000.
2 The Commission and Liquorland reached an agreement to settle the proceedings. In that agreement, those parties agreed upon orders as to mutually acceptable penalties and orders for costs. Another Judge of the Court undertook the consideration of, and dealing with, the proceeding against Liquorland in the context of that agreement. That left the proceeding against the second respondent, Woolworths. Although Liquorland settled and the proceeding against it has been disposed of, Liquorland’s part in the events is relevant because the Commission relies on Liquorland’s conduct and purpose in seeking to prove its case against Woolworths.
3 The impugned conduct concerns four different episodes in Campbelltown, Arncliffe and Tweed Heads. (There were two episodes in Tweed Heads.) Whilst each episode must be examined in some detail, there were elements common to each. In each, a party unrelated, and hitherto unknown, to Woolworths and Liquorland applied for a liquor licence under the relevant New South Wales statute. Woolworths and Liquorland had, or proposed to have, a takeaway liquor store in the immediate vicinity (within no more than five kilometres) of the business proposed by each such party. In each case, Woolworths and Liquorland availed themselves, or threatened to avail themselves, of a right that the relevant State statute gave to persons in their position to object to the grant of the licence that had been applied for. In each case, after negotiation with the applicant for the licence, the objection, or threatened objection, was withdrawn. In each case, this withdrawal came at a price, though not one easily measured in money. The price was embodied in the deeds at the centre of these proceedings. In the deeds, the third parties agreed to restrictions being placed on the respective liquor licences anticipated to be granted and so on the operation of the respective businesses under the licences. Woolworths and Liquorland were satisfied with these restrictions and withdrew their objections or threats of such.
4 It is those deeds and those restrictions that are said to amount to the contracts, arrangements or understandings which are said to contravene s 45(2)(a) and (b) of the Act.
5 None of the conduct can be understood without an appreciation of legislative background, in particular, aspects of the Liquor Act 1982 (NSW) and its practical operation in the Licensing Court of New South Wales, a court of record existing under the Liquor Act.
The Liquor Act 1982
6 The New South Wales statutory regime hereafter described was that applicable in the relevant period, 1997-2000. There have since been amendments to that regime which it is not necessary to discuss beyond saying, at this point, that some of what might be called the uncompetitive economic aspects of the licensing system have been removed.
7 A primary aim of the Liquor Act was the minimisation of harm associated with misuse and abuse of liquor: s 2A of the Liquor Act. (It should be noted at the outset that although there was debate about the purposes of Liquorland and Woolworths in the conduct the subject of the proceedings, and although expressions such as “satisfying the needs of the neighbourhood” were used by some witnesses, no suggestion was made by any witness that the purpose, or one purpose, of any of the objections or of any of the impugned conduct, or of any of the relevant restrictions in the deeds, was to protect the public from any harmful consequences of a surfeit of liquor outlets in the relevant areas.)
8 It was a criminal offence to sell liquor without a licence authorising the sale: s 122. Licences were granted by the Licensing Court of New South Wales (“Licensing Court”) upon application: s 18. Proceedings before the Licensing Court were regulated in the same manner as summary proceedings in a Local Court. There were various types of licences, as set out in s 18(2)(a)-(f) of the Liquor Act. Two are relevant to these proceedings: an hotelier’s licence (s 18(2)(a)) and an off-licence: s 18(2)(b). An off-licence, authorising the sale of liquor on the premises, but only for consumption off the licensed premises, could be, relevantly, an off-licence for retail sale (s 18(3)(a)) or for wholesale sale: s 18(3)(c). An hotelier’s licence, subject to its conditions, also allowed for the sale of liquor on the premises for consumption off the premises.
9 Conditions (beyond those prescribed by the Liquor Act and Liquor Regulations 1996) could be imposed on a licence by the Licensing Court under s 20(1) of the Liquor Act which was relevantly in the following terms:
The court may:
(a) on the hearing of an application for the grant of a licence or of any matter relating to a licence—of its own motion or on the application of a party to the hearing or the Director or the Commissioner of Police, or
(b) at any other time—on the application of the Director or the Commissioner of Police made in relation to a licence,
impose conditions not inconsistent with this Act without prior compliance with which the grant does not take effect or to which the licence is to be subject.
10 By s 20(2)(b) of the Liquor Act, a licence was subject to any conditions imposed under s 20(1).
11 The procedure and requirements for making an application (including advertising of the application) were set out in Part 3, Division 4 of the Liquor Act and in the Liquor Regulations. Part 3, Division 5 of the Liquor Act dealt with objections. Under s 44, locus standi was given to various people to object to the grant of an application. Those persons included a person who satisfied the court that his or her interests, financial or other, were likely to be adversely affected by the grant of the application: s 44(1)(f). Such an objector was required to file an affidavit accompanying the objection specifying his or her pecuniary interest in the refusal of the application. There was a variety of grounds of objection which included the so-called “needs objection” found in s 45(2), as follows:
Subject to section 57, objection to the grant of an application for, or for the removal of, a hotelier’s licence or an off-licence to sell liquor by retail may be taken (whether or not an objection is also taken on a ground specified in subsection (1), (2AA), or (3)) on the ground that the needs of the public in the neighbourhood of the premises to which the application relates can be met by facilities for the supply of liquor existing in, and outside, the neighbourhood.
12 Another objection available was that a grant of the application would not be, for reasons otherwise than the needs of the neighbourhood, in the public interest: s 45(1)(c).
13 Section 57(4) of the Liquor Act, however, provided that s 45(2) (and so the ability to object on the needs basis) did not apply to the removal of a licence from and to premises in the same neighbourhood: see generally Smith v Hardy (2000) 50 NSWLR 478. The meaning of the word “neighbourhood” in the Liquor Act was discussed by the New South Wales Court of Appeal in Armstrong v Edgecock  2 NSWLR 536. The notion involved (contrary to a view that had been adopted in litigation in the Licensing Court hitherto) was geographic, not one of trading area. Relevant considerations were geographical features, transport facilities, communal facilities and residential aggregations.
14 Once a needs objection was taken, the onus was on the applicant to satisfy the Licensing Court of the matters found in s 45(4)(c):
that the needs of the public in the neighbourhood of the premises to which the application relates cannot be met by facilities for the supply of liquor existing in, and outside, the neighbourhood
15 It may be accepted as uncontroversial that the legislative aim and purpose of the needs objection regime was an aspect of minimisation of harm and the control of the consumption of liquor. Nevertheless, as is apparent even from the sparse facts thus recounted, the ramifications of this procedure from the commercial and competition perspectives of those parties with existing liquor outlets, were obvious. The regime provided a ready weapon to impede or prevent a rival or potential rival establishing a place of business in the neighbourhood. The process, like any legal proceeding, would require the investment of both time and money by the applicant. If the applicant were unsuccessful in demonstrating the relevant needs, subject to s 47(1), the costs of the hearing in time and money could be wasted, or, at least, could be immediately unproductive.
16 In the absence of an objection under s 45(2) there was no requirement under the Liquor Act or Liquor Regulations for the Licensing Court to consider the “needs” of the neighbourhood. The evidence was that if a needs objection was not raised by an objector, the Licensing Court would not concern itself with that issue.
17 Even if the applicant could not discharge the relevant onus and overcome the needs objection based on s 45(2), the Licensing Court had a discretion under s 47(1) to grant the application.
18 If an application failed because of a needs objection, another application could not be made for two years: s 36(6).
19 Under s 20(5), the Licensing Court could vary or revoke conditions imposed by it. The needs objection could not be taken in such an application: see ss 20(5) and 45(2). The evidence was that in such circumstances the Licensing Court considered the test of public interest if objection were taken to the varying or removing of a condition. This lack of relevance of the needs objection to an application to vary or revoke conditions is of some importance to this proceeding for reasons that will appear in due course.
20 The evidence of Mr Anthony Smith, an officer of Woolworths who was experienced in the liquor field, was that if no objection at all were made to an application then the Licensing Court would grant the application “as long as the applicant has their necessary council consents, et cetera, in place”.
21 Upon the grant of an application a fee was payable: ss 55 and 56.
22 Costs could be awarded by the Licensing Court: s 16.
23 Woolworths laid emphasis on a number of propositions and evidential considerations about the Liquor Act and about practice in the jurisdiction of the Licensing Court. There was no contest about these matters. No issue about them was enunciated in submission. The grant of a licence is not automatic should there be no objection. The applicant was required to satisfy the Licensing Court of various matters, including good character. Most such matters were not in dispute in relation to the people with whom this litigation was concerned. Some requirements were, however, of importance. The Licensing Court would not grant an application unless there was relevant local government consent permitting the sale of liquor under the licence. This was of particular importance to two of the four episodes: Jin Ro and Global Beer, being respectively the Arncliffe and one of the Tweed Heads episodes.
24 The notion of the “needs” of the neighbourhood for the purposes of s 45(2) has been discussed in a number of cases in the courts. The needs, in the sense of the demands and expectations, of a section of the public are not decisive. They must be balanced against the demands and expectations of the rest of the public in the neighbourhood. The whole of these reasonable demands and expectations must be measured against the capacity of the existing facilities to satisfy them. There must be a demonstration of a lack of, or substantial deficiency in, the number, quality or type of facilities for the supply of liquor, such that in the view of the Licensing Court it was desirable that a further facility be granted: see generally Taylor v Toohey (No 2) (unreported, New South Wales Court of Appeal, 29 August 1986); Silkman v Kendall  1 NSWLR 133; Travis v Jackson  10 NSWLR 601; and Buttery v Muirhead  SASR 334.
25 Mr Tony Schwartz, an experienced solicitor in the field who acted for Woolworths in respect of all four episodes, gave evidence of usual practice in relation to objection. Sometimes an objector may make an objection in order to get access to the court file in order to understand, from the applicant’s affidavits on the file, what the applicant’s intentions (including, of course, commercial intentions) were, in particular by reference to plans and development applications. This was a procedure followed by Woolworths. This kind of information from the court file then assisted in the formation of a view as to whether to press the objection. I accept this evidence.
26 Mr Schwartz identified another reason for taking an objection. If a licence were granted subject to conditions and if, later, those conditions were sought to be amended or revoked by application to the Licensing Court, the previous objector would be seen by the Court to have “better standing” in relation to the public interest considerations attending the application. In such a case (where there was no needs objection available) Mr Schwartz said that the Licensing Court would look to the history of the attachment of conditions in settlement of an earlier needs-based objection. Mr Schwartz gave evidence of a licensing magistrate saying the following in one application in 1992 concerning a request to revoke a condition previously agreed to in settlement of a case in which there was a needs objection:
[T]he needs test does not apply to this application. Whether that is the intention of the legislature or not I am not to know, but bearing in mind the odd circumstances in which this situation has arisen, I suspect it might be more that the situation was never envisaged by the draftsman. It is certainly my view that in the public interest the Court should not only give effect to the letter of the law but in cases where it is exercising a discretion, the spirit and intention of the legislation as well. In this particular case, the original applicant obtained this licence by way of conditions imposed by agreement between himself and the objectors. If the Court were to grant this application now, he is in effect, obtaining an unrestricted licence through the back door if I can use that term, without those objectors ever having the opportunity of pressing the ground of objection on the needs basis which they originally sought to press. It would seem to me that that would be an injustice to the objectors.
27 A number of examples were given by Mr Schwartz of the Full Bench of the Licensing Court making it clear that persons who had objected to original applications and whose objections were withdrawn on the basis of conditions agreed to by the applicant had a stronger position in any later application to revoke or vary those conditions than a party who had not objected. Indeed, in one case, one magistrate indicated that the Court would look for the presence of exceptional or extraordinary circumstances for an application for revocation of a condition to succeed in circumstances where the condition was placed upon the licence as the consideration for the withdrawal of an objection by an objector at the stage of the original application. I accept this evidence as to the practice of the Licensing Court.
28 I am prepared to accept that this was the view of those on the Licensing Court during the relevant period. I also accept, and I find, that this was well known by experienced practitioners and participants in the field such as Mr Schwartz, Mr Anthony Smith and Mr Robert Meagher, both senior managers in Woolworths’ liquor division at the relevant time and whose evidence is central to the disposition of this matter.
29 This relevance of a covenant in a deed of settlement to the question of possible future objection based on the public interest to an application to revoke or vary a condition is of some importance to these proceedings.
30 The evidence was that the Licensing Court encouraged settlement of contested litigation and that the Licensing Court required the parties to make genuine efforts to settle disputes. This can be readily accepted.
31 Finally, there was an issue as to whether it was competent under the Liquor Act for objection to be made for “undue competition and economic waste”. Mr Schwartz gave evidence that he thought this was an aspect of a lack of public interest objection until a Full Bench of the Licensing Court said to the contrary in 2001. Mr Schwartz said in his statement that he had prepared a standard form Notice of Grounds of Objection for his clients and that this was used by Woolworths. That standard form, until 2001, included a paragraph, which is contained in the relevant Woolworths’ objections, that it was not in the public interest to grant the relevant application for reasons which included the following:
The granting of the application would result in undue competition and economic waste.
32 Whether or not this was a standard form application (and I accept that it was), it was made by Woolworths in these cases. It is irrelevant that, as it turned out in 2001, this was not a valid ground of objection under the public interest ground. The fact that that document arose as a standard form does not detract from the importance of the fact that Woolworths identified this ground in the Notice of Objection. No suggestion was put forward that anyone at Woolworths thought the proposition (from Woolworths’ perspective) to be wrong. Likewise, the affidavits in support of the objections sworn by the relevant officers of Woolworths, Messrs Meagher and Smith, stated that Woolworths had a direct and indirect pecuniary interest in the refusal of the application by reference to its ownership and operation of relevant neighbourhood liquor stores. It may be that these paragraphs were “standard”. However they were a part of affidavits prepared for, or filed in, the relevant Licensing Court proceedings. They can be taken as statements of the views of Woolworths’ and Messrs Smith and Meagher.
33 Mr Schwartz said in his statement that he first became aware of the use of deeds to record agreements to withdraw objections in about May or June 1996. Since then he had seen this mechanism used on a number of occasions by a number of well-known and reputable Licensing Court practitioners. I accept this evidence. Mr Schwartz had the view that the use of deeds in these circumstances was desirable. It gave the objector a provision for fair notice of any proposal to vary the conditions. It gave the objector standing to object to a variation or revocation application. It also gave the objector a negative covenant which could be a subject of an application in the Supreme Court for an order restraining conduct in breach of a relevant covenant.
34 I infer that Mr Schwartz has from time to time advised Woolworths of the appropriateness of entering deeds of this character and that he did so on these occasions. Mr Schwartz deposed that at no time did he consider that the deeds would contravene the Act. At no stage did any counsel suggest to him that there could be an issue under the Act. I accept this evidence.
A summary outline of the parties’ cases
The case of the Commission
35 The contractual promises amounting to the relevant contracts, arrangements or understandings restricted the type or quantity of takeaway liquor that could be sold from, or stocked at, the relevant premises; restricted the location and configuration of the premises; and restricted the means by which sales could be made at, and delivery effected from, the premises. The restrictions were intended to attach to a third party assignee of the licence. These restrictions were said to undermine the competitive process by restricting the freedom of the licence applicant to act competitively against Woolworths or Liquorland.
36 The purpose of Woolworths was said to be to protect sales from its outlet or outlets in the relevant area. The arrangements restricted competitive conduct then and in the future and it was said, could be seen as sterilising competition from a prospective rival licence, whether from this applicant or a more capable rival who might buy the licence from the applicant.
37 The applicants for the licences, as new entrants into the market, were denied the freedom to expand or reconfigure their businesses better to meet market requirements and competitive offerings or to sell the unrestricted licence to someone better placed to exploit it. Either would have seen the process of competition work rather than be stifled. Thus, it was said that competition was “nipped in the bud”: Trade Practices Commission v CSR Ltd (1991) 13 ATPR 41-076 at p 52, 155; and Rural Press Ltd v Australian Competition and Consumer Commission (2002) 118 FCR 236 at .
The case of Woolworths
38 The case of Woolworths directed attention to the precise terms of the case pleaded against it and the precise effect of the construction it placed on s 4D of the Act. A full discussion of those issues is better left to a point at which the facts of each episode are fully explored. Briefly, however, it was contended that the case of the Commission rested on a number of flaws. First, it gave inadequate weight to the context of the practical operation, and day-to-day practice under the regime of the Liquor Act. The particular aspect of this inadequacy was said to be the failure to appreciate that objection on the needs ground was commonly taken by licence holders of all descriptions against all new applications. It was said to be a commonplace event that applicants would seek the grant of an off-licence retail, subject to conditions which reflected the business sought to be carried on, and no wider.
39 Secondly, the Commission’s case confused or conflated the purposes of Woolworths in making the objection and in entering the deeds. The two, it was said, were distinct – only the latter being the pleaded purpose. This distinction was said to be important and one based on the evidence of Messrs Meagher and Smith, the two relevant officers of Woolworths. They gave evidence that had there been no deeds agreed, the applications would have been fought, and, they believed, won. Thus, it was submitted that whilst the purpose of making the objection might be said to be “anti-competitive” (being directed to preventing a new, competitive, or potentially competitive, licence), the purpose of the impugned deed was to record the terms of the settlement of litigation which they believed would be won, if fought. Their purposes should be seen in that light; and if that is done, their purposes must be seen as other than found in ss 45(2) and 4D.
40 Thirdly, the Commission’s case failed to recognise another aspect of the distinction between the objection and the deeds. By the time each deed was executed, each applicant was seeking the licence limited by the conditions expressed in the draft deed ready for execution. Thus the deeds prevented nothing, they merely reflected the previously agreed compromise.
41 Fourthly, the Commission’s case ignored the importance of the Liquor Act in one particular respect. The deeds, contrary to the Commission’s case, did not impose any relevant trading restriction. The applicants had no freedom to sell liquor that was restricted by the deed. Their respective freedoms to do so arose from the licences they were granted, with the attached conditions.
42 Other aspects of the case of Woolworths will become clearer in the context of a discussion of the relevant provisions of the Act (there being some important differences between the parties as to aspects of the meaning and reach of s 4D of the Act) and in the context of the precise facts of the episodes in question.
The relevant statutory provisions
43 The primary relevant provisions of the Act are ss 4D and s 45(2). The case can be divided into two: the exclusionary provision case based on ss 4D and 45(2)(a)(i) and (b)(i), and the purpose of substantially lessening competition case based on s 45(2)(a)(ii) and (b)(ii).
the approach to statutory interpretation
44 The parties were not agreed upon the meaning and content of s 4D of the Act. It is therefore necessary to set out the principles by reference to which I construe and interpret the relevant provisions of the Act.
45 Section 45 is penal in character. The same can be said of s 4D as a definition section feeding s 45. They are to be approached, for the ascertainment of their meaning, using the ordinary rules of statutory construction and interpretation, but recognising that if as a matter of last resort, after those rules are applied, the language of the statute remains ambiguous or doubtful such ambiguity or doubt may be resolved in favour of the subject: Beckwith v The Queen (1976) 135 CLR 569 at 576 per Gibbs J; Deming No 456 Pty Ltd v Brisbane Unit Development Corporation Pty Ltd (1983) 155 CLR 129 at 145 per Mason, Deane and Dawson JJ; Waugh v Kippen (1986) 160 CLR 156 at 164-65 per Gibbs CJ, Mason, Wilson and Dawson JJ; Trade Practices Commission v Legion Cabs (Trading) Co-operated Society Ltd (1978) 35 FLR 372 at 382 per Franki J; Trade Practices Commission v TNT Management Pty Ltd (1985) 6 FCR 1 at 48 per Franki J; and Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (No 2) (2001) 119 FCR 1 at 226 per Goldberg J.
46 The ordinary rules of the Australian common law of statutory interpretation provide for an approach:
by which the relevant words of a statute, by reference to the language of the statute viewed as a whole, are considered in their legal and historical context having regard to the evident aim and purpose of the legislation, to any established canons of legal construction and to any inconvenience or improbability of result of any given construction. Inconvenience or improbability of result may assist the court to reach an available alternative construction reasonably open and more clearly conforming with the legislative intent otherwise discerned. Fundamental to the task, however, is the giving of close attention to the text and structure of the relevant provisions as the words used by Parliament.
See Braverus Maritime Inc v Port Kembla Coal Terminal Ltd (2005)148 FCR 68 at  and the cases there cited.
47 Thus, what is to be rejected is an approach which, because the provision is penal, employs a literal analysis with an eye to the discernment of textual ambiguity through finely spun distinctions. As Professor Pearce said in Statutory Interpretation in Australia, 5th Edn Butterworths, Sydney, 2001 at 232, [9.8], speaking of such a literalist or textual approach:
This somewhat naïve approach leads to the situation where counsel and judges worry away at individual words of Acts, seeking to squeeze out a possible interpretation that will enable a defendant to be acquitted. The intention of the legislature becomes lost in a semantic tournament. This in turn results in the courts being denigrated for not looking to the purpose of an Act, for being too ‘legalistic’.
48 One consideration, which can be seen as an aspect of the application of the correct approach referred to above, is that provisions of the Act, which are intended to govern and affect business decisions and commercial behaviour should, if such a construction is fairly open, be construed in such a way as to enable the business person, before he or she acts, to know with some certainty whether or not the act contemplated is lawful: Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1 at 10-11 . Nevertheless, the object of the Act as set out in s 2 of the Act “to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection” should be steadily borne in mind: cf Devenish v Jewel Food Stores Pty Ltd (1991) 172 CLR 32 at 43-44 per Mason CJ.
the exclusionary provision case
49 Section 45(2) relevantly provides as follows:
A corporation shall not:
(a) make a contract or arrangement, or arrive at an understanding, if:
(i) the proposed contract, arrangement or understanding contains an exclusionary provision; …
(b) give effect to a provision of a contract, arrangement or understanding, whether the contract or arrangement was made, or the understanding was arrived at, before or after the commencement of this section, if that provision:
(i) is an exclusionary provision; …
50 Section 4D of the Act is in the following terms, as follows:
(1) A provision of a contract, arrangement or understanding, or of a proposed contract, arrangement or understanding, shall be taken to be an exclusionary provision for the purposes of this Act if:
(a) the contract or arrangement was made, or the understanding was arrived at, or the proposed contract or arrangement is to be made, or the proposed understanding is to be arrived at, between persons any 2 or more of whom are competitive with each other; and
(b) the provision has the purpose of preventing, restricting or limiting:
(i) the supply of goods or services to, or the acquisition of goods or services from, particular persons or classes of persons; or
(ii) the supply of goods or services to, or the acquisition of goods or services from, particular persons or classes of persons in particular circumstances or on particular conditions;
by all or any of the parties to the contract, arrangement or understanding or of the proposed parties to the proposed contract, arrangement or understanding or, if a party or proposed party is a body corporate, by a body corporate that is related to the body corporate.
(2) A person shall be deemed to be competitive with another person for the purposes of subsection (1) if, and only if, the first-mentioned person or a body corporate that is related to that person is, or is likely to be, or, but for the provision of any contract, arrangement or understanding or of any proposed contract, arrangement or understanding, would be, or would be likely to be, in competition with the other person, or with a body corporate that is related to the other person, in relation to the supply or acquisition of all or any of the goods or services to which the relevant provision of the contract, arrangement or understanding or of the proposed contract, arrangement or understanding relates.
51 Section 4F qualifies s 4D. The purpose of the impugned provision need only be one of its purposes as long as it is a substantial purpose.
52 Before turning to the contentions of the parties as to the construction of s 4D a number of considerations concerning s 4D expressed by the High Court and the Full Court of this Court should be noted. In Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53 (“Rural Press (HC)”) Gleeson CJ and Callinan J emphasised the need for the requisite degree of particularity of the object or objects of the provision, saying at :
If attention were not paid to the compound nature of an exclusionary provision, and the requirement of particularity of its object or objects, there is a danger that s 4D would be given an operation that would greatly reduce the statutory significance of lessening competition, in relation to agreements between competitors generally. Contracts, arrangements or understandings between competitors commonly involve some form of prevention, restriction or limitation of supply or acquisition of goods or services. If two hairdressers in a suburban main street were to have an understanding that one would provide services to men, and one would provide services to women, it may be unlikely that their understanding would involve a substantial lessening of competition in a market. It would be surprising if it were held, nevertheless, to contravene the Act. To the extent to which it had an anti-competitive purpose, that purpose would not be "directed toward" particular persons or classes of persons.
53 Whilst Gleeson CJ and Callinan J agreed with Gummow, Hayne and Heydon JJ that there was sufficient particularity in that case, their Honours said the following at  and  about the purpose of preventing , restricting or limiting supply or acquisition:
We agree with Gummow, Hayne and Heydon JJ that there was sufficient particularity in the present case, but we can think of other cases in which it would be absent, notwithstanding the existence of a purpose of preventing, restricting, or limiting supply or acquisition. If it were not so, the references to particular persons or classes of persons would be redundant.
… In its original form, the proscribed purpose was of preventing, restricting or limiting supply to or acquisition from particular persons. The words "or classes of persons" were added in 1986, following some decisions that were thought to reveal an undue narrowness in the legislation in its original form. Those words were clearly intended to widen the provision, but not to change its entire character. The proscribed purpose must still be one that is directed toward particular persons or classes of persons. Parliament did not delete the word "particular" and substitute the word "any". Nor did it remove all reference to persons as objects of the proscribed purpose. The legislative history, as well as the text, tends strongly against a reading of the section which requires only that a provision of a contract, arrangement or understanding has the purpose of preventing, restricting or limiting, in any way, supply or acquisition. Supply or acquisition will always be to or from persons. Ordinary principles of construction require that the references to particular persons or classes of persons be given work to do; they are not mere drafting verbosity. A court construing a provision in an Act "must strive to give meaning to every word of the provision". A court will seek to avoid a construction of a statute that renders some of its language otiose. Here, that consideration is powerfully reinforced by the legislative history, which shows that the reference to particular persons was originally an essential feature of s 4D, and that the addition of the reference to classes was intended to expand it, not to make it superfluous.
54 The relevant facts of Rural Press were that senior officers of two companies publishing country newspapers agreed that one company, which had extended its circulation and advertising into the other’s traditional catchment area, would withdraw from that area in exchange for the second company not, itself, extending its coverage into the first company’s traditional area. There was found to be sufficient particularity of purpose for the engagement of s 4D. The persons who were deprived of the opportunity of acquisition of services from the first company were readers and advertisers in the Mannum area of South Australia. What follows should be read with the recognition that there was a tolerably clear geographical boundary within which one found the readers and advertisers in question. Gummow J, Hayne J and Heydon J said at :
The Full Federal Court's reasoning concentrates too narrowly on the purpose of preventing Waikerie Printing selling papers to readers and space to advertisers, and not enough on the correlative -- the purpose of preventing readers buying papers and advertisers buying space from Waikerie Printing. The relationship between a buyer and a seller is not merely symbiotic. The link is inextricable. A supply by sale is an acquisition by purchase. There cannot be a seller without a buyer. There cannot be a supplier without an acquirer. There cannot be supply without acquisition. If one's purpose is to prevent the supply of services, an inevitable part of that purpose is to prevent the acquisition of those services by the person or persons to be supplied. Thus when the Full Federal Court accepted the trial judge's finding that the purpose of Rural Press and Bridge was to maintain their market power in Murray Bridge by preserving absence of competition in that market, it was accepting that their purpose was to maintain their market power in Murray Bridge by ensuring that the Standardwould be the only paper and that readers and advertisers would not enjoy the services of the River News. The purpose of maintaining market power was indistinguishable from the purpose of preventing supply of certain services to, and acquisition of those services by, readers and advertisers. Acquisition of those services by readers and advertisers from the River News was inconsistent with the prevention of supply by the River News. It was not possible for the Rural Press parties consistently to say both that they had a purpose of preventing the River News from supplying services to readers and advertisers and also that they did not have a purpose of preventing readers and advertisers from acquiring services from the River News. "You could not have one without the other, however much you protested that you did not really want the other."
55 Gummow J, Hayne J and Heydon J also emphasised that there is no requirement of “aiming at” or “targeting” anyone, to the extent that it might be seen as carrying notions of animus or intended harm: Rural Press (HC) at  citing Gummow J in News Ltd v South Sydney District Rugby League Football Club Ltd (2003)215 CLR 563 (“Souths”) at -. Dealing with the facts before them, Gummow J, Hayne J and Heydon J said the following at :
The purpose of the provision in this case was "directed towards" the readers and advertisers in the Mannum area because it was a purpose of maintaining the market power of the Rural Press parties in that area by limiting the supply of services to the readers and advertisers through causing the circulation of the River News to their advantage to cease. The readers and advertisers were objects, "on, or about whom" that purpose operated.
56 The particularity of purpose in Rural Press as found by the trial judge was as follows (set out at 216 CLR at ):
preventing or restricting or limiting the supply of services to the particular class or classes of persons, being those in the Mannum area (or in that area and extending to a [line] about 40 km north of Mannum) who could otherwise receive the information and news in the River News or who could otherwise advertise in the River News or take advantage of advertising in the River News.
57 Gummow J, Hayne J and Heydon J said the following at  and  as to the adequacy of this particularity:
The purpose found by the trial judge is entirely consistent with the evidence, particularly the internal records of and the conduct of the Rural Press parties. In the circumstances it is sufficient to say that the trial judge adequately defined a class: even though the identity of all of its members at any one time might not be readily ascertainable, s 4D does not require that. Even if s 4D does require that, it would be possible to draw up a list of advertisers who had used the River News, and that would be a sufficient class to render the provision an exclusionary provision. It would also be possible to draw up a list, though perhaps an incomplete list, of readers of the River News. The Commission's contentions cannot be dismissed by reason of issues on which such limited argument was offered.
The same is true of the question, which had a faint presence in argument, of whether it is erroneous to define a particular class by the fact of its exclusion from supply or acquisition. In ASX Operations Pty Ltd v Pont Data Australia Pty Ltd [No 1] there is a passage which some have alleged to rest on an error of this kind. In this case no argument was directed in this Court to the question; the Full Federal Court came to no view about it; and News Ltd v South Sydney District Rugby League Football Club Ltd did not overrule the case in that respect and only one member of this Court criticised it. In any event, to define a particular class by reference to its geographical location is not to define it by the fact of its exclusion from supply or acquisition, because it is identified at the time of the arrangement and indeed identifiable before that time.
58 The passage in ASX Operations Pty Ltd v Pont Data Australia Pty Ltd (No1) (1990) 27 FCR 460 (“Pont Data”) at 488 referred to by Gummow J, Hayne J and Heydon J was as follows:
[The persons or classes excluded] … are identified … by the characteristic that they may not be supplied with the information in question, unless they accept and become bound by the restraint imposed by the [relevant] agreement] … What distinguishes the class and makes it particular is that its members are objects of an anti-competitive purpose, with which s 4D is concerned.
59 This can be said to permit the identification of the particular persons or classes of person by reference to the operation of the provision. As Gummow J, Hayne J and Heydon J show in footnote 132 in Rural Press (HC), whilst Callinan J in Souths expressed opposition to such an operation of s 4D, Gummow J, with whom McHugh J agreed, did not, and, indeed cited this passage in Souths. Neither Gleeson CJ nor Kirby J in Souths referred to the passage in question from Pont Data.
60 It can be seen from the judgment of Gummow J, Hayne J and Heydon J as well as that of Gleeson CJ and Callinan J that there was a sufficient degree of particularity in Rural Press (HC) for the operation of s 4D. It was not a particularity derived from an a priori process of reasoning or definition. It was founded on a distinct geographical area and, to some degree, the ability to identify people within that locality who fitted the description of readers of, or advertisers in, a newspaper that had been, and was otherwise intended to be, sold in that locality.
61 It is now clear from the High Court’s decision in Souths that the purpose referred to in s 4D (notwithstanding that it is the purpose of the provision) is a subjective purpose requiring an examination of the subjective purposes of the parties to the relevant contract, arrangement or understanding.
62 In Pont Data the Full Court said at 476 and 477 about s 4F:
s 4F uses the words ‘the provision was included in the contract … for that purpose or for purposes that included or include that purpose’. This indicates that s 4F, in this operation, requires one to look to the purposes of the individuals by whom the provision was included …
…it is therefore appropriate to look at the purposes of the party as a result of whose efforts they were included
63 In Souths, Gleeson CJ said at  that it was the subjective purpose of “News and ARL in including the fourteen team … that is to be determined.” His Honour referred with approval to Pont Data at 474-77 as to this point. McHugh J at  concurred with the view that it was the subjective purpose of the makers of the provision. In so doing he gave weight to the body of Full Federal Court authority, including implicitly, Pont Data. Gummow J at  specifically cited Pont Data at 476 and said that s 4F required examination of the purposes of the individuals by whom the provision was included and noted that the “substantial purpose” test avoids difficulties in discerning the relevant purpose of multiple parties to a contract, arrangement or understanding. Callinan J at  referred to the parties’ subjective reason for the inclusion of the provision in the contract, arrangement or understanding and in so stating referred specifically to, amongst other cases, Pont Data at 474-77.
64 The Commission’s case was that in each case Woolworths and Liquorland were parties to the contract, arrangement or understanding. Each was competitive with the other in relation to the supply of take-away packaged liquor. This satisfied s 4D(1)(a) of the Act. It was also said that each licence applicant was likely to be competitive with Woolworths and Liquorland in the supply of takeaway packaged liquor, but for the provisions in question, for the purposes of s 4D(2) and thereby s 4D(1)(a).
65 The Commission also asserted that the purpose of the provisions in the deeds was to prevent, restrict or limit the supply of takeaway packaged liquor by the licence applicants to one or more of the following classes of persons: (a) customers and potential customers of the licence applicants and (b) customers and potential customers of each Woolworths and Liquorland bottle shop in the vicinity. It was unnecessary to be able to identify the individual members of the class. It was capable of being a “future” class, which was identifiable at the time of the making of the contract, arrangement or understanding. The legitimacy of this element of possible futurity was assisted, it was said, by the terms of s 4D(2) which identifies a future or contingent state of affairs. Section 4D(1) should, it was said, be given a construction conformable with the future, contingent aspects of the section’s possible operation in relation to contracts, arrangements or understandings.
66 The subjective purpose of the provisions was that of the parties (Woolworths and Liquorland) who had required them. Their purpose, it was said, was the prescribed purpose in s 4D.
67 Importantly, also, the Commission submitted that while the purpose contemplated by s 4D is the preventing, restricting or limiting of supply or acquisition of goods or services, that did not mean that the provision in question must, in terms, deal with preventing, restricting or limiting supply or acquisition. The section does not, it was said, prescribe any way that the purpose may be manifested.
68 Whilst Woolworths conceded that it and Liquorland were competitive with each other in the supply of takeaway packaged liquor, it denied that each licence applicant was likely to be competitive with Woolworths or Liquorland at the time of the entry into the deed. It is not clear what significance this dispute has, given the concession first referred to. It is unnecessary to set this submission out in full here. One element of it is, however, important to note: the necessity for temporal precision in assessing likely competition. It must be asked, it was said, at the time of entry into the deed (that is after the negotiation concerning the deed) whether, but for the deed and entry into the deed, the applicant would have obtained an unrestricted licence. This does not permit, it was said, the analysis to slide into one posed by a different and inappropriate question – whether, but for the objection, each applicant would have obtained an unrestricted licence.
69 Related to the question whether, but for the relevant provision of the deed, the applicant would have obtained an unrestricted licence, were other factual questions about the capacity of the licence applicants to compete with Woolworths or Liquorland, and the intentions and wherewithal of the applicants.
70 It was submitted that the ascertainment of purpose required a two-step process which was described as follows in written submissions:
(a) identification of the purpose or purposes of each of the parties to the contract;
(b) determining which of those purposes constitutes the substantial purpose.
71 Importantly, it was submitted that unless the Commission proved the purpose of each of the parties to the deeds it must lose this part of the case. That is so, it was said, because without it the second stage in (b) cannot be undertaken. Pont Data was said to be irrelevant to this case because no party entered the deed under protest or complaint. That being so, it was said, it was necessary to consider the purposes of all the parties to the deed.
72 Turning to the purposes of the parties in including the provision, Woolworths submitted that the Commission confused the purpose of the provision with the purpose of lodging the objection and failed to understand the effect of the Liquor Act on unlicensed persons. At the time of the execution of the deed, the purpose of Woolworths was not to prevent the issue of an unconditional licence, because by that time, to Woolworths’ knowledge, each applicant was not seeking an unconditional licence.
73 Further, it was submitted that even if Woolworths’ purpose in entering the contract was to prevent the issue of an unconditional licence that was not a purpose of limiting supply to particular persons or classes of persons. This was so because at the time of execution of the deeds the licence applicants had no lawful entitlement to supply the goods to which the provision related. Such an existing, lawful entitlement was, it was said, a necessary precondition for the engagement of s 4D. At the time of the entry into the deeds, the licence applicants were prohibited by the Liquor Act from selling takeaway packaged liquor. Also, as to Palms Village, the provision did not prevent, restrict or limit the supply of any takeaway liquor, because the restrictions were as to stocking, site and configuration of the shop. There was, it was said, no relevant prevention, limitation or restriction on sale to any particular person or class of person.
74 Next, it was said that there was an inadequacy in the particularity of the object of the provision – the particular persons or classes of persons. It was said that the class must be capable of being determined at the time the contract is entered into, even if at any one time the identity of all those in the class is not readily ascertainable. Here, it was said, there was, at most, the purpose of excluding supply of goods to some unidentified potential group of customers. There was, no characteristic by reference to which the customers could be described as “particular” objects of any purpose at all (to paraphrase Gleeson CJ in Souths at ). The dictum of Callinan J in Souths at  that the class must bear a characteristic beyond that of exclusion itself was to be borne in mind.
75 The inability of the licence applicant to supply liquor at the time of the execution of the deed was also said to go to the conclusion that there could be no class. The past and future customers of Woolworths, and Liquorland and the future customers of the licence applicant was said to lack the requisite particularity.
76 Woolworths also submitted that to the extent that it be found that a relevant purpose of the provision was to prevent the licence applicant changing his or her business in the future by amending the conditions attached to the licence, s 4D was not engaged for a number of reasons: (a) because Woolworths, Liquorland and the licence applicant were not competitive in the acquisition or supply of licences; (b) because the provision related not to the supply or acquisition of goods, but to applications to the Licensing Court; (c) because such a purpose was not directed to particular persons or classes of persons; (d) to the extent that such a future changed business under different licence conditions was to be conducted by an assignee of the licence, s 4D(1)(b) would not be engaged because the purpose of the provision must be the relevant restriction in relation to a person or persons who is or are a party or parties to the agreement, arrangement or understanding.
77 Point (d) above was conceded by the Commission, although it asserted that it had not pleaded this point. As to (c), it was further submitted by Woolworths that a purpose of restricting a future unidentified business conducted by the licence applicant from the original premises or from different premises was not a purpose of preventing, limiting or restricting supply to particular persons or classes of persons because there was no intended class able to be identified. No factual basis could be posited for any change, no business plans existed, and there was no sufficient particularity to satisfy the section.
78 I do not propose, at this stage, to resolve the various aspects of these submissions which are in dispute. This is best approached in the context of concrete factual findings.
the purpose of substantially lessening competition case
79 Section 45(2)(a) of the Act is, relevantly, in the following terms:
A corporation shall not:
(a) make a contract or arrangement, or arrive at an understanding, if:
(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:
(ii) has the purpose, or has or is likely to have the effect, of substantially lessening competition.
80 No case was put based on the effect of the conduct. The only case was that Woolworths had the purpose of substantially lessening competition.
81 Section 45(3) of the Act contains the relevant definition of competition in this context. It is in the following terms:
For the purposes of this section and section 45A, competition, in relation to a provision of a contract, arrangement or understanding or of a proposed contract, arrangement or understanding, means competition in any market in which a corporation that is a party to the contract, arrangement or understanding or would be a party to the proposed contract, arrangement or understanding, or any body corporate related to such a corporation, supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the provision, supply or acquire, or be likely to supply or acquire, goods or services.
82 Section 4E of the Act also assists in the elucidation of the relevant concepts of the market. It is in the following terms:
For the purposes of this Act, unless the contrary intention appears, market means a market in Australia and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first-mentioned goods or services.
83 Of course, regard is to be paid to s 4F of the Act in this context also.
84 I will deal with the detailed and extensive debate on the extent of the market in due course. It is only necessary to say at this point that the analysis of what is to be concluded as the relevant market is to be assessed by reference to the context in which that question arises – the asserted purpose of Woolworths of substantially lessening competition. Reading s 45(2) and (3) relevantly together, the Act provides that:
A corporation shall not make a contract if a provision of the proposed contract has the purpose of substantially lessening competition in any market in which a corporation that is a party to the contract or would be a party to the proposed contract (or any body corporate related to such a corporation) supplies or acquires or is likely to supply or acquire goods or services, or would, but for the provision supply or acquire or be likely to supply or acquire goods or services.
85 Thus, the prohibition involves a subjective purpose concerning the basal economic concept around which this part of the Act works – the market. Thus, if it were the case that a party included a provision in a contract for the avowed purpose of substantially lessening, indeed stifling entirely, competition (using that word in its general English meaning, not by reference to s 45(3)) in a location or area which could not be said to be a market for the goods in question ascertained by relevant analysis, but with no other wider purpose, there may be no contravention of the Act. I will consider this in due course in examining the relationship between what Woolworths was seeking to achieve (its purpose) and how this relates to the ascertainment of the relevant market.
86 The notion of “substantial” or “substantially” has the sense of being meaningful or relevant to the competitive process: Rural Press (HC) at , which should be read in the context of what follows in Rural Press at  to . In particular, one should pay regard to the views and practices of those in the industry, including those engaged in the impugned conduct. Understanding why they were acting, and, through that, what they were seeking to achieve, may well illuminate the relevance to the operation of the competitive process. Gummow J, Hayne J and Heydon J described the following as a “fundamental” question in Rural Press (HC) at :
If [the Rural Press parties] had not seen the competitive impact of the River News as actually or potentially substantial, why did they fear it?
87 Of course, the notion of “lessening” is affected by s 4G of the Act which provides as follows:
For the purposes of this Act, references to the lessening of competition shall be read as including references to preventing or hindering competition.
88 In Australian Wool Innovation Ltd v Newkirk (2005) ATPR 42-053 at  Hely J said:
‘Prevents’ suggests a total cessation of dealings between the third person and the target; ‘hinders’ suggests that they have been made more difficult: J D Heydon, Trade Practices Law, Lawbook Co, Sydney, 2001 at [10.130]. ‘Hinder’, in the context of s 45D has received a broad construction, as in any way affecting to an appreciable extent the ease of the usual way of supplying or acquiring goods or services: Devenish v Jewel Food Stores Pty Ltd (1991) 172 CLR 32 at 45-46 (Mason CJ); Australian Builders’ Labourers’ Federated Union of Workers – Western Australian Branch v J-Corp Pty Ltd (1993) 42 FCR 452 at 460.
89 Synthesising the above, the Commission submitted that what must be established is the subjective purpose for including the relevant provision of substantially lessening, preventing or hindering competition in the relevant market in the sense of seeking to achieve an effect of lessening or hindering or preventing the process of competition that was meaningful or relevant. (To the extent that a difference might be seen in the formulations of a more or less demanding test of “substantial” by reference to the cases discussed by Gummow J, Hayne J and Heydon J in Rural Press (HC) at  at footnote 67 and to the arguments of counsel in Rural Press (HC) at 57 and 59-60, respectively, that is better dealt with in the context of the facts as found.)
90 The Commission stressed the difference between purpose and effect and submitted that a person may have the relevant purpose even if the effect cannot be achieved: Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission (2003) 131 FCR 529 at . Here, it was said that the direct evidence of the Woolworths witnesses, Mr Meagher and Mr Smith, make out this part of the case (together with the relevant market analysis). Part of that submission, as will be clear when I deal with the evidence, was the submission that the purpose of filing the objection cannot be divorced from the purpose of the relevant provisions in the contracts.
91 Woolworths emphasised the substantive nature of the required purpose – substantially to lessen competition, and distinguished this from intentional harm to competitors or protection of its own business: cf Boral Besser Masonry Ltd v Australian Competition and Consumer Commission (2003) 215 CLR 374 and Universal Music at 591.
92 Leaving aside the submissions on the market, to which I will come, Woolworths submitted that there had been an inadequate foundation in cross-examination of Messrs Meagher and Smith and that it was not open to conclude on the evidence that either had the relevant purpose in respect of the relevant provisions or in respect of the giving effect to the relevant provisions. It was submitted that the cross-examiner did not squarely put relevant issues to Mr Smith and Mr Meagher, in particular the purposes of any provision in the deeds to prevent, limit or restrict supply of the sale of liquor to any persons, whether they be actual or potential customers of Woolworths or of any other liquor seller and to substantially lessen competition in the relevant market. I disagree. Mr Yates cross-examined Mr Smith and Mr Meagher fairly about what their intentions and purposes were in the transactions. Cross-examination took place in the language of human discourse. It was not necessary, although it could have been done, to put the exact words of the Act. It is for the Court to characterise the purpose from the evidence given. See generally Rural Press (HC) at  and Rural Press (FC) at .
Ettamogah – the underlying facts
93 The Ettamogah group of companies operated what were referred to as “themed” hotels and restaurants using the work of a cartoonist and artist, Mr Ken Maynard. The group had a number of licensed premises in Western Australia, New South Wales and Queensland. Mr Leigh O’Brien was the controller of the group and of the relevant company concerned with the relevant events (Ettamogah Pub (Campbelltown) Pty Ltd). He was an experienced and competent businessman, who had undertaken objections under the Liquor Act to the licence applications of others in connection with one or more of the group’s licensed establishments.
94 Before setting out my findings in relation to this episode, I must begin by saying that Mr O’Brien was a less than impressive witness. His evidence was, in important respects, confused and contradictory. At times, I gained the impression that he was unconcerned with any attention to the accuracy of what he was saying. It was difficult to identify at times whether he was being deliberately untruthful. It is sufficient to say that I approach his evidence, including his prepared statements, with considerable caution.
95 It is necessary to understand what the evidence reveals about the actions and purposes of Woolworths. Mr Tony Schwartz was the retained solicitor for Woolworths. Mr Anthony Smith was the officer of Woolworths who made all relevant decisions. He occupied the position of Licensing and Development Manager at the time. There was no issue in the proceedings that he was the relevant mind of Woolworths in assessing “purpose” under s 45 in respect of this episode. Mr Smith joined Woolworths in 1989 and had occupied various positions in connection with the liquor business of Woolworths. Mr Smith had worked in the liquor industry since 1979.
96 In early 1998, Mr O’Brien identified the possibility of opening an Ettamogah-themed restaurant and pub at Campbelltown and, in particular, within Macarthur Square Shopping Centre in Campbelltown. Mr O’Brien considered the proposal to be a good business opportunity because of the growth of the area and the location of the Macarthur Square Shopping Centre. He commenced discussions with the manager of the shopping centre (Lend Lease) and negotiated a 10-year lease commencing on 1 March 1999. The lease was entered into on 20 July 1998.
97 Mr O’Brien’s intentions in relation to the Campbelltown establishment are important. He intended that the Ettamogah establishment at Campbelltown (to which I will refer as “Ettamogah” or the “Ettamogah Pub”) would operate as a themed bar and restaurant and would also sell takeaway liquor to customers upon request. In his statement (Exhibit B) he said that sales of takeaway liquor would not only be of “themed” liquor but also other packaged liquor; he also said that he intended establishing a bottle shop, though not immediately. He was cross-examined at some length about these intentions. Looking at all of the evidence, I conclude that Mr O’Brien desired maximum flexibility of action and that he intended to be able to sell not only themed liquor over the counter, but also other liquor, should the demand for it exist. He also had the intention, as a possibility, depending upon the development and success of the business, to put a bottle shop on the premises. To the extent he gave instructions to his solicitors to the contrary, I find that he was attempting to mislead Woolworths and Liquorland into believing that his intentions were different from what they in fact were in order that Woolworths’ and Liquorland’s opposition might lessen. I am prepared to accept that Mr O’Brien wished to develop the establishment and its goodwill before considering the placement of a bottle shop. The other Ettamogah establishments had facilities for selling takeaway liquor.
98 Mr O’Brien’s aim was to seek an unrestricted hotelier’s licence rather than a restaurant licence, because an hotelier’s licence was more closely aligned with the type of business he intended to run. His understanding was that an unrestricted hotelier’s licence would allow the sale of takeaway liquor from the premises. I accept that some planning and consideration was given to a possible bottle shop. I find that Mr O’Brien was alive to the need not to appear threatening to other liquor outlets in the area (such as Woolworths and Liquorland). Though it is unnecessary to conclude, it is likely that such consideration affected a decision which was made not to include the bottle shop in his original plans for approval by Council.
99 After negotiations commencing in February 1998, on 20 July 1998, Ettamogah Pub (Campbelltown) Pty Ltd executed a 10 year lease with Australian Prime Property Fund Custodian Pty Limited and MLC Properties Pty Limited from 1 March 1999. The use of the Campbelltown premises was described in the lease as a “theme bar and restaurant and retail sale of theme merchandise.” On its face, this might be seen as wide enough to sell liquor (themed or not) over the counter in the running of a “theme bar”. In cross-examination, Mr O’Brien accepted, however, that he had no consent of the landlord to sell non-themed liquor over the bar. In any event, an amendment or express permission may have been required to operate a bottle shop. The development consent obtained from Campbelltown City Council was based on drawings which did not include a bottle shop. Further development consent was required before any bottle shop could operate. The development consent initially obtained limited the hours of operation from 10 am to 12 midnight, Monday to Sunday. These hours were later extended to permit the running of a night club after midnight.
100 It appears clear that Mr O’Brien had not asked the landlord for permission to sell non-themed takeaway liquor from the premises. I am unpersuaded, however, that that undermines Mr O’Brien’s evidence that he always intended to sell such non-themed takeaway liquor. Running a “theme bar” with an hotelier’s licence could reasonably be expected to encompass bar sales over the counter. That Mr O’Brien did intend to sell non-themed takeaway liquor, though perhaps only to avoid confrontation with customers, can be seen in his letter to Lend Lease in November 1998.
101 Also, I am not prepared to conclude that Lend Lease had refused permission for a bottle shop in those early discussions.
102 Woolworths submitted that I should find that Mr O’Brien had no firm intention of selling liquor, other than Ettamogah-themed liquor, over the bar at the premises before the deed was executed. I do not do so. He did have that intention; although the extent of what that sale would be was not clear. He appears to have told his solicitor in about May 1998 that it was his intention to sell a limited amount of packaged liquor only. Plainly bar sales would not occur during hours of operation of the nightclub. However, there was good commercial reason to think that takeaway sales over the counter would be a useful adjunct to the sale of themed liquor, even though its margin would be less.
103 Mr O’Brien also intended, at least as a possibility, that a bottle shop would be established. No relevant approvals had been sought; but I accept that it was an alternative that Mr O’Brien contemplated for the future.
104 Meanwhile, the liquor licence was being attended to. Shortly prior to 9 March 1998, Mr O’Brien approached T E Rummery & Partners for advice on the obtaining of an hotelier’s licence. The firm specialised in liquor licensing. On 15 April 1998, an application was made for such a licence for the premises by an employee of a company in the Ettamogah group.
105 Mr O’Brien said that at the time of the application he did not anticipate any objections. I have difficulty with this evidence. He was a businessman experienced in running liquor outlets. He had objected to the applications of others in the past. The advice of Mr Gallagher from T E Rummery & Partners referred to the objection process. I doubt that the objections that were made to the application came entirely as a surprise to him. However, I am prepared to accept that Mr O’Brien underestimated the resolution that was shown by Woolworths and Liquorland, or that he overestimated his capacity to deal with any objections.
106 In late May 1998, Mr O’Brien became aware of objections. On 25 May 1998, Mr Schwartz spoke to Mr Sean Gallagher of T E Rummery & Partners at the Licensing Court, which conversation Mr Schwartz relayed to Mr Smith at Woolworths by letter on the following day, in the following terms:
[The solicitor for the applicant] advised it was not their intention to sell packaged liquor for consumption off the premises, other than a particular brand of liquor which is sold in bottles as part of the marketing of the premises and is currently being sold at their Darling Harbour premises.
107 Mr Smith said in his statement (Exh 10) that from this letter he understood that the Ettamogah applicant wished to operate an hotelier’s licence primarily to carry on an Ettamogah-themed establishment and to concentrate on providing meals, entertainment, gaming, dining, on-premises liquor consumption and sale of themed takeaway liquor. I accept that evidence. Mr Smith began his consideration of the application with this understanding. On 1 June 1998, shortly after receiving this letter from Mr Schwartz, Mr Smith visited the site. He noticed that it was “very close” to Woolworths’ liquor store in the Macarthur Square Shopping Centre and also proximate to Woolworths’ “Mac’s Liquor Store” nearby. The geographic proximity “was of concern to” Mr Smith. However, at this time, with the belief he had about the nature and extent of the intended business by the Ettamogah applicant, he saw “no threat to the value of Woolworths’ licences [being the two Woolworths liquor outlets immediately proximate to the Ettamogah site]”.
108 On 26 May 1998, Mr Schwartz sent Mr Gallagher a letter in the following terms:
I refer to … to our recent discussions at the Licensing Court and confirm that I act on behalf of Woolworths Limited the owner and operator of two off-licences (retail) at Campbelltown.
I note that it is your client’s intention to only sell a limited product of packaged liquor for consumption off the premises and accordingly I would appreciate receipt of a copy of your Application and support Affidavits so that I can obtain some instructions from my client as to their involvement in these proceedings or otherwise.
109 No doubt Mr Gallagher understood from his instructions what he told Mr Schwartz as recounted in Mr Schwartz’s letter. By way of likely clarification, on 9 June, Mr Gallagher wrote to Mr O’Brien saying the following:
Please advise us whether it is your intention to limit take away sales to the gift/novelty lines which are currently sold from Darling Harbour, we shall then contract Macs’ solicitors. [sic]
110 Mr O’Brien gave evidence that he told Mr Gallagher, in answer to this letter, that it was not his intention to sell takeaway liquor at the premises other than themed liquor. Early during his oral evidence Mr O’Brien said in an answer to me that this was not a true statement of his intention. After some cross-examination on this in which Mr O’Brien appeared to feign confusion, he withdrew this evidence and then reinstated it. I think the truth was reflected by some of his evidence late in this part of the cross-examination: he was seeking to tell Woolworths what “they wanted to hear, hoping they would go away”. Through Mr Gallagher (on his part, no doubt, unwittingly) Mr O’Brien was telling a lie to Woolworths, or, as he put it, “bending the truth”. This conduct, whilst meriting criticism, was consistent with Mr O’Brien seeking to obtain an unconditional licence which would permit him maximum flexibility in the business as it developed. As I said, I do not accept that the objections came as a surprise to him. One way of attempting to deal with the objectors was to lie to them by giving his solicitor incorrect instructions, hoping that they would “go away” or be less thorough or determined in their objections than they otherwise might have been.
111 On 25 June 1998, after taking instructions from Mr O’Brien, Mr Gallagher wrote to Mr Schwartz in the following terms:
We confirm our instructions that it is our client’s intention to operate in the same manner as its Darling Harbour operation which is:-
1. not to operate a separate bottle shop/take-away facility;
2. only to display and promote the proprietary labelled products (ie “Strewth” Lager and Ettamogah Wine) for sale through the Ettamogah merchandising stall which predominantly sells clothing and novelty items in accordance with the themed nature of the premises;
3. there will be no discounting of products for off-sales; and
4. our client will be catering for the entertainment and hospitality market attracted to the site by the adjacent movie theatres and will not target persons shopping at Macarthur Square.
112 Unassisted by the evidence, I do not read this letter as an unequivocal statement that no liquor other than themed liquor would be sold over the counter. The paragraph numbered 2 in this letter contained a promise concerned with the display and promotion (not sale) of product. But Mr O’Brien did say in oral evidence that he told Mr Gallagher that would be the position. Whilst Mr O’Brien’s concession in this regard was clear, the whole of his evidence was unreliable in terms of precision. I think that it is safe to conclude that Mr Gallagher’s instructions were accurately recorded by him in this letter, leaving an ambiguity inherent within paragraph 2. In the witness box, Mr O’Brien, however, unequivocally accepted that paragraph 2 of the letter conveyed the statement that it was not his intention to sell takeaway liquor other than themed liquor. It is not irrelevant to appreciate that Mr Smith understood this letter as conveying that takeaway liquor other than themed liquor would not be sold. Mr Smith’s understanding was, however, in the context of what he had been told previously on the issue by Mr Schwartz.
113 This issue is not easy to resolve. However, overall, I think it is explicable by recognising that Mr O’Brien did tell Mr Gallagher that they would only be selling themed takeaway liquor. There may have been hedging by Mr O’Brien about that. Mr Gallagher wrote the letter he did, but also spoke to Mr Schwartz who communicated with Mr Smith. Mr Schwartz said that his belief at the time based on the 25 June 1998 letter and conversation with Mr Gallagher was that only themed products would be sold as takeaway liquor. The impression created by the communications was that no takeaway liquor, other than themed liquor, would be sold. This reflects the deliberate attempt by Mr O’Brien to lull Woolworths into not pressing their objection.
114 Mr Smith said that he read the letter of 25 June 1998, when it was sent to him by Mr Schwartz on 30 June 1998, with a mindset that came from Mr Schwartz’s letter to him of 26 May 1998: that is, that the applicant did not want to sell packaged takeaway liquor, other than themed liquor. He was cross-examined about this. I accept this evidence. Given the degree of ambiguity in the letter of 25 June 1998 and the statement of Mr Schwartz in his May letter (written after he had spoken to Mr Gallagher) it is reasonable for Mr Smith to have read the letter of 25 June 1998 in this way.
115 On 30 June 1998, Mr Schwartz wrote to Mr Gallagher stating:
In order that we may obtain … instructions as quickly as possible we would appreciate if you would forward to us a set of draft conditions which your client will be prepared to have endorsed upon the licence and we suggest that one of those conditions include the usual notification be given to Woolworths Limited say at either their head office or our firm’s office at least 14 days before the Application is lodged. Alternatively we could enter into a Deed which would require the relevant conditions to be endorsed upon the licence together with notification being provided to our client and/or our office.
116 This letter can be seen as contemporaneous evidence of the use between experienced practitioners of a deed providing for conditions on the licence being applied for.
117 On or about 13 July 1998, Mr Schwartz had a conversation with Mr Gallagher at the Licensing Court. Mr Schwartz said that Mr Gallagher was an experienced licensing lawyer who was, to Mr Schwartz’s knowledge, familiar with the practice of using conditions and deeds in order to resolve objections. I accept that evidence. Whilst Mr Schwartz could not recall the precise substance of the conversation with Mr Gallagher, on 13 July 1998 Mr Schwartz wrote to Mr Smith at Woolworths and stated as follows:
I note that the solicitors acting for the Applicant are in the process of preparing some conditions for your consideration which they would consent to being imposed upon the licence limiting the sale of takeaway packaged liquor to particular types of promotional brands under the Hotel’s name.
118 On 30 July 1998, Mr O’Brien sent a letter to Mr Gallagher in the following terms:
Please advise that we will not be promoting bottle shop sales, we will do them upon request only.
We are not prepared to sign any documents that would put conditions on our licence.
If they are using this as a stalling tactic we will be looking to claim costs.
119 On 6 August 1998, Mr Gallagher wrote to Mr Schwartz stating:
Our client is not prepared to submit to conditions upon the proposed licence.
Our client confirms it’s [sic] intended mode of operation at Campbelltown as detailed in our letter to you of 25 June 1998, and particularly that bottle sales will not be promoted but made upon request only.
To the extent that this letter referred to “bottle sales” by reference to paragraph 2 of the letter of 25 June 1998, it tended to confirm the wider meaning of that letter accepted by Mr O’Brien in his cross-examination. Nevertheless, the correspondence carried with it a certain ambiguity.
120 This letter made Mr Smith aware, whatever his belief was about the intended business, that the applicant did not wish to submit to conditions on the licence – that is, an unconditional licence was to be sought. Mr Smith said in his statement that at the time of reading the letter of T E Rummery of 6 August, he was of the view that if an unrestricted licence was sought, Woolworths would be successful in its opposition to it on the basis of an inability of the applicant to satisfy the needs test in relation to the neighbourhood. Mr Smith said in cross-examination that he saw the letter of 6 August 1998 as a change of position in relation to the intentions in respect of Ettamogah and an apparent refusal to submit to limiting conditions. He conceded that it was clear, at least from 6 August, that Mr O’Brien did not want to submit to conditions.
121 In this context, the objection by Woolworths was pressed.
122 On 7 August 1998, Mr Schwartz sent Mr Gallagher the objection and affidavit in support. The interest of Woolworths was described in Mr Smith’s affidavit in support of the objection as follows:
Woolworths Limited and myself as Liquor Licensing and Development Manager have a direct and indirect pecuniary interest in the refusal of the Application. Woolworths Limited owns and operates Mac’s Liquor stores 106 Lindsay Street Campbelltown Licence Serial Number: 355603 and within a Woolworths supermarket at the Cnr Gilchrist Drive and Kellicar Street Campbelltown Licence Serial Number: 353031.
123 On 10 August 1998, there was a directions hearing at the Licensing Court. Mr Anthony Hatzis, an in-house solicitor at Liquorland, appeared in addition to Mr Gallagher and Mr Schwartz. The matter was adjourned for a week. Mr Hatzis agreed (it is not clear with whom – Mr Schwartz or Mr Schwartz and Mr Gallagher) to submit a deed to them containing conditions satisfactory to Liquorland. On the same day, Mr Schwartz sent Mr Hatzis a copy of Woolworths’ objection documents. Mr Smith said in his statement that he recalled that at this time the parties entered negotiations to see if the litigation could be settled. I accept this evidence.
124 Mr Smith said in his statement that over the course of the negotiations from August he understood that the applicant intended to operate its business in the manner set out in the 25 June letter. I do not accept this evidence unqualified. No doubt, the intention set out in that letter was relevant to Mr Smith’s state of belief. But it became apparent to Mr Smith during the course of negotiations that Mr O’Brien wished to sell non-themed packaged liquor on the premises for consumption off the premises. That was the very possibility Mr Smith feared as potentially damaging to the value of Woolworths’ business in and near the shopping centre (because of its competitive effect). He was adamant in his instructions that there would be no withdrawal of the objection if Ettamogah sought to be allowed to carry on business under the licence in that fashion. I reject his evidence to the extent that he sought to put forward the position that he only ever put forward conditions on the licence conformable with the limits of business that he understood Mr O’Brien wanted to pursue. That may have been the initial position, but the course of events up to and including November 1998 made it clear to Mr Smith that Mr O’Brien wanted greater freedom under the licence (specifically, to sell non-themed takeaway packaged liquor) than he, Mr Smith, was prepared to tolerate.
125 On 12 August 1998, Mr Hatzis sent Mr Schwartz a draft deed that he proposed to send to Mr Gallagher. The following day, 13 August 1998, Mr Schwartz sought Mr Smith’s views on it. On 13 August, Mr Hatzis sent this draft to Mr Gallagher, saying that it was in a form suitable to Woolworths and Liquorland. This was done with the knowledge and consent of Mr Smith. The letter of Mr Hatzis to Mr Gallagher stated, amongst other things:
I enclose a Deed in a form that is acceptable to Liquorland and Woolworths. My instructions are that if the applicant and the company which will own the licence agree to enter into the Deed in the terms set out in the draft, and conditions are imposed on the grant of the licence in accordance with the conditions set out in the deed, then the objections will not be pursued.
126 The enclosed draft deed, which was the draft prepared by Mr Hatzis and varied after consultation with Mr Schwartz, was between the (employed) licence applicant, an unnamed company, Woolworths and Liquorland. It provided, relevantly, as follows:
1. In consideration of the Objectors agreeing not to press their objection, the Licensee and the Company jointly and severally agree to conduct business from the Licensed Premises in conformity with the conditions set forth below and also agree to request that the Court impose the following conditions on the Licence:
1.1. Except for the liquor described in Clause 1.4 hereof no liquor shall be sold or supplied for removal away from the licensed premises or for consumption off the licensed premises.
1.2. Except for the liquor described in Clause 1.4 hereof, the licensee shall not permit any customer to attend on the licensed premises to make purchases of or to collect any liquor for consumption off the licensed premises.
1.3. The licensee shall not deliver or cause to be delivered liquor at a place other than the licensed premises.
1.4. The licensee may only sell the following for consumption off the licensed premises:
(i) beer sold as “Ettamogah” beer under the “Ettamogah” label
(ii) wine sold as “…………” wine under the “…………” label.
1.5. No application shall be made to amend, revoke or vary these conditions unless the Objectors shall each have first been served with a copy of the application at their then principal place of business or registered office at least 14 days before the application is lodged with the Court or Liquor Administration Board.
2. The Licensee and the Company jointly and severally agree that they will not cause to be made or allowed [sic] to be made any application for amendment, revocation or variation of these conditions.
3. The Licensee and the Company jointly and severally agree that in the event that the Licence is transferred to any other party, they will procure that that party enters into a Deed with the Objector containing like stipulations and conditions to those contained in this Deed.
127 On the same day, 13 August 1998, Mr Schwartz made clear Woolworths’ position by letter to Mr Gallagher that it required a deed to be signed. This reflected Mr Smith’s written instructions to Mr Schwartz that conditions were to be imposed on the licence notwithstanding the statements of intent in Mr Gallagher’s letter of 6 August 1998.
128 On 13 August 1998, Mr O’Brien sent a somewhat blustering facsimile to Mr Hatzis, which Mr Hatzis sent to Mr Schwartz. It was in the following terms:
Further to your fax dated 13th August 1998 to T. E. Rummery & Partners I have decided to answer this myself to clear up this apparent confusion.
I am surprised by your company’s attitude towards our project.
As you will see by the attached media release, the NSW Government Treasurers [sic] Department is very supportive of what we are doing. We have also had approval from Campbelltown City Council and the Licensing Police.
As a result of this press release we have been requested to provide interviews to the media in whom we will let it be known that a large company such as yours is trying to inhibit an Australian icon.
If you would take the time to inspect our project, we do not have a bottle shop in our plans and intend for take away sales to be by customer request only. There is no profit in take away sales for our company.
Our business plan and animated cartoon is to be presented to the Liquor Administration Board on the day of the hearing in which you will see the means to our product [sic].
If you were serious in your objection to our to [sic] project you would have made the same objection to the recent establishment of another hotel in the area.
As you can see this letter is written without prejudice as we have nothing to hide.
129 The letter did not indicate any restriction of takeaway sales over the counter, though it did note the lack of a bottle shop in the plans. It was an attempt by Mr O’Brien to have the business appear as non-competitive with Liquorland whilst assuming a degree of wounded surprise at Liqourland’s conduct.
130 On 18 August 1998, the matter was mentioned in the Licensing Court. A timetable for evidence was set down culminating in a hearing in mid-November 1998. Discussions took place between Messrs Gallagher, Schwartz and Hatzis. From the correspondence, it is apparent that Mr Gallagher said that he would speak to Mr O’Brien about the deed.
131 Mr O’Brien had the opportunity to consult with Mr Gallagher and, no doubt such consultation occurred. On 16 September 1998, Mr Gallagher wrote to Liquorland offering to settle the objection by entry into a deed that was enclosed. The deed was different in form to that which had come from Mr Hatzis. It offered the following terms:
1. In consideration of the Objectors agreeing not to press their objections, the Licensee and the Company jointly and severally agree to conduct business from the Licensed Premises in conformity with the conditions set forth below and also agree to request that the Court impose the following conditions on the Licence:-
1.1 The Licensee shall not construct or maintain any bottle shop or driveway facility on the Licensed Premises for the supply or sale of Liquor to be removed from the Licensed Premises or for consumption off the Licensed Premises.
1.2 The Licensee shall not advertise, display liquor or (conduct promotions for the sale or supply for consumption off the Licensed premises) of any liquor other than:-
(i) beer sold as “Strewth” lager; and
(ii) wine sold under the “Ettamogah” label.
1.3 The Licensee shall not deliver or cause to be delivered liquor at a place other than the Licensed Premises.
1.4 No application shall be made to amend, revoke or vary these conditions unless the Objectors shall each have first been served with a copy of the application at their then principal place of business or registered office at least 14 days before the application is lodged with the Court or Liquor Administration Board.
2. The Licensee and the Company jointly and severally agree that they will not cause to be made or allowed [sic] to be made any application for amendment, revocation or variation of these conditions.
3. The Licensee and the Company jointly and severally agree that in the event that the Licence is transferred to any other party, they will procure that that party enters into a Deed with the Objectors containing like stipulations and conditions to those contained in this Deed.
The same structure of clauses 1, 1.4, 2 and 3 as appeared in Mr Hatzis’ earlier draft was offered by Mr Gallagher, no doubt on Mr O’Brien’s instructions. A specific undertaking as to a bottle shop was given. The other restriction concerned the promotion of liquor, other than themed liquor. This would leave open the sale of non-themed takeaway liquor over the counter. This position was conformable with one reading of the letter of 25 June 1998. However, it was a change to the extent that Mr Gallagher had earlier told Mr Schwartz (on Mr O’Brien’s instructions) that it was intended only to sell themed takeaway liquor.
132 Mr Smith accepted in cross-examination that at least by mid-September and also from 6 August 1998 it was plain that those who ran Ettamogah wanted to be able to sell packaged takeaway liquor from the premises.
133 On 21 September 1998, Mr Hatzis wrote to Mr Gallagher about the proffered deed saying:
The terms of the Deed submitted under cover of your letter dated 16 September, 1998 appear to vary substantially from the Deed enclosed with my letter dated 13 August, 1998.
In particular, your client does not appear to offer a condition restricting the liquor to be sold to the “Ettamogah” and “Strewth” labels. The Deed prepared by your company appears to reserve a right on the part of your client to sell all kinds of packaged liquor from the premises for consumption away from the premises.
Could you please explain why it is that your client requires such a wide right to make packaged liquor sales, which appears to be contrary to previous statements that your client is a “theme operator” and that your client “will be catering for the entertainment and hospitality market attached to the area by the adjacent cinemas and will not target person shopping at Macarthur Square.” It would also seem to run counter to your client’s statement contained in his letter dated 13 August, 1998 addressed to Liquorland that “there is no profit in take-away sales for our company.”
134 Mr Schwartz explained the proffered deed to Mr Smith in a letter of 18 September 1998. This explanation included the following paragraphs:
Accordingly under the amended Deed apart from defining the relevant labels for the beer and wine, the Licensee will be able to sell anyliquor for consumption off the licensed premises but cannot build a separate bottle shop or drive-in facility and the only promotional material will be limited to Strewth lager and Ettamogah wine.
Please provide me with your instructions as to whether we should maintain the objection bearing in mind the Applicant will still be able to operate a take-away liquor service but will not operate a separate bottle shop or driveway facility (which appears similar to the situation at the Camden Valley Inn). I assume that you would maintain your original position and that Liquorland will do the same.
135 On 28 September 1998, Mr Schwartz wrote to Mr Gallagher in conformity with Mr Smith’s instructions in the following terms:
Please note that our client is not prepared to agree to the Deed in such terms particularly in circumstances where your client will be able to sell any form of packaged liquor over any bar or counter. I note the same contradicts what was previously submitted on behalf of your client namely that your client only desires to sell liquor with its own label for consumption off the premises which complimented its “Ettamogah” theme.
136 On 13 October 1998, the matter came back before the Licensing Court. The matter was adjourned for a week. Mr Schwartz’s letter to Mr Smith reporting on the mention stated the following, which I accept as accurate:
The Applicant’s solicitors have indicated that they are presently seeking instructions as to whether the proposed conditions will be acceptable to their client.
137 On 19 October 1998, Mr Gallagher wrote to Messrs Hatzis and Schwartz in identical terms. The letter expressed, with clarity, the desire to sell non-themed takeaway liquor. It included the following:
The object of the provisions of the Deed enclosed with our letter of 16 September 1998 were [sic] to ensure that our client did not compete directly or indirectly with your client’s interests in the Campbelltown area by not maintaining any dedicated sales facility or conduct any display or advertising for off-sales apart from its branded products.
Our client does however wish to be able to make off-sales on request of the patrons for the reasons that:-
(a) Convenience of the patrons on leaving the premises, especially when other outlets in the area have ceased trading; and
(b) To minimise the potential for conflict between staff and patrons over the availability of off-sales.
138 Mr O’Brien said in his statement that this was a compromise, that he had seen the themed liquor as a “teaser” which would attract other sales of “regular brands” and that he had envisaged that sales of takeaway liquor being mainly regular brands of wine and beer would comprise 5 to 10% of total turnover, with themed liquor only about 10% of that. As I have earlier said, I think Mr O’Brien did intend to sell takeaway liquor from the premises. Initially, he attempted to put Woolworths and Liquorland “off the scent” by instructing Mr Gallagher at best ambiguously and, at worst directly and dishonestly, in about June 1998. Later in the communications, by August and September 1998, when the consequence of his instructions was the restrictive form of the deed proffered by Mr Hatzis, Mr O’Brien was forced to a tolerable degree of clarity about his desire to sell non-themed liquor over the counter.
139 Mr Hatzis responded immediately to Mr Gallagher’s letter of 19 October 1998, stating:
The matters stated in your letter do not satisfy or appropriately address my client’s concerns. I am instructed that my client will not withdraw its objection on any basis other than the basis set out in the Deed enclosed with my letter dated 13 August, 1998.
140 Mr Schwartz sought Mr Smith’s instructions, saying in the covering facsimile: “I assume it is to be rejected, please advise”. His assumption was correct. He was advised accordingly.
141 The matter came back before the Licensing Court on 20 October 1998. In breach of the timetable previously ordered, the applicant had not filed any evidence. The proceedings were adjourned, again for seven days. Mr Schwartz’s letter to Mr Smith reporting on the mention stated, amongst other things, the following, which I accept as accurate:
Mr Gallagher would have further discussions with his client in order to see whether agreement can be reached in view of the position taken both by Woolworths and Liquorland.
142 On 20 October 1998, Mr Gallagher sent a letter of advice to Mr O’Brien (formally it was sent to the directors of Ettamogah Darling Harbour Pty Ltd). The letter made clear the need for expert evidence from a town planner and from lay witnesses as to the issues of neighbourhood and the needs thereof. He warned of the possible lengthening of the hearing by the objectors and the possibility of the hearing being delayed by being part heard. The letter stated:
Whilst we believe that the application has sufficient merit to overcome the existing objections they may have the effect, if pressed, in substantially delaying the finalisation of the application or result in the vacating of the present hearing date.
Accordingly we advise you to closely consider the effect of the objections not being settled and the commercial ramifications which may flow from a delay in grant of the application.
143 By 20 October 1998, Mr O’Brien had been proceeding with the fit-out of the premises. The anticipated opening was 7 December 1998. As Mr O’Brien said to Mr Gallagher in a facsimile of 20 October 1998, he did not have much time. Delay would be commercially harmful.
144 On 27 October 1998, Mr Tom Rummery of T E Rummery & Partners sent another draft deed to Messrs Hatzis and Schwartz. It did not offer not to sell non-themed takeaway liquor. Rather it contained an amended clause 1.2 in the following terms:
The Licensee shall not advertise, display or conduct promotions for the sale or supply for consumption off the Licensed Premises of any liquor other than beers, wines or spirits sold under any label of a thematic nature owned or controlled by the Company or any associated company, entity or person.
145 Mr Schwartz saw the changes as minor and the deed unsatisfactory because the deed did not address the sale of non-themed takeaway liquor. Once again, he informed Mr Smith saying he assumed it to be unacceptable, with a notation that revealed the reason for its unsatisfactory nature was the continued ability to sell non-themed takeaway liquor.
146 On 28 October 1998, the matter was before the Court. The hearing date of 12 November 1998 was vacated. Orders were made for the filing of evidence and the Court indicated that the next hearing date would not be before 25 February 1999.
147 On and prior to 2 November 1998, Mr O’Brien communicated with Lend Lease seeking its assistance in dealing with Liquorland and Woolworths. The letter made clear to Lend Lease that the apparent bone of contention between the parties was the sale of non-themed takeaway liquor.
148 Mr O’Brien’s letter to Lend Lease was less than entirely accurate. It stated, amongst other things, the following:
We are seeking your assistance to an objection from Coles and Woolworths with regards to our Liquor Licence application.
We have advised both parties that we have approval from the Council and Police and I have offered for the above to inspect our plans to show them we do not have a bottle shop and it is not in our interest to be involved in take away liquor discounting.
We explained that we will sell alcohol for takeaway on request only which will avoid confrontation for staff and also vandalism if intoxicated clients are rejected.
Customers will pay full cost and it is a service we will offer on demand.
Their objection is lodged to delay our opening and force us to sign an agreement to sell no alcohol at all.
149 Lend Lease was prepared to assist. On 2 November 1998, Mr Gilchrist, General Manager, Asset and Development Management, wrote to Mr Gary Reid, General Manager Property of Woolworths. He enclosed the letter that Mr O’Brien had sent to Lend Lease and stated:
We need your assistance, the above mentioned tenant, Ettamogah Pub, is about to open beneath the cinemas at Macarthur Square with a themed pub and bistro concept.
He is currently experiencing delays in getting a Liquor licence due to objections from both Woolworths and Coles. As he explains in the attached letter, he is not proposing to compete directly with either of your businesses in the area.
150 This correspondence was referred to Mr Smith, who, on 9 November 1998, replied in writing to Mr Reid in the following terms:
Woolworths and Coles both having two off-licences each in the Campbelltown area have lodged an objection with the NSW Licensing Court to this application for a hotel licence.
We have had several attempts to have the applicant for the hotel licence enter into a “deed of agreement” to not sell packaged liquor by way of having conditions imposed on the licence. He claims that he is not particularly interested in takeaway liquor sales, so he is not going to build a separate bottle shop. If this were the case then he would agree to the conditions drafted by Liquorland and us. To date he has attempted to alter our draft conditions so it will still enable him to sell packaged liquor for off premises consumption.
The danger for Woolworths and Coles is that if this hotel/pub falls over and is not the success he believes it will be then he could sell this licence to say a reputable hotel proprietor who could secure a site across the road from Macarthur Square and build a new hotel with a drive-in bottle shop/liquor barn.
The removal of the hotel licence would be impossible to stop as it would be within the same neighbourhood.
The bottom line is that we will protect our business wherever we can, and we are being more than reasonable in this case.
It will be necessary to return to this memorandum in due course. It is central to understanding Mr Smith’s, and so Woolworths’, purposes in connection with their conduct, including the entry into, and giving effect to, the deed. It is sufficient to say at this point that Mr Smith in his statement did not seek to qualify in any way the terms of the letter, save that at the time he understood that no conditions could be agreed and that the matter would go to a hearing. In cross-examination, Mr Smith conceded that he had some doubts in his mind as to whether Ettamogah’s true intention was to build a bottle shop. He thought it was a possibility that Ettamogah was contemplating.
151 The memorandum of Mr Smith of 9 November reveals an underlying reality in Mr Smith’s and Woolworths’ conduct. He did not trust Mr O’Brien or his expression of future intention. He had no reason to. As it happened, this was a wise approach. Mr O’Brien had attempted to deceive him by his early expressions of intent. All this can be accepted in a process in which it would have been imprudent of Mr Smith to rely on any statement of Ettamogah, especially when it became apparent after 6 August 1998 that Mr O’Brien did, in fact, want to sell takeaway liquor other than themed liquor.
152 Mr Smith required a provision that ensured, as far as possible, that any licence that would issue would not provide for real competition for Woolworths stores in the area in the sale of takeaway liquor. Absent such a provision being forthcoming, he would see Woolworths prosecute its objection to a hearing.
153 On 6 November 1998, Mr O’Brien wrote to Professor Allan Fels, the then Chairman of the Commission. The facsimile was entitled “Article – Daily Telegraph: Bullies to be Prosecuted”. It stated the following:
Please find attached copy sent to Lend Lease asking for their support, who have been very helpful.
This is a classic case of the “big boys” trying to crucify small business.
They are also suggesting/trying to make me sign an agreement and/or obtain permission first to sell my own products.
Your support would be appreciated, please contact me if you could help in any way.
154 Prior to 12 November 1998, it can be inferred that Mr Tom Rummery discussed the matter with both Mr O’Brien and Mr Schwartz. On 12 November 1998, Mr Rummery sent letters to Messrs Schwartz and Hatzis with a compromise involving the type of liquor that could be sold takeaway. The letter stated:
In light of your letter of 28 September 1998, we are instructed to confirm that, in return for your client withdrawing its objection, our client will agree to:-
1. not sell any line of packaged liquor which is sold by your client;
2. only make off-sales of packaged liquor lines which reflect the thematic concept of the Ettamogah Pub Mob cartoon and its characters under labels owned by our client; and
3. restrict the point of sale of packaged liquor to a single place within the premises.
The packaged liquor which will be available for off-sales will be novelty lines. By necessity the labelling will be changed from time to time to reflect different aspects of the cartoon. The cartoon features numerous characters including the publican’s family, a drover, a local aboriginal on walkabout, crop spraying pilots and animal characters such as dogs, koalas, rabbits and “Struth” – the cockatoo. In turn each of those characters have numerous mannerisms, postures and phrases for which they are well known. The wine produced at our clients small vineyard in Albury might primarily be labelled “Ettamogah Pub Mob Plonk”. The same wine might alternatively (either at the same time or subsequently) be labelled “Ettammogah Drovers Drop” or “Struths Sip”. The only purpose of the alternative labelling is to allow intending purchasers to take away a memento which features their favourite character and/or phrase.
In light of the above, it is clear that the potential labelling combinations for a single batch of wine are numerous. Our client therefore faces considerable difficulty in specifying the character or phrase which may be used in its labelling from time to time. It is however important to note that the various potential labels which may be used by our client will not effect the quantum of packaged liquor which it stocks for off-sales. Further, the one constant in the labelling will be the Ettamogah Pub Mob theme.
It is not our client’s intention to directly compete with your client. Off-sale packaged liquor is to be offered by our client as a novelty merchandising line along with T-Shirts and caps. Our client’s primary business remains the operation of family orientated themed restaurant/bars.
It would seem that there may previously have been some misunderstanding as to our client’s intentions. We trust that the concessions our client is now proposing in relation to off-sales are sufficient to allay your client’s concerns and are capable of forming the basis of a Deed of Agreement which will result in your client withdrawing its objection.
155 This letter reflected a substantial abandonment by Mr O’Brien of a position which permitted the sale of non-themed packaged liquor for consumption off-premises. Mr Schwartz suggested to Mr Rummery that he reduce these instructions into the terms of a draft deed.
156 Mr O’Brien said in his statement that though he believed that his legal advice was that he would be able to defeat the objections, commercial pressures forced him to agree to the terms demanded by Woolworths and Liquorland. The primary commercial concern was the delay in opening in circumstances where a fit-out of the premises costing about $2.2m was well underway. The premises were to be ready in December 1998. Without agreement with Woolworths and Liquorland, the earliest Mr O’Brien could anticipate the grant of a licence after a contested hearing was late February or early March 1999, and this on the basis that the hearing was resolved promptly.
157 There may have been a degree of mistiming by Mr O’Brien in the commitment to the lease and fitout before resolution of the licensing question. Nevertheless, I accept that by November 1998 Mr O’Brien was under financial pressure to accede to the requirements of Woolworths and Liquorland for the withdrawal of their obligations. I accept that this entailed a not insignificant curtailment of Mr O’Brien’s original commercial intention for the running of the business.
158 On 13 November 1998, Mr Rummery sent a fresh draft deed to Messrs Schwartz and Hatzis. Relevantly, there was a new clause 1.2 in the following terms:
The Licensee shall:-
1.2.1 Restrict the point of sale of packaged liquor to a single place within the premises and;
1.2.2 Not sell, advertise for sale or conduct promotions for the sale of any packaged liquor for consumption off the premises except such line of liquor products which:
22.214.171.124 Reflect the thematic concept of the Ettamogah Pub Mob cartoon and its characters and;
126.96.36.199 Are sold under an Ettamogah Pub Mob cartoon related label which is owned by the licensee or his employer.
159 Mr Schwartz made some changes to this proffered draft, which included removing the word “reflect” in clause 188.8.131.52 and inserting in its place the phrase “specifically refer to”.
160 In his statement, Mr Smith placed some emphasis on the fact that it was the applicant who had proposed the condition, and said that:
I understood that the applicant then intended to carry on its business as described in those conditions and did not intend to sell takeaway liquor in any other circumstances.
To the extent that Mr Smith was seeking to say that he believed that the conditions reflected how Mr O’Brien wanted to carry on his business, I reject it. Mr Smith appreciated that during the course of negotiation it had been made clear that it was desired to sell non-themed takeaway liquor. That was opposed. It was opposed because it posed a present and future competitive threat to Woolworths’ proximately located businesses. That the applicant agreed to the conditions required by Woolworths reflected that Woolworths and Liquorland were successful in the negotiations that had taken place – that as the price of having the objections withdrawn, Mr O’Brien was prepared to agree to sell only themed takeaway liquor. This was in fact conceded by Mr Smith in the following question and answer:
Q You understood, didn’t you, that as at 13 November 1998, the agreement by Ettamogah not to sell takeaway liquor from its proposed premises, other than themed liquor, was the result of the negotiations into which Liquorland and Woolworths had entered with Ettamogah?
161 The matter came before the Licensing Court again on 16 November 1998. By this time, another deed had been drafted by Mr Rummery. Both Mr Schwartz and Mr Hatzis required the original draft to be amended to include the correct company and Mr O’Brien himself. The Court was told that settlement was pending.
162 By 25 November 1998, agreement was reached on the remaining details.
163 On 26 November 1998, the deed was executed. It was substantially in terms previously agreed. The deed is annexed to these reasons and marked A (“Ettamogah Deed”).
164 On the same day, 26 November 1998, a conditional grant of an hotelier’s licence was made subject to conditions 1.1-1.4 set out in the Ettamogah Deed.
Ettamogah – the purposes of Mr Smith and Woolworths
165 It is necessary to analyse Mr Smith’s and so Woolworths’ purposes in entering the deed. In this context it is necessary to examine the extent and nature of his cross-examination since Mr Smith SC and Mr Jones submitted on behalf of Woolworths that the matters put to Mr Smith were insufficient to permit a conclusion that one of the purposes of Mr Smith (and so Woolworths) in respect of the relevant provisions was to substantially lessen competition, or to prevent, restrict or limit the supply of goods for the purposes of s 4D.
Mr Smith’s evidence
166 As has already been adverted to, significant importance was placed by Woolworths on the separateness of Mr Smith’s purposes in relation to lodging the objection and in entering the deed and so, in the latter case, the purpose of the relevant provisions. That rigid distinction is, in my view, misplaced.
167 I should at the outset say something of Mr Smith’s evidence. On a number of occasions Mr Smith sought to avoid directly answering questions by the use of repetition of stock phrases concerned with what the applicant said it would do and with Woolworths satisfying the needs of the neighbourhood. I do not think that Mr Smith gave deliberately false evidence, but he did not display the degree of directness and frankness that, by and large, was displayed by Mr Meagher.
168 Mr Smith stated that the factor considered in deciding whether to object “to any particular licence application” was the protection of Woolworths’ business of selling takeaway liquor by retail. Wherever Woolworths conducted or proposed to conduct a bottle shop, Woolworths would seek to oppose any licence application if it could adversely affect sales at Woolworths’ shops in the vicinity.
169 Mr Smith accepted that the protection of Woolworths’ business interests meant the protection of Woolworths’ business of selling takeaway liquor by retail.
170 Mr Smith accepted that his general practice (which he did not say did not apply to the episodes in this matter) was that wherever Woolworths conducted or proposed to conduct a bottle shop in the vicinity of the premises the subject of the relevant licence application, Woolworths would seek to oppose the application if Mr Smith was of the view that an unrestricted licence, either upon grant or in the future, could adversely affect sales at the Woolworths’ shop or shops in the vicinity.
171 On most occasions this opposition was implemented by raising a “needs” objection.
172 Mr Smith accepted that in relation to applications that Woolworths had decided to oppose (that is, in relation to applications for any licence encompassing the sale of takeaway liquor in the vicinity of an existing or proposed Woolworths’ liquor shop) he sought to enter an agreement with the licence applicant, by which such applicant agreed to have conditions placed on the licence if he regarded those condition as adequate to protect Woolworths’ business interests.
173 Mr Smith accepted that the purposes of seeking to come to an agreement as to the imposition of conditions on a licence was to protect the level of sales from the Woolworths’ bottle shop or shops being conducted or to be conducted in the vicinity of the proposed licensed premises.
174 As can be seen from the conduct of the negotiations in relation to Ettamogah that I have outlined, the content of any condition that Mr Smith regarded as adequate was a prohibition of, in effect, any competing sales of takeaway liquor. In the Ettamogah example this left only themed takeaway liquor.
175 On about 1 June 1998, Mr Smith visited the site and came to appreciate the proximity of the premises of the proposed application to Woolworths’ liquor shops in Campbelltown. (See  above.) Once it became evident to him (by 6 August) that Ettamogah did not wish to agree to a condition on the licence limiting sales of takeaway liquor to themed liquor, he gave instructions to oppose the application. At the time Mr Smith gave his instructions to Mr Schwartz to oppose the application of Ettamogah, one of his concerns was that if Ettamogah successfully embarked on its business including the sale of takeaway liquor, that could damage the sales at Woolworths’ liquor shops in Campbelltown. Another concern was if the licence were sold it might be deployed to greater competitive effect in the Campbelltown area than that to which Mr O’Brien was likely to deploy it at the Ettamogah Pub.
176 Mr Smith accepted that if Ettamogah were to sell takeaway liquor that may well be to persons who otherwise would be customers of Woolworths’ stores in Campbelltown. This underpinned his purpose in seeking the conditions on the licence that he thought appropriate to protect the level of sales at Woolworths’ shops in the vicinity, how to protect their value and thus Woolworths’ business interests.
177 In early August 1998, when Mr Smith gave instructions to oppose Ettamogah’s licence application, his concerns were, in substance, that:
a) if Ettamogah embarked successfully on the business including the sale of takeaway liquor, the licence could damage Woolworths’ liquor business interests in Campbelltown by affecting the sales from Woolworths’ businesses there;
b) the licence, if obtained without conditions, could permit a bottle shop, which might include a drive-through facility; and
c) the licence could be transferred to other premises in the Campbelltown area and deployed to greater competitive effect than it could be at the Ettamogah premises.
178 Mr Smith was clear in his statement, as his contemporaneous conduct makes clear, that the sale of packaged takeaway liquor from the Ettamogah premises was likely, or had the clear potential, to damage the liquor businesses of Woolworths in the immediate area of Campbelltown and the Macarthur Shopping Centre and its environs.
179 The concerns referred to above were a sufficient threat to Woolworths’ businesses in the area to warrant action being taken, which action included seeking to come to an agreement with Ettamogah as to appropriate conditions.
180 Mr Smith appreciated that if no one objected there was a likelihood that Ettamogah would get an unrestricted licence.
181 Mr Smith accepted that the granting to Ettamogah of an unrestricted licence would have provided more competition in Campbelltown for the supply of takeaway liquor.
182 Mr Smith’s memorandum of 9 November is important in a number of respects. First, the memorandum makes it clear that Mr Smith was well aware that Ettamogah wanted to make sales of takeaway liquor not limited to “themed” liquor. Secondly, the memorandum makes clear Mr Smith’s awareness that Woolworths had made several attempts to have Ettamogah enter into a deed containing an agreement not to sell a general range of packaged liquor for off-premises consumption and to have conditions imposed on its licence to that effect. Thirdly, the memorandum shows Mr Smith’s knowledge and awareness that, up to that time, Ettamogah had attempted to alter the conditions which Woolworths required so as to enable Ettamogah to sell packaged liquor for off-premises consumption. Fourthly, the memorandum makes it clear that a danger that Mr Smith saw for Woolworths was that the licence could be used in the future to conduct a hotel business with a drive-in bottle shop/liquor barn. Fifthly, the memorandum makes it clear that Mr Smith’s purpose in seeking Ettamogah’s agreement was to protect Woolworths’ business of selling takeaway liquor in Campbelltown, in line with a general approach that is reflected in his statement: “…the bottom line is that we will protect our business wherever we can and we are being more than reasonable in this case”.
183 At the time that Mr Smith wrote his memorandum of 9 November 1998, he entertained the possibility that Ettamogah itself was contemplating building a bottle shop to sell takeaway packaged liquor. At the time he wrote his memorandum, Mr Smith wanted to ensure that any licence which was issued to Ettamogah could not be deployed in the Campbelltown area to sell takeaway liquor in competition with Woolworths’ bottle shops, except for novelty, themed items, which Woolworths would not be selling.
184 In Mr Smith’s oral evidence regarding the memorandum of 9 November and his statement within it that “we will protect our business whenever we can”, Mr Smith would not clearly accept the proposition that that was his objective in seeking to enter into an agreement with Ettamogah providing for the imposition of conditions. This passage of evidence (T p 1873-75) displays some evasiveness on his part. I reject his negative answer to that proposition. By August 1998, Mr Smith knew that Mr O’Brien wanted to sell non-themed takeaway liquor from the premises; Mr Smith pressed a position resolutely in negotiations that unless a condition restricting takeaway liquor to themed liquor was agreed to the objection would be pressed; thus, the conduct in pressing for a condition that the applicant would not sell takeaway liquor (other than themed liquor) was plainly for the purpose of protecting Woolworths’ liquor businesses in Campbelltown from competition. The entry into the deed with such a provision had the same purpose. The purpose did not evaporate or cease upon the other party to the negotiations ceding or conceding the point. That success in negotiation by Woolworths did not mean that its only purpose in entering into the agreement was to record the outcome of past negotiations and to record what the licence applicant would at that point seek from the Licensing Court. The deed was not merely a written record of a state of affairs of mutual agreement; it was also the outcome of negotiations. One of Woolworths’ purposes in lodging the objection, in pressing for conditions to be imposed on the proposed licence and in entering into a deed for the imposition of conditions upon the successful negotiation for such conditions was the protection of its businesses in the Campbelltown vicinity from competition of a potential rival in the sale of takeaway liquor. That purpose was to prevent as far as possible the sale of competitive takeaway products from any new licence in the area. The achievement of that purpose may only be successful by proceeding with the objection hearing. If possible, if only because of the unpredictability and expense of such hearings, deeds would be negotiated and signed which prevented wholly, or as far as could be negotiated, the sale of takeaway liquor from the proposed licence.
185 Mr Smith understood that Ettamogah’s agreement not to sell takeaway liquor from the premises (other than themed liquor) was the result of the negotiations which Liquorland and Woolworths had undertaken with Ettamogah.
186 Mr Smith was also aware that the deed gave an added means of protection in keeping the licence applicant to the agreed conditions. The passages in his statements that he did not believe that the deed prevented the holder of the Ettamogah licence from applying to the Licensing Court to amend, vary or revoke the conditions must be set in the context of his knowledge and experience and that of Mr Schwartz, with whom he had a close working relationship. Mr Smith knew the negative provisions of the deed could be enforced in the Supreme Court. He also knew of the attitude of the Licensing Court to applications to vary a licence in the face of agreed conditions in consideration of which an objection had been withdrawn.
187 Mr Smith was not pressed as to his credit on this evidence, therefore I should make no finding in that regard. It is sufficient to say that I find that Mr Smith well knew that a deed in the form used would prevent, in all likelihood, the licensee or a transferee therefrom selling takeaway liquor under the licence (other than Ettamogah’s themed liquor) and that that restriction could not be, or was unlikely to be, varied.
188 From the above, it can be concluded that Woolworths’ purposes in entering the deed were, or included the purpose of, protecting its takeaway liquor business in the Campbelltown area from potential competition from the proposed licence and from a reduction of takeaway liquor sales from its shops in Campbelltown. It is only to state that purpose another way to say that it was to prevent the supply of takeaway liquor (other than themed liquor) by Ettamogah to persons who would or might otherwise in the future buy takeaway liquor from the Woolworths’ shops in Campbelltown.
189 In terms of competition, the purpose can be seen as one directed to preventing or limiting a potential competitor, or competitive platform (the licence), in the sale of takeaway liquor in the Campbelltown area from entering the area to sell takeaway liquor to persons who would or might otherwise buy the same from Woolworths’ stores. It was a purpose to remove or neutralise any competitive threat from the licence which, if granted without relevant conditions, might reduce the sales of takeaway liquor at Woolworths’ shops in Campbelltown.
190 Woolworths’ denied that it (or Mr Smith) had the above purpose in entering the deed.
191 First, it emphasised Mr Smith’s belief that all Ettamogah wanted to do was sell themed takeaway liquor. I have dealt with that. Though Mr Smith could legitimately have thought that to begin with, it was evident by early August that Mr O’Brien wished to sell takeaway liquor more widely than themed liquor.
192 Mr Smith did say that he thought that Ettamogah’s application would fail. However, he recognised the unpredictability of liquor licence applications. Further, even if that was his belief, there was advantage in protecting Woolworths’ interests in obtaining a satisfactory condition in the certainty of result, especially with the negative covenant as to no future variation.
193 Mr Smith’s belief at the time of the execution of the deed that “they did not want to sell packaged liquor” was no more than his recognition of the success of the negotiation in refusing to accede to the expressed wish of Ettamogah that it didwant to sell packaged liquor. For the reasons I have earlier set out, the purpose of the provisions and the deed was to protect Woolworths’ businesses in the way I have described. Of course, it was also to record the agreement. That goes without saying. The purpose of preventing this new entrant in the Campbelltown area selling competitive takeaway liquor did not cease at the point of time of the reaching of a consensus ad idem about the resolution of the matter.
194 Woolworths submitted that Mr Smith’s memorandum of 9 November was only a commentary on why Woolworths had objected to the application and not the purpose of entry into the deed. I reject this for the reasons I have given. Of course the deed recorded the basis on which the objection would be withdrawn, that after negotiation Ettamogah agreed not to sell competitive product. The purpose of the deed, recording that agreement, included the purpose of binding Ettamogah to that which it had agreed: not to sell competitive product (something it had wanted to do).
195 It was also submitted that Mr Smith’s evidence in cross-examination should be read as an explanation as to why the objection was lodged, not why the deed was entered into. I do not agree. I have rejected the factual assertion that after August 1998 Mr Smith believed that Ettamogah did not want to sell non-themed takeaway liquor. No doubt Mr Smith believed at the time of the entry into the deed that the Ettamogah parties had agreed to behave in accordance with the deed. That is not to say however that he thought at that time that they did not want to (other than by a recognition of the position to which they had agreed).
196 It was said that it was not put to Mr Smith that he had “forced” Ettamogah into a position. This puts the matter at an unnecessarily high level. Mr Smith knew that Ettamogah wanted to sell competitive takeaway liquor. An extended negotiation took place in which Ettamogah ultimately acceded to Woolworths’ position. The purpose of the deed and entry in it was to bind Ettamogah to what it had agreed and thus to prevent the sale of competitive takeaway liquor from the premises under the licence.
197 In reaching my conclusions as to Mr Smith’s and Woolworths’ purposes, I was not assisted by the analysis of the expert economic evidence, as to the effect or likely effect on competition of the deed in respect of each episode. Ample evidence exists of the purpose of both Mr Smith and Mr Meagher. I was not assisted by the development of a “counterfactual” analysis in assessing the purpose of persons who were present to give evidence, otherwise than in the testing of their evidence.
198 The provisions of the deed were one way (pressing an objection thought to have reasonable prospects of success was another) of seeking to exclude a competitor, or a platform or vehicle for competitive activity from the market in order to protect Woolworth’s local turnover. The expert evidence was consistent with rational economic behaviour. It is. That is what Woolworths and Liquorland did and intended to do.
199 The substantiality of the conduct will, of course, be affected by my conclusions as to the geographic scope of the market. Relevant also to the question of substantiality is the importance or potential importance of the subject of the opposition – the licence application. There was ample evidence to conclude that an off-licence (retail) licence in New South Wales was a very scarce article, difficult to obtain and expensive to purchase. Such a licence without conditions was, according to Mr Meagher, a “very potent item”. The evidence of, in particular, Mr Peter Hardy, the senior Business Manager Liquor at Woolworths from 2004, and Mr Meagher, reflected the importance in the operation of the takeaway liquor business in any given local area of an individual licence permitting the retail sale of takeaway liquor. The entry of a competitor with such an unrestricted licence was or would be a matter of significant potential impact on businesses in a local area, not least because of the difficulty in obtaining further similar licences in the same area by reason of the availability of the “needs” objection to a licence application.
200 The evidence of Mr Meagher and Mr Hardy made clear that the purchase of an existing retail licence was an important means of market entry. Hence the importance of extending the terms of the deed as far as possible to bind transferees of the licence from the applicants in question in each episode.
201 The conduct of Woolworths and Liquorland by opposition, negotiation and entry into the deed was conduct by incumbent firms seeking to thwart the entry of a prospective competitive market entrant. The relevant State law provided for, and indeed contemplated (for its own social reasons) the use by rivals of the objection process as, in effect, a barrier to entry. Woolworths and Liquorland, as by State law they were entitled to do, took advantage of rights given by State law to prevent or hinder possible competition from Ettamogah as a new entrant which, if unopposed, could damage Woolworths’ and Liquorland’s businesses in the local area by selling takeaway liquor to customers who would otherwise buy from them and to prevent or hinder the creation of a licence which could act as a platform for competition from anyone in the area (or elsewhere) for the sale of takeaway liquor including at a bottle shop.
202 Any uncertainty about the result of the licence application and whether or not Mr Smith thought that Ettamogah would not be successful in a contested hearing does not change the fact that Mr Smith’s purpose in negotiating a satisfactory arrangement and in having Woolworths execute the deed was to bring about the result of thwarting any competition from the licence in question from Ettamogah or from any transferee of Ettamogah.
203 The importance or substantiality of this purpose depends in significant part upon relevant conclusions about the geographic scope of the relevant market.
204 Woolworths also submitted that any purpose to prevent Ettamogah from making an effective entry into the area as a supplier of takeaway liquor could not be an offensive purpose for the operation of s 45 (whatever the geographic scope of the market) because it did not hinder or harm the competitive process. It is appropriate that I delay dealing with this submission until I deal with the expert economic evidence.
further aspects of the application of ss 4D and 45 of the Act.
205 It is convenient at this point to say something further about the submissions of the parties as to the application of ss 4D and 45 in the light of the above findings. The question of market is dealt with later.
206 It was agreed that the entry into the deed on or about 26 November 1998 by Ettamogah Darling Harbour Pty Ltd, Mr O’Brien, Mr Patterson (the proposed licensee), Liquorland and Woolworths, was the making of a contract or arrangement or the arriving at an understanding.
207 Woolworths admitted that it and Liquorland were competitive with one another for the supply of liquor from their retail outlets in Campbelltown and the vicinity close to the Campbelltown area though it also asserted a wider geographic competition between them.
208 Woolworths also admitted that the deed was a contract, arrangement or understanding made or arrived at between persons two of whom (Woolworths and Liquorland) were competitive with each other in the supply of takeaway liquor.
209 The parties were at issue, however, as to the competitive position of Ettamogah. Woolworths denied that it, Liquorland and Ettamogah were, or were likely to be, or but for the deed were likely to be, competitive with each other for the supply of takeaway liquor.
210 Obviously, given Ettamogah’s lack of business at the time of the deed, it is a question of the future likelihood of competition.
211 One basis for the above assertion by Woolworths was the proposition (which I have rejected earlier) that at the time of the entry into the deed Ettamogah did not intend to supply unthemed competitive takeaway liquor. The conclusion requires a strict temporal analysis which, unrealistically, ignores the process of negotiation that led to Ettamogah’s agreement as to the restrictions upon it.
212 That Ettamogah intended to sell (and in fact did sell) themed takeaway liquor does not, it seems to me, make Ettamogah and Woolworths competitive in the relevant sense. Section 4D requires that the parties be competitive with each other in relation to the goods or services to which the exclusionary provision relates.
213 But for the deed, in all likelihood, there would have been a contested hearing in the Licensing Court. I am not in a position to assess the likelihood of the success of the application. Mr Smith said that he thought it would fail. Mr Schwartz was not able to give a considered opinion as to the prospects of success of the application and the opposition, there being an absence of evidence adduced in the Licensing Court upon which any such view could be founded.
214 I do not see how the evidence is sufficient for me to conclude that it was likely (in the sense of there being a real chance or possibility: Tillmans Butcheries Pty Ltd v Australian Meat Industry Employees Union (1979) 42 FLR 331 at 346-48; News Ltd v Australian Rugby Football league Ltd (1996) 64 FCR 410 at 564-65; Monroe Topple & Associates Pty Ltd v Institute of Chartered Accountants in Australia (2002) 122 FCR 110 at ; and Universal Music at ) that Ettamogah would be successful in the licence application to sell takeaway liquor other than themed liquor.
215 The point, however, is moot given the competitive position of Woolworths and Liquorland.
216 I have earlier dealt with the purpose of Woolworths. Woolworths submitted that no evidence had been led as to the purpose of Mr O’Brien. I think that is an unrealistic submission. Mr O’Brien gave evidence about the deed. He was prepared to agree to its substantive content in negotiation and to see it executed for commercial reasons: the perceived costs and risks (in particular those immediately pressing) involved in a contested hearing outweighed the disadvantages of limited supply of takeaway liquor. His purpose in agreeing to and entering the deed was to see the objection of Woolworths and Liquorland removed.
217 The Commission submitted that the purposes of Liquorland were the same in effect as those of Mr Smith and Woolworths. Woolworths submitted that there was no evidence from which I can make a finding. I do not agree. From the objective material as to Liquorland’s conduct, the terms of the deed, the apparent commonality of approach and the straightforward approach of Mr Smith, I have no difficulty in concluding that Liquorland’s purposes were in substance the same as those of Woolworths.
218 Woolworths gave effect to the deed by withdrawing its objection to the liquor licence application in the Licensing Court.
Jin Ro – the underlying facts
219 Jin Ro Australia Pty Limited (“Jin Ro”) was incorporated in March 1997 (as Ho Sung Liquor Trading Pty Ltd) in order to import and sell liquor of Korean and non-Korean origin. A site in Arncliffe in inner south-west Sydney was chosen to run the business. In order to place this episode in some context some facts about the Jang family and their affairs need to be understood.
220 The only witness to give evidence for the Commission in respect of this episode was Mr Jae Jang. Mr Jang came to Australia from Korea in 1979 as an eleven-year-old. He has lived and worked in Australia since then. He has tertiary qualifications. Mr Jang gave evidence of events over eight years old. There was sometimes some confusion about his evidence, which was not assisted (if I may respectfully say so), by the approach of the cross-examiner. It was put to Mr Jang, at one point that he was “making up” his evidence out of concern for an indemnity given to him by the Commission. I reject that criticism of him. No submission was put to me in address that Mr Jang was not being truthful. It was submitted that his evidence was confused and, to a degree unreliable. I came to the view during the hearing that, though at times confused and left doubtful by the passage of time, Mr Jang was at all times attempting to be truthful and straightforward with me. Such reservations as I have about his evidence derive from the passage of time and a lack of complete familiarity with the documents in respect of which he was cross-examined.
221 The Jang family, principally through the parents, had previously conducted a bottle shop business at Wiley Park in western Sydney. Mr Jang had assisted in the management of that business. During 1997, the Jangs became embroiled in a legal dispute with the landlords of the premises in which the Wiley Park business was conducted. They retained a Mr Don McDougall as their solicitor. Mr Jang, because of his facility with English, dealt with Mr McDougall. Mr McDougall was an experienced solicitor and expert in liquor licensing law.
222 In 1997, Mr Jang conceived of a business plan to run a liquor operation. He was cross-examined about his plans, partly by reference to contemporaneous documents. I accept his evidence that his plan was to create a wholesale and retail Asian and non-Asian liquor business with internet accessibility.
223 To this end, Jang Pty Limited, a company also incorporated on 25 March 1997, acquired the freehold of the premises at 7 Willis Street, Arncliffe. The transfer of the property to Jang Pty Limited took place on 28 May 1997. It can be assumed that contracts were exchanged at least some weeks before.
224 On 8 April 1997, Jang Pty Limited lodged a development application with Rockdale Council which contained a description of the proposed development in the following terms:
…wholesale liquor operations and retail liquor operation only by mail and telephone order.
225 Mr Jang gave evidence, which I accept, that he was not aware, until told by a lawyer, that any liquor licence granted would be confined in terms by the available council permission. He gave evidence that it was a Ms Angela Frost who told him that. The contemporaneous records indicate that Mr Jang and his sister did not retain Ms Frost until June or July 1997. Given that Mr Jang was dealing with Mr McDougall about the Wiley Park matters earlier in 1997, and given the importance of the wholesale business at Wiley Park as a platform for the new business at Arncliffe, it is likely that Mr Jang learnt this in discussion with Mr McDougall.
226 In any event, Mr Jang was prepared to begin the business in Arncliffe as a wholesale and a limited retail (by mail order) business. Mr Jang said that he knew from his own knowledge that he may have difficulty obtaining an unrestricted licence. He also knew the cost of an unrestricted licence would be high. He gave evidence, which I accept, that his plan was to set up a wholesale outlet and obtain a retail licence with restrictions or limitations as quickly as possible. He wanted to develop this business, using the buying capacity of the Wiley Park business and commence the development of a cash flow in the new business. Mr Jang considered that a further stage of development of this business would be to obtain another full retail licence by purchasing an independent liquor store or to remove any restrictions on the existing licence.
227 Thus, the desire in 1997 to use the Willis Street premises for retail sales was limited to mail order (including internet) sales.
228 There was evidence that at the time that the Willis Street premises were bought Mr Jang believed that a bottle shop could be conducted therefrom. Whatever his beliefs were, it is likely that by April or May 1997 he became aware of the difficulties of obtaining council approval for a shop on the site, given that it was in a light industrial zone. Retail shops (with certain exceptions) were not permitted.
229 Mr Jang’s sister, Ms Deanne Jang, was the sole director of Jin Ro until 1999 when Mr Jang became such. Ms Jang did not give evidence.
230 The obtaining of the licence was somewhat less traumatic than the Ettamogah episode. Mr Jang anticipated difficulties, including the objection process (and some significant cost), in obtaining an unrestricted licence.
231 The development consent was obtained on 4 June 1997. Condition 11 of the development consent limited the use of the premises to the wholesale sale of liquor and mail order retail sales and prohibited direct sales to customers and collection of retail sales from the premises by customers. On about 8 July 1997, Ms Jang made an application for a wholesale liquor licence which was issued on 21 July 1997. On 11 July 1997, Ms Jang made an application for an off-licence (retail) licence in respect of Willis Street. The material supporting the application recognised the limits of the development consent.
232 Given the limitations in the development consent, it can be concluded that the Licensing Court would not have granted an unrestricted retail licence, but one in accordance with the development consent, including condition 11.
233 The best evidence of the progress of the obtaining of the retail licence is contained in Ms Frost’s file which was obtained on subpoena. Ms Frost did not give evidence. Mr Jang’s recollection of discussions with her was confused. On 1 July 1997, Ms Frost wrote to Mr Jang recording that Jin Ro intended to sell by retail to account customers only. He provided a product list to her comprised of Korean liquor. The application itself was in terms for mail order sales only. The affidavit in support of the application which I find was prepared on Mr Jang’s instructions recognised the limitations of condition 11 of the development consent and discussed Korean liquor only.
234 The limited application for a retail licence was made in recognition of the limited permitted use of the site and of the legal advice of Ms Frost or Mr McDougall that no licence would issue permitting activity beyond the development consent.
235 Mr Jang accepted that the initial business plan for Willis Street, to the extent that it involved retail sales, was limited to ‘mail order’, in accordance with condition 11 in relation to Korean or Asian liquor.
236 Mr Schwartz became aware of the licence application sometime after a notice was published in the Sydney Morning Herald on 14 July 1997 and before 1 August 1997, when he faxed a copy of the notice to Mr Smith. Mr Smith thus became aware that the application was for mail order sales. Woolworths, at this time, did not have a liquor shop in Arncliffe or Rockdale, though it had an application for a licence for the operation of a liquor shop at 616 Princess Highway, Rockdale, which was on a shopping centre site (Rockdale Plaza) the subject of redevelopment within five kilometres of the Willis Street premises. The Woolworths’ shop opened in late October or November 1997 and one can assume that this was reasonably anticipated in August 1997. Woolworths had also acquired in April 1997 a licence to operate a liquor store nearby, at Railway Parade, Kogarah. That store began trading in February 1998. Liquorland operated liquor stores nearby in King Street, Rockdale and in Bexley. (All these shops are identified on annexure B1 to these reasons, being a map of the area taken from Mr Dimasi’s evidence.)
237 The records of Liquorland reveal that on 4 August 1997 the State Manager recommended that the application be opposed. The note stated:
Oppose and get conditions to prevent a shop being established in the future.
238 Mr Smith visited the site. He spoke to Mr Schwartz and gave him instructions to oppose the application.
239 Mr Hatzis, Mr Schwartz and Ms Frost attended the Licensing Court in relation to the application. Mr Hatzis’ note of the occasion recorded the following:
My discussions with Frost and Schwartz were such that the parties would agree to conditions being imposed on the licenser [sic] as to [sic] restricted to the sale of korean [sic] goods only and that sales may only take place by way of mail order.
I will now prepare a deed and submit it to Schwartz for his comments before forwarding it on to Frost.
240 That Ms Frost would agree to these conditions is further evidence that the conditions accorded with her instructions from Mr Jang as to the licence at this time.
241 Mr Schwartz informed Mr Smith of the agreement.
242 A draft deed was prepared. Over about a week, up to 18 August 1997, various amendments were made. No substantive negotiations took place. On 18 August 1997, the Licensing Court granted the licence subject to the conditions in the deed.
243 The deed (the “Jin Ro Deed”), as executed, is annexed as B to these reasons.
244 The substance of the restrictions on the licensee in clause 1 of the deed and some relevant aspects of them are as follows:
(a) would not display liquor available for sale on the licensed premises [This was not required by condition 11 of the development consent, but was conformable with it as it prohibited customers coming to the premises.];
(b) would not permit any customer to attend the licensed premises to make purchases of or place orders for the purchase of liquor, or to collect any such liquor [This conforms to condition 11.];
(c) would not accept any order for the sale of liquor other than by telephone, post, facsimile, telex or electronic mail [This conforms to condition 11.];
(d) would not deliver or cause to be delivered liquor to any customer on the licensed premises or any other premises (whether licensed or not) within 100 metres of the licensed premises [This was not required by condition 1l.];
(e) would not sell on or from the licensed premises any liquor whatsoever other than traditional Korean products made and packaged in Korea and imported into Australia from Korea [This was not required by condition 11, but conforms to the instructions for the first stage given to Ms Frost.];
(f) would not make any application to amend, revoke or vary the conditions without giving at least seven working days prior notice to Liquorland and Woolworths. [This was not required by condition 11.].
245 It is not clear from the evidence what the subjective purpose of Jin Ro was in agreeing to these provisions. Ms Jang did not give evidence. To the extent that Mr Jang’s state of mind can be attributed to the company, it is not clear that he had any view of them at all. No doubt at the time Ms Frost explained them to him. One can conclude that they were sufficiently in accordance with the first stage of his business plan as to be uncontroversial to Mr Jang and his sister.
Jin Ro – the purposes of Mr Smith and Woolworths
Mr Smith’s evidence
246 It is clear that Mr Smith thought (and correctly so) that the Licensing Court would not grant Jin Ro an unrestricted off-licence (retail). He understood from its application that Jin Ro only wished to sell on a mail order basis from the premises.
247 It is likely that in conversation with Ms Frost, or otherwise, Mr Schwartz became aware of condition 11 of the development consent. He no doubt informed Mr Smith of these necessary restrictions on the licence.
248 Mr Schwartz’s evidence was that his belief at the time (which could only have come from discussions with Ms Frost, which in turn were informed by instructions from Mr Jang) was that Jin Ro’s application and intended operation were limited to the importation, wholesale sale and retail mail order sale of Korean liquor. I accept that evidence. No doubt he communicated that belief to Mr Smith.
249 In this episode, it is accurate to say that Mr Smith’s belief was that the conditions recorded in the deed reflected what he understood Jin Ro intended to do in any event. Thus, I accept that Mr Smith did not believe that the deed prevented Jin Ro from doing anything that it otherwise wanted to do. In his statement, Mr Smith said that he did not turn his mind to the potential customers of the proposed mail order business. He said that he intended to object to the application to ensure that the applicant obtained the conditional licence that he thought was required to run a mail order business. He was not concerned with the Willis Street premises themselves. He thought that a business operated from those premises would have a minimal effect on Woolworths’ proposed business at Rockdale Plaza. I accept all this evidence. In paragraph 61 of his statement of 17 June 2004 Mr Smith said the following:
At the time I had a concern that if no objections were raised at the Licensing Court (on the return date) then potentially the applicant could attempt to amend the application to remove any proposed conditions such as mail order and make the application for an unrestricted off-licence. I was not sure if the Court would have required the applicant to re-advertise an amended application in such a case but in any event, I perceived there to be a risk if Woolworths stood by and did not make its right to object known. Based on a conversation with Mr Schwartz (on a date I cannot now recall) I had a general understanding that Woolworths had better rights to have its position recognised if it objected or informed the Court of an intention to object.
250 This paragraph contains the essence of Mr Smith’s reasons for the objection and for the deed. It illuminates the inextricable connection between the objection and the deed and it illuminates the purpose of the objection and the purpose of the deed. Mr Smith believed (correctly) that the current plans of this proposed licence and the current location of this business posed no threat whatsoever to Woolworths. What was a threat was the potential for a conditional licence (which would in all likelihood be granted initially) to be varied or moved within the neighbourhood and the condition removed. Any such application, if concerned with the same neighbourhood, would not be required to satisfy the needs test. Mr Smith knew full well (despite the general and lightly touched expression in paragraph 61 of his statement) that if the conditions were placed on the licence in settlement of an objection pursuant to a deed, Woolworths would be able to “lock-in” the limitations in the conditions and prevent variation or amendment by this licensee or a transferee therefrom. Mr Smith and Mr Schwartz were not vague untutored participants in this industry. Both knew what they were doing. They were, as the State Manger of Liquorland put it, ensuring that a shop which might sell takeaway liquor could not be established in the future using this licence.
251 I do not repeat what I said earlier in dealing with Ettamogah about the view expressed by Mr Smith in his statements that he thought the licensee could apply to vary conditions. That is literally true. But it is an inadequate statement of his understanding. He knew that if conditions of the kind imposed in the Jin Ro Deed were placed on the licence in settlement of an objection the Licensing Court would view any application to vary the conditions in that light (see  to  above); and with a negative covenant included, Woolworths could make an application to the Supreme Court to restrain an application to the Licensing Court.
252 In his cross-examination, Mr Smith was reluctant to give an answer to questions dealing with the potential competitive threat of an unrestricted licence in the area of the Rockdale Plaza development. I find however that his purpose discussed above was to prevent, as far as possible, an unrestricted licence arising after an application to amend or vary the conditions on the original licence. If such were to occur, that licence, if in the vicinity of the Woolworths’ outlets, would, or might, have an effect on sales at those shops.
253 At one point in his evidence Mr Smith said: “I didn’t sit there saying, ‘I don’t want this [licence to be granted].’ I said, ‘There’s no need for it’”. I reject his evidence to the extent that Mr Smith was saying that his concern was the need of the neighbourhood and not Woolworths’ interest in opposing a potentially competitive licence. Plainly, Mr Smith did wish to oppose the application, not because of the business plans of the immediate proposed licensee, and not because of any inadequacy in the terms of the conditions likely to be imposed in any event, but to ensure that in the future the licence could not be amended to an unrestricted form which could be used in the area as a competitive threat to Woolworths’ shops and their sales, by this licensee or a transferee.
254 That the above was the purpose of Mr Smith can be seen in an answer which he finally gave after a period of evasion of the question:
His Honour: Q. I’ll repeat Mr Yates’ question. I would be grateful if you could just attend to the question. The question was prefaced with a time period. He said:
At the time you were considering whether or not to object to the Jin Ro application, your concern was to ensure that no licence would issue on that application which could be used in the Rockdale area to conduct a bottle shop selling takeaway liquor in competition with Woolworths proposed bottle shop at Rockdale Plaza?
Now, is that correct or not? Was that your concern at the time you were considering whether or not to object to the Jin Ro application?
A. Our concern would be, it was an application for an off-licence in the Rockdale area. As a mail-order licence, not a concern; but as a full unrestricted licence that could be removed at a later stage, yes, it would have been a concern.
255 At the time Mr Smith became aware of the retail application in its limited form (for mail order sales) and before he learnt of the limited nature of the business plan to sell only Korean liquor, one of the aspects of the purpose of the objection was to prevent the sale of potentially competing product, even by mail order. This is revealed by the following question and answer in cross-examination:
Q. Is this the case, that at the time that you were considering whether or not to object to the Jin Ro application, you thought that the possibility that a general range of takeaway liquor could be sold under that licence, even limited to mail order, was a sufficiently important matter for you to take steps to protect Woolworths’ business interests?
256 That purpose, to the extent it existed, evaporated when it became clear that the applicant was only intending to sell Korean liquor by mail order. Thus the relevant purpose in ensuring that this licence did not pose a competitive threat to the Woolworths’ shops in the area was really directed to the future possibility of the variation of the (unthreatening) conditional licence into a (threatening) unconditional licence in the neighbourhood.
257 The above conclusions as to Mr Smith’s purposes can be seen in the following answers:
Q. At the time that you came to consider whether or not to object to the Jin Ro application, you had a concern firstly, that absent an objection, the applicant for the licence could change her mind and turn that application into one that was unrestricted?
Q. You also had a concern at that time that, even if the licence applicant didn't do that, then absent an objection, at some later time such a licence could be amended to remove that mail-order condition?
Q. At the time you were considering whether or not to object to the Jin Ro application, with the possibilities in mind that I've drawn to your attention, your position was, wasn't it, that you decided that Woolworths should take some steps to ensure that any licence which the Jin Ro applicant might obtain was limited in its scope so that it would not compete with the proposed Woolworths bottle shop at Rockdale Plaza?
A. The decision to object was taken to ensure that the conditions the applicant sought, to run their business the way they wanted to, were imposed on the licence.
Q. And that decision was motivated by your desire to ensure that any licence that would issue could not be used to compete with the bottle shop business which Woolworths proposed to conduct from Rockdale Plaza?
A. Any licence can have conditions removed at a later stage, so then it may directly compete.
Q. And that was your concern at the time?
further aspects of the application of ss 4D and 45 of the Act
258 Woolworths admitted that the entry into the deed on or about 18 August 1997 was the making of a contract or arrangement or the arriving at an understanding.
259 Woolworths admitted that at the time of the entry into the deed it was competitive with Liquorland in the supply of takeaway liquor in the Rockdale area; though it asserted a wider area of competition and a wider market.
260 Even if I assume that in the absence of agreement, and in the face of opposition, Jin Ro would have been granted an off-licence (retail) circumscribed by conditions in the development content, I accept Woolworths argument that I should not be satisfied on the evidence that it was likely that Jin Ro would be, or that, but for the deed, Jin Ro would have been, in competition with Woolworths. There is no evidence that Woolworths sold Korean liquor; at least during the first phase of his business plans Mr Jang intended only to sell Korean liquor.
261 There was no issue about the terms of the deed.
262 I have earlier set out findings which largely follow the submissions of Woolworths as to Jin Ro’s intentions and Mr Smith’s knowledge of them. The exception is that I do accept from Mr Jang’s evidence that he intended, at some point in the future, to expand the retail sale part of Jin Ro’s business, whether by varying this licence or obtaining another. He was probably not aware of the consequences of agreeing to the deed in that respect. That is irrelevant. However, for all relevant purposes (including, at the time, the not insignificant consideration of containing the cost of the licence) he and Jin Ro intended only to sell Korean liquor by mail order until some unidentified time in the future when he would seek to expand the business. Mr Smith and Woolworths were not aware of that intention for the unidentified future expansion.
263 These considerations affect the assessment of Jin Ro’s purpose in executing the deed. They enable one to conclude that its purpose was to facilitate the issue of a suitable liquor licence as quickly as possible at the lowest possible price. However, they do not bear upon Woolworths’ and Liquorland’s purposes, except that they remove from the possible purposes that of recording the settlement of a dispute or negotiation. It was submitted that these facts enable the conclusion that Woolworths’ purpose in agreeing to the deed containing clause 1 (discussed at  above): “was to ensure that a licence issued which allowed the applicant to conduct the business it wished to conduct.” I reject that submission. Mr Smith, Woolworths and Liquorland had no particular purpose to facilitate Jin Ro’s position. Nor did they have a purpose (unlike in the Ettamogah episode) in preventing Jin Ro doing something that it apparently wanted to do. Their purposes were as I have earlier described them and included a purpose to ensure that the licence could not in the future be a vehicle for competitive activity in the sale of takeaway liquor.
264 The purpose of clauses 2 and 3 of the deed was not merely to hold the applicant to what it said it would do, and likewise any transferee to it, but also to entrench the conditions in the way I have described – so that the licence could not be used in the future to set up a competitive liquor shop.
265 The fact that provisions such as clause 2 were common is irrelevant to its purpose. Indeed, it makes its evident purpose more obvious. There was nothing subtle or difficult to grasp about the position. The attachment of conditions in pursuance of an obligation in a deed meant the Licensing Court would in all likelihood not vary or amend the conditions: see  to  above. Also, the promise not to seek to vary the conditions enabled an anti-suit injunction to be sought in the Supreme Court restraining a person commencing or maintaining an application in the Licensing Court. Mr Schwartz and, I find, Mr Smith were aware of these matters. They were, no doubt, well known amongst experienced practitioners and participants it the industry.
266 Thus, any s 4D purpose must be assessed at this level of generality. I accept that Mr Smith did not have in mind hindering Jin Ro selling to anyone. Rather, his mind and purpose were directed to ensuring that the limitations on the licence could not change; and that the licence could not in the future be used to compete with Woolworths’ shops in the area, and so reduce their sales.
267 I reject the submission that there was no evidence to found a conclusion about Liquorland’s purpose. The State Manager’s memorandum was plain. It accorded with the plain common business sense of what Mr Smith was doing on behalf of Woolworths. I find that Liquorland’s purposes were the same as Mr Smith’s and so the same as Woolworths’.
268 Woolworths admits that it withdrew its objection to the Jin Ro application. This gave effect to the deed.
269 Woolworths submitted that implicit in the Commission’s submissions that Woolworths’ purposes included those of protecting its business interests in the area and of ensuring that a licence did not issue which could be used to compete for sales of takeaway liquor with Woolworths’ shops was the assertion that, but for the deed, Jin Ro would and could have competed for sales to persons who would otherwise have been customers of Woolworths’ local shops. For the reasons that are plain from my findings, Jin Ro, at least to Mr Smith’s belief, did not have any such intention. But, with respect, that misses the point. Woolworths’ purpose was to lock-in this licence with non-competitive conditions in the deed.
270 Whether or not the purpose of Woolworths that I have described fell within ss 4D or 45 I will further discuss in due course, in particular in the light of my conclusions as to the relevant market. It is sufficient to conclude at this point by saying that the discussion of substantiality in relation to Ettamogah at  to  above is relevant to the discussion of Woolworths’ purposes here, except that the purposes here were not directed to stopping Jin Ro doing anything that it apparently wanted to do.
Palms Village – the underlying facts
271 The Dry Dock bottle shop is located in a small shopping complex in South Tweed Heads adjacent to a relocatable home park covering six hectares known as Palms Village. The bottle shop was granted an off-licence (retail) liquor licence on or about 10 August 2000. It commenced trading under that licence in late August 2000.
272 In 1993, Palms Shopping Village Pty Limited (“Palms Shopping Village”) obtained development approval for the creation of this small shopping complex.
273 A related company, Palms Tweed Heads Pty Limited (“Palms Tweed Heads”) operated the relocatable home park, as well as holding 75% of the shares in Palms Shopping Village.
274 From 1993, a Mr John Saunders had a 25% interest in Palms Shopping Village. Records indicate that he was a director of the company until mid-2001.
275 The small shopping complex consisted of a takeaway food shop, a convenience store, a hairdresser and the bottle shop. From the nature of these shops, their proximity to the relocatable home park and their location in South Tweed Heads it can be concluded that, in significant part, the small shopping complex serviced the residents of the park.
276 Many of the residents of the park were retired. Most, if not all, of the residents of the park were of modest means.
277 The directors of Palms Shopping Village included Mr Thomas Cahill, a retired commercial solicitor with substantial legal and commercial experience, Mr Malcolm Logan, a successful accountant and businessman, and Mr Saunders who had some experience in the liquor industry. Those interested in Palms Shopping Village were all persons of substantial means.
278 An earlier liquor licence application was made by Palms Shopping Village in 1994. This application provoked an objection by Liquorland and a Mr Neil Haslam, who then ran, and at all relevant times has run, a large takeaway liquor operation called the South Tweed Tavern. The application was heard and refused by the Licensing Court in 1996 substantially on the basis that the applicant had failed to overcome the needs test – to persuade the Court that the needs of the neighbourhood were not being met, in particular, by the existing nearby outlet, the South Tweed Tavern.
279 In 1999, a second application was lodged by a Mrs Hopkins on behalf of Palms Shopping Village for the grant of an off-licence (retail) in respect of the shop in the small shopping complex. The affidavit in support of the application stressed the needs of the residents in the 250 relocatable homes within the park, though it did not rely solely on these people as constituting the need that was to be satisfied.
280 A solicitor and senior counsel (Mr Warren Molloy and Mr Austin QC), both very experienced in the liquor licensing field, were retained on behalf of the applicant.
281 At the time of this second application, Woolworths operated a bottle shop in the Tweed Mall at the corner of Pacific Highway and Bay Street, Tweed Heads, and it also had plans to open another bottle shop at the Tweed City Shopping Centre, 52 Pacific Highway, Tweed Heads. Also, at that time, Liquorland operated bottle shops at Tweed Mall and Tweed City Shopping Centre. Mr Haslam and interests associated with him continued to run the South Tweed Tavern. All these shops, Mr Haslam’s South Tweed Tavern and various other liquor outlets which it is presently unnecessary to mention, were within five kilometres of the proposed bottle shop. (All can be seen on annexure C1 to these reasons.)
282 Palms Village was not the only relocatable homes park in the area. There were a number of others.
283 Objections were lodged by Liquorland and Woolworths. Mr Haslam, at South Tweed Tavern (the nearest bottle shop to the proposed Dry Dock bottle shop, as the shop in the Palms Shopping Village was to be called) also objected. It is tolerably clear on the evidence that Mr Haslam was only willing to participate in the objection process if it was at no cost to him and those associated with him. His costs were to be paid by Woolworths and Liquorland. There was some debate during the cross-examination of Mr Haslam as to the detail of the initial contacts. With the exception of one conversation I do not think that detail matters. I find that Mr Haslam and those interested in South Tweed Tavern would not have objected had they not received full underwriting of the costs involved by Woolworths and Liquorland. One event in bringing Mr Haslam into the objection is worthy of note. Mr Haslam gave evidence of a conversation in which Mr Schwartz tried to persuade him to join in the objection process in the Licensing Court. Mr Haslam said that Mr Schwartz said:
Without you, the grounds for objection are not significant. It’s important to protect our businesses. The Palms Village may not be a competitive threat, but the problem is when the licence is sold in the future to possibly a more aggressive operator who may relocate the bottle shop to a more significant location and become a major competitive threat. Especially so if they had a good location and were larger in size.
284 With due regard to the likelihood of somewhat different wording being used by Mr Schwartz (for instance, I doubt that Mr Schwartz would have used the phrase “our businesses”) I accept that a conversation in substantially these terms took place. Its importance is not as an admission by Woolworths. I do not treat it as such. Rather, it reflects what was clear, I think, from all of the evidence of Mr Smith and Mr Meagher as to the commercial factors guiding and underlying the behaviour of Woolworths and Liquorland in all these episodes.
285 It is unnecessary to traverse the events leading up to the hearing of the matter.
286 The matter was called on for hearing in the local Licensing Court. Mr Whealy QC (as his Honour then was) appeared for the objectors and Mr Austin QC appeared for the applicant. The hearing took place on 29 February and 1 March 2000.
287 On balance, I find that Mr Whealy QC gave advice to the objectors that the presiding magistrate’s comments that had been made during the hearing were an indication that there was a real risk that the court would grant the application on an unrestricted basis unless the objectors could agree on restrictions which would confine the licence to meeting the needs of the relocatable home park. The magistrate had referred to another case in which the licence had been granted subject to restrictions on the range and amount of stock that the licensee could carry as well as on the size of the licensed premises.
288 Mr Haslam described the discussion among Messrs Whealy, Schwartz, Hatzis and himself about possible restrictions upon the licence. I accept Mr Haslam’s evidence that the substance of that discussion was the identification of restrictions which could be placed on the licence and which would both be able to be negotiated with the applicant and which would effectively prevent the licence being transferred or relocated.
289 After some variation in the amount of the stock restriction, the terms proposed were those which were incorporated into the relevant deed which was entered on 1 March 2000 between the proposed licensee, Palms Village Pty Limited, Mr Saunders, Mr Logan, Mr Cahill, Woolworths, Liquorland and D & D Haslam Pty Limited (the “Palms Village Deed”), a copy of which is annexed and marked C.
290 Mr Cahill gave evidence that at the time he thought that the proposed conditions were oppressive. Certainly, with the passage of time, Mr Cahill has developed that view strongly. With the benefit of understanding, through the evidence in this case (in particular from the statements of Mr Haslam and Mr Meagher), the perspective of the other side to the negotiations in 2000, Mr Cahill has developed the view that he and his colleagues made a bad bargain in settling the case. That may be, but they did settle the case. They did so with expert legal advice. They were not without commercial acumen and the means to fight the case. True it was that good money had been spent on the two pieces of litigation, but there was no obligation or duress involved in settling the case. No doubt Mr Cahill at the time was concerned with the cost and uncertainty of the litigation process including any appeal.
291 There was a debate as to what I should conclude about the position of Mr Saunders. He was not called. However, the note of a telephone conversation with him made by an officer of the Commission was tendered by Woolworths. That note records Mr Saunders as saying that he was not involved in the second application to “any great extent” and that he was not involved in the negotiations. The note records that Mr Saunders told the interviewer that, as a director, he had knowledge of the signed deed; that he spoke to Mr Logan or Mr Molloy; that he did not view the conditions as onerous; that he did not think at the time that the $55,000 stock limit was onerous and that this was based on his experience; that he was not concerned with the ten-year limit on the stock limit; and that he was happy to get a licence for the shop to commence trading.
292 To a degree, no doubt, the commercial exigencies of the court case were present to the minds of those who made the decision on behalf of the applicant to settle the case. But I am satisfied that the directors of Palms Shopping Village were prepared to settle the litigation on the basis that to do so was a reasonable commercial decision, in particular in order that the shop be able to begin trading.
293 The views of Mr Saunders recorded in the note were no doubt influential at the time in persuading his fellow directors of the commerciality of a settlement. I reject the submission by the Commission that the directors felt obliged to capitulate to a state of affairs for which there was no real alternative. The statement of Mr Austin QC makes clear that the advice tendered to the directors was prudent, but not without optimism. Mr Austin recalled Mr Saunders saying to him that he and his colleagues had no difficulty with the stock limit:
because our business is intended for the residents of the Palms Village Caravan Park, the other nearby parks and passers by. We don’t think that there will be any change to the nature of the business during the period that these conditions are to apply.
294 One aspect of the decision to settle the case on the terms of the deed was a belief that a high number of the residents of the park would purchase their liquor from the bottle shop. The evidence is inexact, but it appears to enable a conclusion to be drawn that the shop has not attracted the patronage from park residents that had been expected.
295 The shop has not been successful. The Commission sought to demonstrate that this lack of success has been caused by the restrictive conditions on the licence. I think that the explanation for the modest trading results of the shop lies in a number of factors. Two of those are its less than central location and the trading effect of the discounting of Mr Haslam’s South Tweed Tavern. That operation is a successful one which discounts liquor greatly and sells large quantities of beer. (It was the largest retailer of beer in New South Wales.) Also there has been a lack of overwhelming support of the residents of the park. On the evidence, it cannot be concluded that the size of the shop or the conditions of the licence prevent the buying of liquor at reasonable commercial wholesale prices. It can be accepted immediately that without the licence restrictions, the proprietor would be able, more flexibly, to adjust aspects of the shop’s business: they could move the shop, increase its size and stock levels. I am not prepared to conclude that the low returns have been caused by the conditions on the licence, though I am prepared to accept that a change in the placement of the shop to the front of the complex which would make it more visible from the road would in all likelihood improve turnover.
296 Serious allegations were made by Woolworths about the conduct of the proceedings by the Commission in not calling Mr Saunders. I need not deal with these submissions in detail. That there was no impropriety is demonstrated by the discovery and disclosure of the record of the conversation with Mr Saunders. There was also nothing preventing Woolworths leading evidence from Mr Saunders.
Palms Village – the purposes of Mr Meagher and Woolworths
Mr Meagher’s evidence
297 Mr Meagher was the officer of Woolworths who was the relevant decision-maker for Woolworths in this and the second Tweed Heads episode. As was Mr Smith in relation to Ettamogah and Jin Ro, Mr Meagher was the relevant corporate mind of Woolworths. There was no debate about this fact.
298 Mr Meagher was a man deeply experienced in the liquor industry. From his background and the way he gave his evidence I conclude that he was aware of the operation of the Liquor Act and, in particular, aspects of the operation of that legislation which impinged upon Woolworths’ commercial interests. To the extent that I have earlier found that Mr Smith understood such matters as how the Licensing Court viewed covenants in deeds of the kind here in the context of application to vary conditions, and how clauses such as clause 2 of the Palms Village Deed could found injunctive relief in the Supreme Court, I have no doubt that Mr Meagher at the time was aware of such matters. He had long experience of the Liquor Act and the operation of the objection process in connection therewith.
299 By and large Mr Meagher gave his evidence in a straightforward and helpful way. He answered questions squarely and precisely. On occasions, he quietly insisted on precision in the question, which, when forthcoming, led to an answer. I also accept that Mr Meagher was at all times seeking to be honest in the evidence that he gave.
300 In many respects, Mr Meagher’s evidence was both revealing and illuminating. Mr Meagher and Woolworths were not concerned about the proposed business to be carried on by the Dry Dock bottle shop. It was not seen by him as a serious or relevant competitive threat which could damage Woolworths’ sales in the area, if it operated from the premises identified in the application and in the manner apparently contemplated. A small liquor store, away from the main shopping areas and adjacent to a relocatable home park, was not the issue. The concern of Mr Meagher was that an unrestricted off-licence (retail) carried the potential for damage to Woolworths’ business. His concern was the presence of another off-licence in New South Wales, or in the Tweed Heads area. Mr Meagher used an apt phrase, and one which illuminated his concern and his and Woolworths’ relevant commercial purposes, when he said:
[A]n off-licence (retail) in the New South Wales regime should be treated with care and respect … because at the time, it was a very scarce article, difficult to obtain, expensive to purchase.
301 This concern was not merely to do with the local area of grant. Mr Meagher said:
The availability of dormant licences in New South Wales at the time was - there were very few, so the arrival of another off-licence into the New South Wales market to operate in a neighbourhood of its original grant, or to operate outside of that neighbourhood, to be removed to another part of New South Wales, is of concern.
302 Mr Meagher agreed with the proposition put to him that one of his concerns was that an unrestricted off-licence (retail) granted to the applicant could be deployed in the neighbourhood and it could adversely impact on sales from the Woolworths’ bottle shop at Tweed Mall. He said that in his experience an application being granted to what might be described as an inoffensive operator could be sold to a major operator such as Theos, Liquorland or Franklins and thereby the licence could become a real threat.
303 This evidence reflected precisely the gist of what Mr Haslam recalls Mr Schwartz saying to him. It reflected precisely Mr Smith’s concerns about Jin Ro.
304 The primary concern of Mr Meagher was, as far as could be achieved, the prevention of the issue of an unrestricted licence which, though in the hands of those at Palms Village may not be particularly threatening, deployed by others it could be, in that local area or elsewhere. That is not to say, however, that Mr Meagher had no concern about the immediate proposed licensee and those that stood behind her. True it was that he had no substantive concern about the business as he understood it to be proposed in the application. He did, however, have a concern that if the business were operated in a manner that could attract the passing trade that could adversely affect the sales at Woolworths’ shop at Tweed Mall. In fairness, I do not think that was a strong concern. Rather, it merged with his fundamental concern of a redefined or relocated business, whether in the same or different hands, which could threaten Woolworths’ business in the area.
305 There was a small degree of evasiveness in Mr Meagher’s answers when it was put to him that the outcome that he wanted to achieve was to prevent the ability to move the licence to other premises. Answers were given by him that the intention of his instructions to Mr Whealy QC in settling the case was to see that the applicant was able to operate the business as she wanted to. These answers did not reflect entirely well on Mr Meagher. Plainly, his intention was to propound restrictions which would be tolerably amenable to the applicant in the commercial negotiations, but which would, as far as possible, prevent any redefinition or relocation of the business from the relatively unthreatening character proposed. That was the substance of the discussions heard by Mr Haslam with Mr Whealy QC and others referred to earlier. It reflected the clear commercial concerns of Mr Meagher in this episode and of Mr Smith in Jin Ro when he was faced with an applicant whose immediate business plans were unthreatening.
306 In fairness to Mr Meagher, when he denied that his instructions to Mr Whealy were to try to have the applicant agree to the most stringent limitations and when he said that his intention was to allow the applicant to operate as she had said that she wished to, he was not denying the purpose or intention described in the last paragraph. He did intend the restrictions to conform to what he understood the applicant wanted to do with the licence. This would mean that agreement would in all likelihood be reached. That agreement would not be threatening as long as the ability to redefine or relocate the licence was prevented. The intention and purpose to prevent redefinition and relocation of the licence was fundamental to Mr Meagher. It was the crucial consideration to which Mr Whealy QC directed his advice to his clients during conferences at the time of negotiation and it was the consideration which Mr Schwartz discussed with Mr Haslam in discussing the question of participation. Mr Meagher understood the importance of this purpose from his deep familiarity with the industry, the Liquor Act and their operation.
307 An example of Mr Meagher’s requirement for precision was his rejection of a question that “the purpose of these negotiations was to achieve an outcome where this licence was pinned down , as it were, so that it could not be used to greater competitive effect in the Tweed Heads area”. The difficulty that Mr Meagher had with the question was the expression “pinned down”. He wanted to qualify this discussion of purpose with the following evidence:
Q. No? Well, would you agree with me that if in fact the licence could be removed to other premises and the premises could be redefined by way of size or product lines, it could be put to greater competitive effect in the Tweed Heads areas?
A. I don't disagree with that. When you used the term "pinned down", I go back and say that the applicant applied for a licence on the premises, and that's what the applicant wanted. The applicant stated that in evidence under oath.
Q. And you were not prepared to agree to any more?
A. I suppose it would be simple to say that we were happy to accommodate the applicant with what the applicant wanted in those circumstances.
308 A little later Mr Meagher said:
The purpose of the deed was to set out how Mrs Hopkins wanted to run the proposed business
309 However, Mr Meagher understood, plainly, that the deed was to record the provisions which would prevent redefinition or relocation of the licence.
310 One particular area of questioning of Mr Meagher concerning the clauses of the deed requires comment. Clause 2 of the deed was in the following terms:
The Licensee, the Company and the Directors jointly and severally agree that they will not cause to be made or allow to be made any application for amendment, variation or revocation of the conditions contained in the Annexure hereto marked with the letter “A”.
311 There was some doubt in Mr Meagher’s mind as to his appreciation of this clause at the time. He gave evidence that he thought that its effect was spent after the Licensing Court granted the licence. Mr Meagher, in evidence, did not display the clarity of understanding that Mr Smith did that, first, a clause such as clause 2 could be used to prevent (by injunction in the Supreme Court) an application being made to the Licensing Court and, secondly, the fact that these restrictions were agreed to by deed would be an important consideration for the Licensing Court if such an application for variation was made.
312 Mr Meagher, as I have said, was an honest man. He was also, if I may say so, an intelligent man. From my observation he was as intelligent a man as Mr Smith. I have no doubt that Mr Meagher, like Mr Smith, diligently attended to his duties on behalf of Woolworths. He had deep and lengthy experience of the liquor industry and the Liquor Act. However, at the time of giving evidence he had been retired for three years. Whilst I cast no reflection upon Mr Meagher’s credit, I think it far more likely that five years before his evidence was given he had a clear understanding of the importance of clause 2 of the deed and of the fact of the existence of the deed in the same way Mr Smith had that understanding.
313 I find that Mr Meagher understood that the covenants in the deed were a means of preventing the redefinition or relocation of the licence. I find that, at the time, he understood, as Mr Smith did, that a provision such as clause 2 could be sought to be enforced; and that he understood, as Mr Smith did, the attitude of the Licensing Court to applications to vary licences in the face of agreed conditions in consideration of which an objection had been withdrawn.
314 Thus, I conclude that Mr Meagher’s and Woolworths’ purposes included a purpose to prevent the redefinition or relocation of the licence. That purpose can be re-expressed as one to protect Woolworths’ takeaway liquor business in the Tweed Heads area from potential competition, and consequent potential loss of sales, from a redefined or relocated licence. The mechanism, which I have no doubt Mr Meagher understood at the time, for achieving this neutralisation or restriction of the licence to a relatively unthreatening form was the entry into the deed with the covenants it contained and the subsequent imposition of the restrictions on the licence.
315 This purpose was conformable with his willingness “to accommodate the applicant with what the applicant wanted”. It was clear that Mr Meagher did not view the shop as it was positioned and planned to be undertaken as a threat to Woolworths. It was the potentiality of an unrestricted off-licence (retail) that was the danger that needed to be dealt with.
316 For the reasons that I have given earlier, I do not think it sensible to view the purpose of objection and the purpose of the entry into the deed as entirely distinct. As Mr Meagher said, the objection process was only entered in circumstances where he viewed the ensuing licence to pose the risk of substantial harm to Woolworths’ business, either immediately or in the future. That harm was the adverse affectation of sales at a Woolworths’ liquor outlet by the competitive activity of an entrant to business in the area. The protection of Woolworths’ business from the threat of a bottle shop or liquor outlet run in a redefined way or at a relocated place different from the relatively unthreatening Dry Dock bottle shop could be achieved by the covenants in the deed and the subsequent imposition of restrictions on the licence. Mr Meagher understood the role of the deed in underpinning the prevention of redefinition or relocation. The risk of redefinition or relocation was made all the more stark by Mr Meagher’s view that the business was likely to fail where it was.
317 The essential purpose of the restrictions in the deed was to limit and fix the boundaries and place of the shop and its stock level. Their clear and avowed purpose was to prevent redefinition or relocation of the business carried on under the licence and thus to prevent a bigger or better located shop, selling more liquor and thus comprising a real threat to Woolworths, in the local area or possibly elsewhere. That redefinition or relocation could obviously be by this licensee or a transferee. The potentiality for change was the threat. It was dealt with by the deed and the restrictions imposed. The purpose of the deed was plainly to underpin the legal position of Woolworths. What flows from this is a matter for the Court.
318 Mr Schwartz gave a long account in his statement of the conduct of the objection. Little, if anything, turns on the detail of this other than to the extent that I have dealt with it. There is no doubt that there was a real case to be fought, the outcome of which was not clear. I do not conclude, and I cannot conclude, what the magistrate of the Licensing Court would have done. It is undoubted that the deed embodied a commercial resolution of the litigation. It is clear that Mr Meagher was content to agree to the applicant conducting the business reflected by the restrictions. I am prepared to accept from all the evidence, including in particular that of Mr Austin QC and the record of the discussion with Mr Saunders, that the applicant and those behind her were prepared to compromise the suit, which they recognised they could fight and possibly win (and possibly lose), on the basis of provisions that were broadly acceptable.
319 I reject the submission that Mr Meagher’s only purpose in authorising the execution of the deed was to record the manner in which Palms Shopping Village proposed to conduct its business and to record the settlement of the litigation. Those purposes, of course, existed. However, his purposes and those of Woolworths included that of ensuring, as far as possible by the entry into the deed, that the licence could not be redefined or relocated in a way which might pose a real threat to Woolworths’ liquor store (or stores in the future) in the area, for the agreed period.
further aspects of the application of ss 4D and 45 of the Act
320 Woolworths admitted that the entry into the Palms Village Deed on or about 1 March 2000 was the making of a contract or arrangement or the arriving at an understanding.
321 Woolworths admitted that at the time of the entry into the deed it was competitive with Liquorland and the licensee of the South Tweed Tavern in the supply of takeaway liquor in the Tweed Heads area or the close vicinity of Tweed Heads, though it asserted a wider area of competition and a wider market.
322 The evidence permits me to conclude that there was a real chance or possibility that Palms Village would be granted an off-licence (retail), perhaps circumscribed by some conditions reflecting the servicing of the relocatable home park or perhaps on an unrestricted basis. The advice of an experienced practitioner such as Mr Whealy referred to at  above allows that conclusion. Thus, it can be said that Palms Shopping Village was likely to be in competition with Woolworths. The Dry Dock bottle shop may have been (and have been expected to be) insignificant competition, but competition it was and was likely to be.
323 Though the operation of s 4D is directed to “purpose” (see s 4D(1)(b)) it is of assistance to appreciate that on the evidence before me the $55,000 stock limit would not prevent the shop in question being filled with liquor of the type sold by the Dry Dock bottle shop. No type of alcohol was agreed not to be sold. Undoubtedly, the apparent purpose of the provisions themselves and indeed the clear intention of Mr Meagher and Woolworths were to restrict or limit the business that could be carried on under this licence – to this site, by reference to a particular plan and boundaries and with a particular stock level, for the stated period. The only purpose that one can say Mr Meagher had which involved preventing, restricting or limiting the supply of liquor to any person was that his purpose was to ensure that the business carried on under the licence was not able to expand in any way at this site or any other site. In one sense, one can say that purpose carried with it an intention or purpose that greater quantities of liquor would not be sold in an expanded business at this or any other site. That would involve the prevention of liquor being sold to people who might otherwise have bought it from a redefined or relocated business. I will return in due course to the question of the necessary particularity of purpose for s 4D. It is sufficient to say at this point that I do not think that Mr Meagher had any purpose of preventing, restricting or limiting the supply of liquor to any person other than by reference to the general intention and purpose referred to above.
324 There was no direct evidence as to the purpose of Liquorland. However, from the terms of the deed, the close participation of Liquorland in the objection process with Woolworths in which they kept each other informed of their respective (and substantially identical positions), the clear and commonsense evidence of Mr Meagher about the preciousness of, and potential for competitive threat by, an unrestricted off-licence (retail), and the conclusions that I have drawn from the evidence of both Mr Smith and Mr Meagher as knowledgeable and experienced people in the liquor industry, I would conclude that Liquorland’s purposes were identical to those of Mr Meagher and Woolworths.
325 As is clear from what I have said, the purpose of the applicant in agreeing to the provisions was to settle the case and facilitate the commencement of trading.
326 Mr Haslam and his company participated in the objection process and in the deed at the behest of Woolworths and Liquorland on the indemnified basis already discussed. To that extent Mr Haslam had no particular purpose, though it was clear from the circumstances of his participation that he saw no disadvantage in the objection as long as his costs were covered. Mr Haslam, through his company, was a party to the deed. I would simply infer that his purpose was that revealed by the deed in the context of all the circumstances. That is, the deed was one step in ensuring, as far as was possible, that the licence could not be redefined or relocated to provide a competitive threat in the area, for the agreed period.
327 Woolworths admits that it withdrew its objection and so gave effect to the deed.
328 From what I have earlier found, it can be concluded, and I so find, that one of the purposes of Mr Meagher and Woolworths was to prevent the use of this licence as a means of market entry by any potential competitor for the agreed period. The insubstantial competition of the Dry Dock bottle shop, in the place and with the shop configuration and stock level as provided for, was acceptable. Development of the licence was not acceptable. The purpose was to prevent that eventuality – to prevent use of the licence by a competitor.
329 Whether or not Woolworths’ purposes that I have described fell within s 4D or s 45 I will further discuss in due course, in particular in the light of my conclusions as to the relevant market. It is sufficient to conclude at this point by saying that the discussion of substantiality in relation to Ettamogah at  to  above is relevant to the discussion of Woolworths’ purposes here, except that the purposes here were not directed to stopping the applicant or Palms Shopping Village doing anything that it or they apparently wanted to do after gaining the licence.
Global Beer – the underlying facts
330 Global Beer Importers was a partnership between Mr David John Dixon and his wife, Donna-Marie Dixon. Mrs Dixon did not give evidence. Mr Dixon did. Mr Dixon had not previously engaged in business on his own account. There was no evidence that Mrs Dixon had any more business experience than her husband. He was a man of modest means who had up to about $40,000 to invest in the business that he intended to set up. That business was the retail by mail order of imported boutique beers.
331 After some years of research and planning, the business commenced in March 2001 and ceased in December of the same year. It was undertaken from warehouse premises on Ourimbah Road, Tweed Heads.
332 Before commencing to describe the events, it is appropriate to say something about Mr Dixon’s evidence. May I first say that I do not think that at any time in his evidence Mr Dixon was intending to be dishonest or untruthful. That said, I do not accept some important aspects of his evidence. To a degree this is explained by Mr Dixon’s lack of sophistication. That is said without the slightest disrespect or intended rudeness to Mr Dixon. He was completely inexperienced in business. He was also inexperienced in participation in litigation. The written evidence which the Commission provided of him should be read only in the context of his cross-examination. The assistance that he gave the Commission in writing was given in the context of being told that he and his wife may have been a party to a contravention of the Act. Mr Dixon said that he was told something along the following lines by officers of the Commission: that if he could persuade those officers that he had been forced into executing the deeds, then he would get an immunity from action for civil penalties. Mr Dixon said that he was not concerned about the possibility of being sued for civil penalties. I rather think, however, this was a matter of some concern to him.
333 The process of cross-examination was not an easy one for Mr Dixon. The cross-examination, whilst fair, was, to a degree, an intimidating process for Mr Dixon. At times, he became angered by it. This led to a degree of stubbornness on his part. Also, considerable time had passed since the events in question.
334 For these reasons, I treat his evidence with some caution.
335 Mr Dixon’s plans were to sell boutique beer through a liquor club called the “Global Beer Importers Club” or the “GBI Club”. In his statement he set out his plans first to target Queensland, then New South Wales, then Australia. But his resources were modest and he himself recognised the limitations that this placed on him. Early in his cross-examination, before much of the conflict with the cross-examiner, the following exchange took place:
Q. Can we just come back to the simple proposition that your thinking always was, "I'm not going to spend what might be necessary to obtain a retail licence until I'm satisfied that I have a profitable mail order business"; correct?
A. No, my original plan, when we went to the Tweed Heads area looking for premises, we were looking to start with something that was suitable for a bottle shop. And then we were told - well, I believe the thinking was that it may take a while to get a licence, so to hire one of them premises was going to burn all my money up. That's why we went to the warehouse, and we didn't apply for - we knew we could not get a licence for a bottle shop at the premises we went to, but we needed premises to get a licence, and the intention later on was to move.
336 After recognising that Queensland was not a suitable place to begin the business because of the need to own a hotel or similar establishment in order to sell liquor, Mr Dixon turned to New South Wales, more particularly to Tweed Heads. He found what he thought was a suitable site, being a warehouse on Ourimbah Road, near Tweed Heads. His original plan, once he appreciated (as he said in the passage quoted above) that the warehouse on Ourimbah Road could not be used as a bottle shop, was to begin the business there using the premises as a warehouse. In October 1999, Mr Dixon entered into a 12-month lease of the Ourimbah Road premises, conditional upon obtaining a liquor licence. He appreciated at the time he entered into the lease that the zoning did not permit a retail bottle shop.
337 On 4 November 1999, Mr Dixon applied for an unrestricted off-licence (retail). At this time, Mr Robert Harris, a solicitor without specialist liquor licensing law skills, was acting for Mr Dixon and his wife.
338 Mr Schwartz observed the notification of the application in the press. Mr Schwartz sent a copy of the notification and a letter that he had sent to Mr Dixon (apparently without express instructions) to Mr Meagher. (Mr Meagher was the Woolworths’ officer responsible for decisions concerning Global Beer). The notification contained the following:
David John Dixon… wishes to advertise the application for Off Licence Retail… ...in respect of [the Ourimbah Road premises]. The premises will be known as Global Beer Importers specialising in mail orders.
The letter of Mr Schwartz requested information about the application “so as to determine whether or not it is necessary for an objection to be lodged to your Application.”
339 On 17 December 1999, Mr Schwartz wrote to the Licensing Court stating that he had received instructions to object to Mr Dixon’s application. At this stage, all that was known by Mr Schwartz and Woolworths was that the application for a licence was for an off-licence (retail), that is, an unrestricted off-licence (retail).
340 On 21 December 1999, after the first return date at Court, Mr Dixon and Mr Harris spoke. Mr Dixon was told of the objection. Mr Dixon stated in his statement that “I instructed [Mr Harris] to write to [Mr Schwartz] and explain that the nature of the business of GBI was to specialise in boutique imported beer not the retail sale of beer in Tweed Heads to the public.” He hoped that this would make Woolworths realise that its objection was unnecessary. On that day Mr Harris wrote to Mr Schwartz in the following terms:
In response to your letter of 13th December, 1999, addressed to our client, David Dixon, we advise that our client proposes to use the abovementioned premises primarily for a warehouse and office for the conduct of the partnership business of Global Beer Importers. Please note that the proposed business will NOT involve the retail sale of beer to the public, but rather, boutique imported beer products will be marketed to subscribers of the Global Beer Importers Club. This is a concept similar to that practised by numerous wine clubs which operate throughout Australia.
We supply this information to you in anticipation that it may convince your client that an objection to our client’s application to the Licensing Court of New South Wales will not be necessary.
341 Mr Dixon was sent a copy of this letter by Mr Harris.
342 Mr Dixon was asked about this letter in cross-examination. Mr Dixon refused to accept that the first paragraph accurately stated his then intention. He said that at this time he intended to run a bottle shop. This exchange in the cross-examination was, to a degree, unfortunate. Mr Dixon was becoming somewhat vexed by the cross-examination. I am not prepared to conclude other than that as at 21 December 1999 the first paragraph of the letter reflected Mr Dixon’s intentions, and that he told Mr Harris what is recorded in that paragraph. Unlike Mr O’Brien, I do not think that Mr Dixon was giving his solicitor false instructions to paint a false picture. That was never suggested. Mr Dixon was an honest man. Ultimately, it became apparent what the position was. Mr Dixon did have a desire to run a bottle shop, but only if the business on Ourimbah Road was successful and only from another site. Any such move was, as Mr Dixon accepted, subject to finding suitable premises, leasing them, being able to pay the rent, obtaining local council approval, varying any licence or obtaining a new licence and being satisfied that the mail order business was profitable to a degree which justified expansion. I find that as at 21 December 1999, Mr Dixon did not intend to operate a bottle shop at this address or elsewhere, unless the future unfolded in a way to permit it. Naturally, if the mail order business was a success, Mr Dixon had plans and hopes for the future including a bottle shop and the possible supply of commercial customers such as clubs and restaurants.
343 In his affidavit supporting his application, Mr Dixon described the proposed business as:
a club specialising in direct marketing of boutique imported beers using a concept very similar to the existing wine clubs operating in Australia today.
344 On 23 December 1999, Mr Schwartz wrote to Mr Harris asking for conditions which were intended to be placed on the licence. Mr Schwartz made clear the competitive interests of Woolworths in this letter. He stated the following:
As to the Purchasers being a member [sic] of the “Global Beer Importers Club”, those members must be members of the public who simply join the “Club”. Presumably they could be persons that would usually purchase their liquor from our client unless for example you can identify the “boutique imported beer” which is different to the beer products that our client sells.
345 This entirely accords with my findings set out later about the purposes of Mr Meagher and Woolworths. The concern of Mr Meagher, and through him, Woolworths, was the threat of competition which might affect sales at Woolworths’ liquor outlets in Tweed Heads. That concern was at a number of levels and at a number of degrees. The chief concern was that an unrestricted off-licence not issue. That would not happen here, as everyone appreciated, because of the terms of the zoning. Another concern was that the conditions to which the licence should be subjected should be directed to the preventing of sales which might otherwise occur in the Woolworths’ stores. So, as this letter made clear, “boutique imported” beers were to be limited to those that were not sold by Woolworths.
346 By early February 2000, Mr Dixon received development consent from the Tweed Shire Council to use the premises as a “liquor distribution outlet and not for the retailing of liquor products”.
347 On 11 February 2000, Mr Harris informed Mr Schwartz of the nature of the intended business and the limits on the type of beer that would be sold. The letter contained the following:
The location of the proposed licensed premises has no bearing, whatsoever, on who takes out membership of the Global Beer Importers Club, hence, the perceived impact on your client would be no different if the premises were in Sydney or Bourke.
Our client will not be marketing beers which people can readily purchase from the local hotel or supermarket (probably for cheaper prices). There are over 5000 brands of beer, worldwide, a relatively small proportion of which will be made available to Club members to purchase. Accordingly, members of the club will not be offered, in a particular month, Heineken or Budwieser [sic] Beer, for example, as those brands of imported beers are readily available in Australia.
348 This letter, when read with that of 21 December 1999 (see  above), told Woolworths that the business intended was for the sale of imported boutique beers which were of a type or brand not readily available in Australia. Though qualified by the phrase “in a particular month”, the letter appeared to indicate that well-known brands such as Heineken and Budweiser would not be sold. No conditions, however, were proffered.
349 With the knowledge, and on the instructions, of Mr Meagher, on 16 February 2000, Mr Schwartz sent a letter to Mr Harris stating, amongst other things:
[I]f your client intends to limit its liquor products to certain types of beer it should offer a condition to that effect otherwise our client and any other Objectors will not accept your client’s self-imposed conditions as they can change with time or in the event the licence is sold to a third party. Further restrictions need to be taken into consideration such as whether your client will only be selling beer products, identifying the place of sale and whether the public can attend such premises to purchase the liquor or whether its products have to be delivered to a nominated address other than the licensed premises.
350 This letter made clear Woolworths’ view that specificity as to the type of beer to be sold was important to protect Woolworths and Liquorland from competition should Mr Dixon alter his business plan from selling boutique imported beers or should he transfer his licence. Specificity of restriction embodied in conditions on the licence was seen by Mr Meagher as the key to the minimisation or elimination of the risk of competitive sales.
351 Thereafter, both Woolworths and Liquorland filed their objections. They kept each other informed of the steps that they were taking.
352 On or about 7 March 2000, Mr Harris, not being a licensing law specialist, advised Mr Dixon to seek the assistance of such a specialist. Mr Dixon then engaged Mr Christopher Thompson of Gwynne Thompson. After Mr Thompson familiarised himself with Mr Dixon’s plans, he told him that it would be preferable to obtain a conditional licence without a contested hearing. On 30 March 2000, Mr Thompson sent a letter to Mr Schwartz offering certain conditions. There is no reason to think that the letter did not reflect Mr Dixon’s instructions to Mr Thompson. The letter stated:
Our client is seeking the grant of the licence on conditions. We would ask that you obtain instructions to withdraw your objection on the basis that the following conditions are imposed on the licence.
1. No cellar door sales to the general public will be conducted from the premises;
2. All liquor sold pursuant to the licence will be delivered from the premises to the purchaser;
3. Any application to vary these conditions will be notified to the objectors not less than 14 days prior to such application being heard by the Licensing Court of NSW.
353 Mr Thompson sent an identical letter to Liquorland.
354 These conditions reflected only the restrictions which would inevitably have been placed on the licence by reason of the terms of the development consent. Mr Dixon at one point denied that Mr Thompson told him that he would not be able to sell liquor by retail physically from the Ourimbah Road premises, that is as a shop. I reject that evidence. There is no doubt that Mr Thompson would have advised Mr Dixon that given the restrictions in the development consent an unrestricted off-licence (retail) would not issue. I so find. In this respect, Mr Dixon’s evidence was confused and unreliable. This is so in particular to the extent that he said that Mr Thompson did not tell him that he would have to submit to conditions of a character dictated by the development consent. I reject that evidence.
355 At one point, Mr Dixon said that at the time he read the letter of 30 March 2000 he recognised that Mr Thompson was acting contrary to his express instructions. I reject that evidence. The conditions suggested in that letter were only what the Licensing Court would have imposed. There was no reason why Mr Dixon would not accept this advice from Mr Thompson.
356 I do accept the evidence of Mr Dixon that Mr Thompson told him at some point that he (Mr Dixon) could reapply to the Licensing Court to get the conditions lifted if he moved to another premises. It is to be noted at this point that the final deed agreed between the parties prior to the Licensing Court hearing on 6 November 2000 (the “Global Beer Deed”), which is annexed and marked D, did not contain a covenant not to seek amendment, revocation or variation of the conditions: see clause 2 of the Global Beer Deed.
357 On 3 April 2000, Mr Meagher sent an email to Mr Schwartz giving instructions that the conditions should, amongst other things, nominate the beers to be sold to club members. As Mr Meagher said in his written evidence this would ensure that Mr Dixon obtained a licence which permitted him to run his direct marketing business “and nothing more.”
358 The matter came before the Licensing Court on 3 April 2000. Mr Schwartz discussed with Mr Thompson adding a condition to those suggested in Mr Thompson’s letter of 30 March 2000 which restricted sales to boutique beer.
359 On 7 April 2000, Mr Dixon swore an affidavit in support of his application. In it, he described the business to be undertaken as follows:
Liquor – being only beer – will be sold by phone or mail order, fax or internet receipt of orders. Delivery will be effected only upon satisfactory proof of identification of the recipient’s age. No sales are made to the general public at the premises and it is not intended to commence such sales.
The affidavit annexed the development consent. Mr Dixon recognised in the affidavit that his licence would have conditions. He swore as follows:
I would expect that if the Court were to grant the application any licence would be subject to conditions limiting sales to the manner proposed.
In the affidavit, Mr Dixon also said that he had been informed how much an unrestricted off-licence would cost ($40,000 to $60,000) and that he did not anticipate that the trade he proposed would justify such an expense in the immediate future.
360 On 10 April 2000, the matter was before the Licensing Court again. I infer that there was a discussion among the solicitors at Court about the preparation of a draft deed and that Mr Thompson said that he would prepare the first draft. On that day, Mr Thompson sent Mr Dixon a draft deed for his approval. On the evidence, this draft deed did not emanate from Woolworths. In the light of that fact, its terms are to be noted. They were:
1. Liquorland and Woolworths each agree not to press their respective objections and the Licensee and the Company jointly and severally agree to conduct business from the licensed premises in conformity with the conditions set forth below and also agree to request that the Court impose the following conditions on the licence:
(i) That no sales other than sales of beer will be made from the premises and or [sic] pursuant to the Licence;
(ii) That no liquor shall be allowed to be consumed or supplied for consumption on the licensed premises save and except for tasting purposes only.
(iii) That no sales will be made to the general public attending at the premises.
(iv) Any Application to vary the above 3 conditions on the Licence will not be made without first giving 14 days to the Objectors Liquorland and Woolworths.
2. The Licensee and the Company jointly and severally agree that they will not cause to be made or allowed [sic] to be made any application for amendment, revocation or variation of these conditions.
3. The Licensee and the Company jointly and severally agree that in the event that the licence or the beneficial interest is transferred or assigned to any other party, they will procure that that party enters into a Deed with Liquorland and Woolworths containing like stipulations and conditions to those contained in this Deed.
361 Two matters are to be noted. First, there was no restriction on the sale of any particular brand of beer. This kind of restriction was included in the Global Beer Deed and in the conditions finally agreed upon at the Licensing Court hearing. Secondly, clause 2 was a covenant not to apply for an amendment, revocation or variation. In the Global Beer Deed there was no such restriction. Clause 2 of the Global Beer Deed was a notice provision.
362 Mr Dixon, after discussing the draft deed with his wife, gave instructions for it to be sent to Mr Schwartz. Mr Dixon was prepared to offer these conditions to obtain withdrawal of the objections. That contemporaneous willingness and the terms of clause 2 of this draft are consistent with Mr Dixon being focussed on the contemplated mail order business and that the opening of a bottle shop, whilst a future possibility, really did not form part of his present planned commercial undertaking. If it had, why, it may be asked, would he permit the proffering of a clause under which he could not amend the licence underpinning the business, as would be necessary if any bottle shop were to operate under the licence? The affidavit that Mr Dixon swore on 7 April 2000 as to the lack of need in the immediate future for an unconditional licence is also to be noted in this regard.
363 The draft was sent to Mr Schwartz on 11 April 2000.
364 The Commission submitted that Mr Dixon was concerned about having any conditions on the licence and that he wanted an unconditional licence to be able to relocate to open a bottle shop. I reject his expression of the matter and Mr Dixon’s evidence underlying it. His immediate plans were described in the contemporaneous material that I have described. His hopes for a bottle shop were conditional and entirely dependent on the mail order business being a success. He was focussing on the mail order business. The conditions proffered on his behalf by Mr Thompson on 11 April 2000 were consistent with these immediate business plans.
365 Mr Schwartz sent a copy of the draft deed to Mr Meagher, stating:
I assume you will want to further limit the type of liquor products, however, to beers that are not brewed in Australia or perhaps excluding the major brands. In addition, please let me know if you wish to restrict the size of the premises or the movement of the licence to another location, etc.
366 It is plain from all the evidence that Mr Schwartz’s assumption was correct and that Mr Meagher would, and did, require greater specificity in the respects identified.
367 On 19 April 2000, Mr Thompson gave Mr Dixon some short, but straightforward, advice. He wrote to him saying:
[I]n your case, we do not feel that on the basis of the Objection on the grounds of need, you could overcome the onus placed on you by the Liquor Act of 1982 New South Wales.
Any grant of this licence will have to be on negotiated settled conditions. To that end, we have written to the Solicitors again and asked that they please obtain instructions by the 1st May, 2000.
368 Mr Thompson recognised, and Mr Dixon understood Mr Thompson to be advising him, that some conditions would be required. If the case were likely to be lost, as Mr Thompson was saying, acceptance of conditions was essential.
369 On 29 April 2000, Mr Schwartz sent an email to Mr Thompson setting out the amendments to the conditions that had been hitherto proffered by Mr Thompson:
1. Need to limit beer type so as to cover ‘boutique’ only eg imported etc or exclude mainstream
2. Agree not to maintain a display area for takeaway liquor or limit to correspond to tasting.
3.1(iv)Should include the word “notice” before “to”
370 Mr Thompson sent this email to Mr Dixon, who, on 2 May 2000, sent a handwritten memorandum to Mr Thompson approving these changes. He wrote (in his own hand) the word “acceptable” in respect of these amendments to the existing draft requested by Woolworths. A further draft was sent to Mr Dixon on 10 May 2000 which incorporated these changes (though not the correction about notice) together with the existing clause 2. This draft contained the following clauses in clause 1 and 2:
1. (i) That no sales other than sales of boutique or imported beer will be made from the premises and or[sic] pursuant to the Licence;
(ii) That no liquor shall be allowed to be consumed or supplied for consumption on the licensed premises.
(iii) That no sales will be made to the general public attending at the premises.
(iv) That no display area will be erected at the premises for the viewing of the general public.
(v) Any Application to vary the above 3 conditions on the Licence will not be made without first giving 14 days to the objectors Liquorland and Woolworths.
2. The Applicant jointly and severally agree that they [sic] will not cause to be made or allowed to be made any application for amendment, revocation or variation of these conditions.
[The word “notice” was inadvertently omitted from (v).]
371 Mr Dixon gave evidence in his statement that he was not happy with these changes, but felt that he had no choice but to make them. I reject this evidence. He wrote contemporaneously that these amendments were “acceptable”. Mr Dixon was prepared to make these concessions in the light of the legal advice that he had received as to his lack of prospects of success. The conditions (i)-(iv) were also conditions which either were required to comply with the zoning (about which Mr Thompson had advised him) or which conformed with his general business plan at the time which he had described in his affidavit for the Licensing Court proceedings and which his solicitor had described in letters to Woolworths, no doubt on the basis of instructions from him.
372 On 18 May 2000, Mr Thompson sent a new draft to Mr Schwartz with these changes, apart from the omission of the word “notice”, which was recognised to be an oversight. The words “boutique or imported beer” were used in clause 1(i) to frame the restriction on sales. Clause 2 remained as a contractual restraint on making any application to amend the conditions though, it is to be recalled, that this had not originated from a demand by Woolworths or Liquorland. Mr Thompson had proffered it in his first draft.
373 On 21 May 2000, Mr Schwartz emailed Mr Thompson seeking some amendments to the draft deed, as follows:
Should also specify how you will sell ie phone, fax, email, internet, computer, electronic sales etc.
374 On 24 May 2000, Mr Thompson sent an email to Mr Schwartz with some suggested definitions of the words “boutique” and “imported”, as follows:
As I understand the position, you want boutique and imported defined.
Would definitions as follows be applicable:
Boutique: means beers which do not include mainstream beers and are by virtue of their branding or manufacture considered by the general public as other than a mainstream product or product line available to the public from where the order is placed.
Imported means beers which are imported into Australia or New South Wales from another state or country provided that in the case of the former such beers must be considered boutique in the state to which they are imported.
375 As can be seen from this email of Mr Thompson, the requirement for definitional specificity of the words “imported” and “boutique” came from Woolworths. No doubt Mr Thompson and Mr Schwartz had spoken on this subject before 24 May 2000. It is also to be noted that “imported” beer was not restricted to foreign beer.
376 Mr Thompson also sent these definitions to Mr Caruso at Liquorland.
377 On 27 May 2000, Mr Schwartz informed Mr Thompson that Woolworths would not agree to the licence permitting the sale of interstate beer as “imported” beer. Mr Meagher affirmed this position in communication with Mr Schwartz.
378 By 30 May 2000, Mr Thompson’s instructions had changed somewhat. On that day he informed Mr Schwartz and Mr Caruso by email that his instructions were now to agree to the restriction only in terms of imported, that is foreign beer. The “boutique” limitation was dropped.
379 Two weeks later, on 14 June 2000, Mr Thompson sent a new draft to Mr Schwartz. There was no reference to “boutique” beer in clause 1(i), only a restriction related to, and permitting the sale of, imported beer, that is beer imported into Australia or foreign beer. It was clear that interstate beer would not be sold. Clauses 1 (ii) to (v) remained the same. Clause 2 was changed. It was now, in substance, in the form it took in the Global Beer Deed – a notice provision rather than a prohibition upon any application to amend. There was no evidence as to why this change was made. I infer that it arose from discussions between Mr Thompson and Mr Dixon. It gives some support for a conclusion that Mr Dixon may have had an expectation of a possible change of the business in the future. It also gives some support to Mr Dixon’s evidence to the effect that he began to find the imposition of these restrictions vexing.
380 On 14 June 2000, Mr Schwartz sent an email to Mr Thompson asking why “boutique” had been taken out.
381 In late June 2000, Mr Thompson gave Mr Dixon some further advice. In a letter dated 28 June 2000, Mr Thompson said the following:
[N]egotiations to date have been stalled due to the Objector’s [sic] understanding that only ‘boutique imported’ beer would be sold. We understand that this is not your intention i.e. you wish to be able to sell Heineken, Budweiser or Grolsch etc.
This represents a major impasse to the application and we would expect that neither Mac’s or LiquorLand would agree to your being able to sell any of the above mentioned beers or similar type products that are currently available on the market on a regular basis.
If the objections are pressed then the matter will have to be set down for Hearing. One of the objections that will be taken is that there is no need for the type of licence sought, to meet the needs of the public in the neighbourhood of the proposed premises.
Without substantial evidence as to the deficiencies in the facilities located in the neighbourhood of the proposed premises (and or [sic] possibly throughout the State) it is likely that an objector would be successful in making out the objection on the basis of needs. However, what you are proposing is a new and novel idea to meet a demand which you perceive to exist both in NSW and the balance of Australia. It may be that the Licensing Court could be convinced to exercise its discretion in your favour (having regard to the limitations you would be willing to accept on any licence).
That said, there is no guarantee the Court would exercise its discretion. Indeed the Court may wish to follow the normal procedure and set the matter down for Hearing in Tweed Heads to ascertain whether there is a need in that neighbourhood. To avoid that course of action you would have to concede that the objector’s would make out the ground of objection and argue purely on the basis of discretion. We would find this the more favourable course but could not guarantee that such course of action would be successful. Additional objector’s [sic] may be roped into the case (e.g. bodies like the Liquor Stores Association).
To conduct such an argument before the Court we would recommend the services to Counsel (a barrister) and would estimate the costs of proceeding along the lines suggested in the order of $10-15,000.00.
However, if the Court does require the matter to be set down before a full bench at the Licensing Court at Tweed heads, the costs would be significantly more as the case would no doubt run over 1-2 days. An estimate of costs might be in the order of $30-40,000.00. Additional evidence would have to be prepared by a town planner to determine the neighbourhood and other material from your marketing advisers.
If the impasse cannot be resolved, and in our view LiquorLand or Mac’s will not agree to you selling the types of beers suggested, then you should seriously consider the further progress of the application.
You should also note that if the matter does go to Hearing and you are unsuccessful the Court has a discretion to make an Order for costs against you. Furthermore, there is provision for appeal from the decision of a Licensing Court to the Supreme Court. In such circumstances you will appreciate costs would escalate rapidly.
382 The letter reveals that Mr Dixon did wish to sell, in his notion of “boutique imported” beer or “imported” beer, foreign beers of some notoriety and likely volume in sales, such as Heineken, Budweiser and Grolsch. This apparently lay behind the removal of “boutique” from the last draft. As Mr Thompson said, this was a “major impasse” because, as Mr Thompson recognised, and as was the fact, Woolworths and Liquorland would demand a condition preventing sales of such competitive brands.
383 Mr Thompson was at pains to point out that if matters could not be agreed there was a real risk of loss of the court case and ensuing financial disaster to Mr Dixon. Mr Thompson, very properly, was making the realities of life very clear to Mr Dixon.
384 Mr Dixon rang Mr Thompson two days later. Mr Thompson repeated his advice. Mr Dixon said that he did not wish to continue negotiations. I accept this. Mr Dixon was becoming frustrated. It is reflected in the letters to Woolworths and Liquorland that Mr Thompson sent on 7 July 2000, which stated:
Enclosed is the deed which our client is prepared to accept. Enclosed are proposed conditions which our client will proffer to the Court.
If these conditions and the deed are unnacceptable then the matter should be set down for hearing.
385 The draft deed enclosed with this letter reflected a restriction based on selling only imported beer. There was no clause preventing an application for an amendment, only a 14-day notice clause in relation to any future amendment application.
386 On 12 July 2000, Mr Meagher emailed Mr Schwartz stating that conditions which he called ‘Wine Planet’ conditions should be added. This was a reference to another case which concerned a mail order business. These conditions were:
1. The Licensee will not permit any customer to attend on the licensed premises, to make purchases or place orders for the purchase of any liquor, or to take delivery of any liquor.
2. The Licensee will only accept order for the sale of liquor by telephone, post, facsimile, telex, the internet or electronic mail.
3. The Licensee will not deliver or cause liquor to be delivered to any customer on the licensed premises.
4. The Licensee will not maintain a display of liquor available for sale on the licensed premises.
5. The Licensee will not make application to the Licensing Court to modify, vary or dispense with the conditions endorsed on the Licence, without written notice to the Owner, the Objector, and the holder for the time being of retail off-licence serial number … at least 14 days prior to the making of the application.
387 On 25 August 2000, for some reason not explained in the evidence, another application was filed on behalf of Mr Dixon. The application sought an off-licence (retail) limited by conditions. The conditions included the following:
2. No sales will be made direct to members of the general public attending at the premises.
3. The Licensee will not sell liquor other than boutique beer pursuant to this licence.
388 Condition 2 above reflected the necessity of the development consent. Condition 3 reverted to “boutique” beer as the relevant restriction. The last draft deed sent to Mr Schwartz by Mr Thompson referred to “imported” beer. (See  above.) By this stage, it was plain to Mr Dixon, even if only because of the zoning of the premises, that he could not obtain an unconditional licence.
389 Mr Schwartz and Mr Meagher discussed this new application. It appeared to them that Mr Dixon had “back-tracked”. To a degree, they were correct.
390 On 18 September 2000, Mr Schwartz spoke with Mr Thompson and asked him to clarify the position about what types of beer Mr Dixon wished to sell. This was an understandable request given the changes from “boutique and imported” to “imported” to “boutique” that had occurred in what had been proffered hitherto.
391 On 10 October 2000, Mr Thompson served documents upon Woolworths and Liquorland which included a draft affidavit of Mr Dixon which had a list of beers in an annexure said to be what he proposed to sell “by way of sample”. All were foreign beers. None would have been recognised as a foreign-sourced beer with high sales in Australia. Heineken, Budweiser and Grolsch were not among them. Without prejudice letters accompanied the material to Woolworths and Liquorland which stated:
Without prejudice we would still wish to pursue negotiations in relation to settlement in these proceedings and in the light of the draft affidavit of Mr Dixon we would appreciate your views in relation to same.
392 On 13 October 2000 the report of the Director of Liquor and Gaming recommended the same conditions in substance as contained in Mr Dixon’s application.
393 From 15 October to 31 October 2000, further negotiations took place. On 15 October 2000, Mr Schwartz sent an email to Mr Thompson which contained the following:
I also don’t understand why we are still apart.
Our settlement discussion got down to 2 main issues
1. imported beers from overseas
& 2 boutique beers.
Your affidavits disclose precisely that but your conditions only refer to boutique beers why can’t we add a condition that relates to beers manufactured overseas plus the usual conditions for mail order internet type licences & sign up a Deed & have the conditions endorsed upon the licence
which I think my client would agree to
please let me know before we start spending serious money in briefing counsel & getting expert witnesses etc.
394 After further discussions, Mr Thompson, on 26 October 2000, sent an email to Mr Schwartz suggesting a clause restricting sales to boutique imported beer defined as of a similar type referred to in the annexure to Mr Dixon’s draft affidavit.
395 After further communications, on 31 October 2000, Mr Thompson sent a draft deed to Mr Schwartz which included the following conditions:
1. (i) That no sale other than sales of boutique imported beer will be made from the premises pursuant to the Licence and for the purposes of this clause “boutique imported beer” shall mean beer/s which are imported into Australia and are of similar type to those shown in annexure “A” to the affidavit of the applicant dated 13.10.2000 for the grant of this licence and/or which are not generally available in retail liquor stores;
(ii) The Licensee will maintain at all times a copy of the affidavit referred to in paragraph (i) hereof at the premises.
(iii) That no sales will be made to the public attending at the premises and no deliveries will be made within 200m of the premises.
(iv) That no display area will be erected at the premises for the viewing of the public and no signage other than that required by law and for identification purpose will be erected at the premises.
(v) The licensee shall conduct the business pursuant to the licence as a direct marketing business and orders shall [be] accepted only via mail, internet, fax or phone order.
(vi) Any Application to amend revoke or vary the above conditions on the Licence will not be made without first giving 14 days notice to the Objectors Liquorland and Woolworths at the respective objectors registered office.
2. The Applicant and Partnership jointly and severally agree that they will not cause to be made or allowed to be made any application for amendment, revocation or variation of these conditions without first giving 14 days notice to the Objectors Liquorland and Woolworths at the respective objectors registered office.
[underlining in original]
396 It is not clear who suggested the underlined clauses, in particular the last part of clause 1(i). This part of clause (i) was, however, changed shortly thereafter. Mr Thompson sent a final version to Mr Dixon for signing under cover of a letter dated 3 November 2000. Between 31 October and 3 November there was further negotiation. I infer that Woolworths or Woolworths and Liquorland had required the changes to the end of clause 1(i) which in the final draft included:
and/or which are not generally available in the objectors [sic] retail liquor stores in Tweed Heads.
397 On 1 November 2000, Mr Thompson had sent a draft deed by email to Mr Schwartz and Mr Caruso with a covering message as to its finality. The message stated:
My instructions are this is our clients final attempt at this deed. No further amendments. Please give us your instructions asap.
So far as the deed goes I think the document adequately protects your clients [sic] interests and allows our client to proceed with his proposal. I do not think that the interests of Macs and Liquorland can be said to be detrimentally affected by this application on the terms put forward or otherwise.
398 The deed was acceptable to both Woolworths and Liquorland. I infer that this draft deed was in the form of the deed that Mr and Mrs Dixon executed on 3 November 2000, that is in the form of the Global Beer Deed.
399 On 6 November 2000, the matter was heard in the Licensing Court. After some discussion with the magistrate, conditions 1(i) and (ii) set out in the Global Beer Deed were replaced by a simplified version which did not require reference to an affidavit. The conditions attached to the licence were as follows:
1. No liquor may be sold pursuant to this licence other than “boutique imported beer”.
For the purpose of this condition “boutique imported beer” means beer which is:
(a) brewed outside Australia and imported into Australia; and
(b) not generally available from the Liquorland and Woolworths liquor stores at Tweed Heads.
2. That no sales will be made to the public attending at the premises and no deliveries will be made within 200m of the premises.
3. That no display area will be erected at the premises for the viewing of the public and no signage other than that required by law and for identification purposes will be erected at the premises.
4. The licensee shall conduct the business pursuant to the licence as a direct marketing business and orders shall be accepted only via mail, Internet, facsimile or phone order.
5. Any application to amend, revoke or vary the above conditions on the Licence will not be made without first giving 14 days notice to Liquorland and Woolworths at the respective Objector’s registered address.
400 It should be noted that in his letter to Mr Meagher dated 9 November 2000 Mr Schwartz said:
Accordingly you should ensure that your staff at Tweed Heads or located elsewhere regularly monitor the sales being made pursuant to this licence. I anticipate that there will be a mailing list, local advertising and advertising on the Internet which can be reviewed from time to time.
401 From the above events, it can be readily concluded that Mr Dixon, from time to time, gave inconsistent instructions. Some of that was borne out of frustration. He did, I find, recognise that there must be conditions if he were to obtain a licence for the Ourimbah Road premises. I find that he did want, at least, to commence at this site running a mail order business selling boutique foreign beers. He did, I find, at times express the wish to include, in those sales, more popular foreign beers. He did, I find, wish to include such beers in his sales, if he could. He did, I find, have a desire or intention of running a bottle shop, but this was conditional on the matters to which I earlier referred. Ultimately, in part because of the recognition of the clear legal advice that he was getting that he could well lose a contested hearing (something which would mean financial disaster to him), he agreed to conditions which not only restricted his business in general terms, but which restricted his business from selling beer not generally available at the Tweed Heads Woolworths and Liquorland stores. This specific restriction, minimising or eliminating the risk to Woolworths and Liquorland of competing sales of beer by Mr Dixon, arose out of the requirement of Woolworths and Liquorland in the negotiations for such specificity in the restrictive conditions. This was a restriction that did not entirely conform to the dictates of the development consent or to Mr Dixon’s business plan. It was stricter and more specific than Mr Dixon would have preferred, as is shown by the negotiation. It was, however, not inimical to his business plan. For the reasons set out in Mr Thompson’s advice of 28 June 2000, Mr Dixon accepted the conditions in the Global Deed and discussed at the hearing.
Global Beer – the purposes of Mr Meagher and Woolworths
Mr Meagher’s evidence
402 To the extent that I have already made findings about Mr Meagher’s state of mind and purpose that were not limited to Palms Village I do not repeat them.
403 It is important to appreciate that Mr Meagher did not view Mr Dixon’s application as a serious threat in itself to Woolworths’ business. Mr Meagher’s belief was that Mr Dixon only wanted to sell beer by mail order. Mr Meagher said in his statement that a mail order business to sell imported beer did not concern him. Subject to the qualification that Mr Meagher wished to ensure that Mr Dixon did not sell beers that were generally available in Woolworths’ liquor stores in Tweed heads, I accept that. In other words, as long as Mr Dixon did not wish to sell popular well-known imported beers that were sold by Woolworths, Mr Dixon’s proposed business did not concern him.
404 The purpose of Woolworths in restricting the type of beer that Mr Dixon could sell was reflected in what Mr Schwartz said at the Licensing Court hearing in discussing the then form of the deed with the restrictions by reference to what was sold in Woolworths and Liquorland stores. The following exchange took place:
Her Worship: So, if they decide suddenly in 12 months’ time that one of these beers, which you thought was exclusive, unusual, small, and nobody else was interested in, black sheep best, if they now suddenly decide to stock that in one of their stores you will be precluded from stocking it.
Mr Schwartz: That is precisely the intention, your Worship, and I think, in fairness to my friend, there is the added police here because there are the objectors. As far as policing, I mean, if we were of the view that they were selling something that we thought they weren’t supposed to because of the agreement, we would do something about it.
Mr Hatzis: Your Worship, I’m a little bit apart from Mr Schwartz in what has just been said. I read the word “generally available” in the condition as meaning only beers which are of a type that are usually available ---
Her Worship: It says, “Generally available in the objectors’ retail liquor store in Tweed Heads.”
Mr Thompson: So that if a beer was simply put on one day.
Her Worship: If you just put it on one day, yes, but if you started keeping it on a regular basis it would be “generally available” in your store.
Mr Lawry: In which case the applicant wouldn’t be interested in selling it.
405 Whilst Mr Meagher believed that Mr Dixon only wanted to sell beer by mail order, and that Mr Dixon would have to ask for a condition to be placed on the licence to that effect, Mr Meagher gave instructions that the conditions on the licence should be specific as to the nominated beers to be sold: see his email of 3 April 2000 to Mr Schwartz. Such nomination together with a restriction on sales of beers that were generally stocked by Woolworths or Liquorland, provided for the removal of any risk of competitive sales. A mail order business with such restrictions did not concern Mr Meagher. He was concerned, however, with leaving Mr Dixon with a general restriction in terms of “boutique” or “imported” beer. I accept that Mr Meagher’s main concern was to ensure that Mr Dixon did not obtain an unrestricted licence to conduct a business which involved the sale of beer by mail order. Plainly some conditions were necessary, if for no other reason than the terms of the relevant redevelopment consent. Mr Meagher, however, was not prepared to withdraw Woolworths’ objection without specific conditions providing for the removal of risk of competitive sales.
406 It can be accepted, as Woolworths submitted, that the conditions were placed on the licence to enable Mr Dixon to have the licence to underpin the business that he wished to run. This was not, however, Mr Meagher’s purpose in requiring the conditions in question. He recognised that Mr Dixon would in all likelihood agree to the restrictions on sales, but he was not prepared to drop the objection until conditions minimising, or virtually eliminating, the risk of competitive sales were in the deed.
407 Woolworths submitted that Mr Meagher did not instruct Mr Schwartz to put restrictive conditions on Mr Dixon’s licence. That is not so as an unqualified statement. While some conditions were obviously necessary and propounded by Mr Thompson, the specificity of restriction and the restriction which was aimed to prevent competitive sales emanated from Woolworths.
408 No doubt Mr Meagher believed, in the light of Mr Dixon’s application and supporting material, that the Licensing Court would impose a condition upon the licence restricting it to the sale of beer by mail order. His two concerns were: (a) attaching a condition which minimised or eliminated the risk of competitive sales and (b) ensuring that the licence was not issued without conditions. Mr Meagher’s knowledge of the industry and the practice and approach of the Licensing Court meant that he knew that Woolworths’ position was strong in any future application to amend, revoke or vary the conditions as long as it withdrew its objection pursuant to an agreement which contained promises by the licensee as to conditions on the licence. The conditions on the licence for which the deed provided satisfactorily removed the competitive risk from this licence in Mr Dixon’s or a transferee’s hands.
409 As I have mentioned earlier, the Global Beer Deed did not have a contractual restraint on seeking amendment to the conditions. It was offered and later removed by Mr Thompson, but never pressed for by Woolworths. I do not conclude from that that Mr Meagher’s purpose to have the conditions was only to record the basis upon which the liquor licence objection was settled. I conclude that his familiarity with the law and practice in the field made him comfortable that Woolworths’ position was adequately protected by the Global Beer Deed and that the licence, if issued in the form provided for in the Global Beer Deed, was no competitive threat to Woolworths in the hands of Mr Dixon or any future transferee.
further aspects of the application of ss 4D and 45 of the Act
410 Woolworths admitted that the entry into the Global Beer Deed in or about November 2000 was the making of a contract or arrangement or arriving at an understanding.
411 Woolworths admitted that at the time of entry into the Global Beer Deed it was competitive with Liquorland for the supply of retail takeaway liquor in the Tweed Heads area, but denied that such competition was confined to that area.
412 At the time of entry into the Global Beer Deed Mr Dixon had no right to sell liquor. Upon the grant of the licence, Mr Dixon would have been competitive with Woolworths had he sold imported beer of the kind or brands sold in Woolworths’ stores. The terms of clause 1(i) of the deed amounted to an agreement not to do so. The conditions put on the licence were to like effect. There is real doubt, however, whether it can be concluded that Mr Dixon’s application would have been successful. The contemporaneous views of his solicitor who was experienced in the field were pessimistic. Mr Schwartz expressed the view that an unrestricted licence would not have issued. Plainly that was correct, if only because of the zoning and the terms of the development consent. On the evidence, I am not able to conclude that there was a likelihood of Mr Dixon obtaining a licence for a mail order business selling beer of a kind or brand sold by Woolworths or Liquorland. This conclusion, however, leaves open the operation of s 4D, as it is admitted that Woolworths and Liquorland were relevantly competitive.
413 There was no issue about the terms of the Global Beer Deed.
414 Once again there was no direct evidence of the purpose of Liquorland. However, from the terms of the deed and the evidence as a whole I am able to infer that the purposes of Liquorland were the same as Woolworths.
415 The purpose of Mr Dixon was to obtain a licence to begin trading. He was prepared to accept the conditions. They were more restrictive than he would have liked, but they were not inimical to the business that he wanted to conduct.
416 Woolworths admits that it gave effect to the deed by withdrawing its objection to Mr Dixon’s application.
417 Once again, Woolworths submitted that the Commission’s submission that Woolworths’ purpose in entering the deed was to protect Woolworths’ business interests in that area and to prevent or minimise the loss of custom from Woolworths’ Bottle Shops in the area had implicit within it the submission that, but for the Global Beer Deed, the Dixons could and would compete for customers who would otherwise be customers of Woolworths’ bottle shops in the Tweed Heads area. Once again I reject this submission. I accept that Mr Meagher was of the view that the application, if pressed in Court, would not have succeeded. That does not affect his purpose in relation to the deed.
418 From the above findings, it can be concluded, and I so find, that the purposes of Mr Meagher and Woolworths included one to prevent this licence being used by the Dixons to sell beer that was sold by Woolworths’ liquor outlets in the Tweed Heads area and thereby to protect Woolworths’ business interests by minimising or eliminating the risk of loss of custom from those shops. The purposes also included the prevention of the use of this licence as a means of market entry by any potential competitor. Although, as I have discussed, the zoning and terms of the development consent necessarily meant that a condition would be placed on the licence by the Licensing Court preventing a bottle shop being operated on Ourimbah Road, Mr Meagher was concerned with the possibility of the licence being relocated and the restriction (brought about by the erstwhile zoning) being removed. He was also concerned about the sales of boutique foreign beers that were competitive with sales from Woolworths’ stores. Both these considerations were dealt with by the deed being entered with relevant contractual covenants to seek conditions as the basis for the withdrawal of the objection. Even without a blanket prohibition on seeking amendments, the covenants in the Global Beer Deed, together with the withdrawal of the objections placed Woolworths in a strong position in resisting any application to amend the licence in the future. Mr Meagher understood that. His purpose was to bring that about.
419 Whether or not Woolworths’ purposes that I have described fell within s 4D or s 45 I will further discuss in due course, in particular in the light of my conclusions as to the relevant market.
The pleadings and related questions of principle
420 The parties were at issue about the relationship between the Commission’s case and the adequacy of the pleadings to support it. As it finally stood, the pleading took the form of a Further Amended Statement of Claim, amended by two documents: the first, handed up in Court on 24 June 2005 which amended [A5.1.3] and a notice of amendment filed on 29 July 2005 which amended [B1.25], [B2.15], [B4.15] and [B7.16]. I will refer to all these documents as the FASC. The parties also placed before me in the Judge’s Court Book as available for use, letters requesting and providing particulars of the FASC.
421 It goes without saying, in particular in a case in which civil penalties are sought, that the Commission must stay within the case as pleaded, notified and fought.
422 There were a significant number of issues related to the question of the market about which there was no dispute. This will be evident when I deal with the evidence of the two expert witnesses, Dr Jill Walker and Mrs Rhonda Smith called by the Commission and Woolworths, respectively. (At the time of publication of these reasons it has become appropriate to call Mrs Smith, Dr Smith. I will do so.) The real debate between the parties was the geographic extent of the relevant market or markets.
423 The question of market was first broached by the pleader in section A5 of the FASC. After setting out various matters in [A5.1.1] to [A5.1.10] about the regulatory framework, substitutability of products, consumer behaviour and retail competition the pleader asserted in [A5.2] a proposition which was denied:
By reason of the matters referred to in paragraph A5.1 hereof, there were at all material times a number of separate and geographically limited retail markets, throughout New South Wales, for the sale to members of the public of takeaway liquor
424 The first market pleaded in the FASC concerned the Jin Ro episode. Paragraphs B1.31 and B1.32 were entitled:
Arncliffe area, and the City of Rockdale area, takeaway liquor markets.
425 These alternative markets were pleaded as follows:
B1.31 At all material times:
B1.31.1 there was substantial and entrenched demand for the supply of takeaway liquor by retail to the public in:
a) the Arncliffe area; or in the alternative
b) the City of Rockdale area;
B1.31.2 member of the public in the Arncliffe area, or in the alternative, in the City of Rockdale area, in the usual and ordinary course, purchased all, or substantially all, of their requirements of takeaway liquor, from retail outlets in the Arncliffe area or in the alternative, in the City of Rockdale area.
Outlets included the following stores:
(i) Liquorland operated a store at 14 King Street, Rockdale;
(ii) Woolworths operated a store at 616 Princes Highway, Rockdale
(iii)Arncliffe cellars at 7 Belmore Street, Arncliffe;
(iv)Arncliffe Hotel at Corner of Princes Highway and Forest Road, Rockdale;
(v) Grand Hotel at 484 Princes Highway, Rockdale; and
(vi)St George Tavern at Corner of Princes Highway and Frederick Street Rockdale
B1.31.3 it was extremely difficult for suppliers of takeaway liquor operating outside the Arncliffe area, or in the alternative, outside the City of Rockdale area, to supply takeaway liquor products in the Arncliffe area, or in the alternative, in the City of Rockdale area, in a convenient manner and on comparable terms to those offered by the retail liquor outlets in the Arncliffe area, or in the alternative, in the City of Rockdale area, whether by home delivery or otherwise.
B1.32 By reason of the matters referred to in paragraph A5.1 and B1.31 hereof, there was at all material times a retail market;
B1.32.1 in the Arncliffe area, for the sale of takeaway liquor to members of the public (“the Arncliffe area takeaway liquor market”);
B1.32.2 or in the alternative to paragraph B1.32.1 hereof, in the City of Rockdale area, for the sale of takeaway liquor to members of the public (“the City of Rockdale area takeaway liquor market”).
426 The other two markets, the Campbelltown and Tweed Heads takeaway liquor markets, were pleaded as follows under the headings in the FASC set out below:
Campbelltown takeaway liquor market
B2.21 At all material times:
B2.21.1 there was substantial and entrenched demand for the supply of takeaway liquor by retail to the public in the Campbelltown area;
B2.21.2 members of the public in the Campbelltown area, in the usual and ordinary course, purchased all, or substantially all, of their requirements of takeaway liquor, from retail outlets in the Campbelltown area;
Outlets included the following stores:
a) Liquorland operated stores at:
(i) 316 Queen Street, Campbelltown; and
(ii) Shop 5, Campbelltown Mall, Queen Street, Campbelltown
b) Woolworths operated stores at:
(vii) 106 Lindsay Street, Campbelltown; and
(viii) Corner Gilchrist Drive and Kellicar Street, Campbelltown;
c) Jewels Food Stores Pty Ltd operated a store at Shop 4 Tindall Street Shopping Centre, Tindall Street and Kellicar road Campbelltown;
d) Campbelltown City Hotel at 138-154 Queen Street, Campbelltown;
e) Campbelltown Club Hotel at Corner of Blaxland Road and Badgally Road, Campbelltown;
f) Court Tavern at 101 Queen Street, Campbelltown; and
g) Valore Cellars Shop at L15 Macarthur Square, Campbelltown and
h) Royal Hotel at Railway Street, Campbelltown
B2.21.3 it was extremely difficult for suppliers of takeaway liquor operating outside the Campbelltown area to supply takeaway liquor products in the Campbelltown area in a convenient manner and on comparable terms to those offered by the operators of retail liquor outlets in the Campbelltown area, whether by home delivery or otherwise.
B2.22 By reason of the matters referred to in paragraphs A5.1 and B2.21 hereof, there was at all material times a retail market, in the Campbelltown area, for the sale of takeaway liquor to members of the public (“the Campbelltown takeaway liquor market”)
Tweed Heads takeaway liquor market
B4.21 At all material times:
B4.21.1 there was substantial and entrenched demand for the supply of takeaway liquor by retail to the public in the Tweed Heads area;
B4.21.2 member of the public in the Tweed Heads area, in the usual and ordinary course, purchased all, or substantially all, of their requirements of takeaway liquor, from retail outlets in the Tweed Heads area;
Outlets included the following stores:
a) Liquorland operated stores at:
(i) Shop 67, Tweed City Shopping Centre, 524 Pacific Highway, Tweed Heads South; and
(ii) Corner Wharf Pacific Highway & Frances Streets, Tweed Heads;
b) Woolworths operated a store at corner Bay Street and Pacific Highway, Tweed Heads;
c) The Bay Boozatorium at Shops 4-5, 99 Kennedy Drive, Tweed Heads;
d) South Tweed Tavern at 53 Pacific Highway, Tweed Heads South; and
e) Twin Towers Resort at Wharf Street, Tweed Heads
B4.21.3 it was extremely difficult for suppliers of takeaway liquor operating outside the Tweed Heads area to supply takeaway liquor products in the Tweed Heads area in a convenient manner and on comparable terms to those offered by the operators of retail liquor outlets in the Tweed Heads area, whether by home deliver or otherwise.
B4.22 By reason of the matters referred to in paragraphs A5.1 and B4.21 hereof, there was at all material times a retail market, in the Tweed Heads area, for the sale of takeaway liquor to members of the public (“the Tweed Heads takeaway liquor market”)
(The Tweed heads market was defined substantially identically in the sections of the pleading dealing with the Palms Village and Global Beer episodes.)
427 Particulars were sought and provided in relation to the suburban areas pleaded. In the provision of those particulars a measure of flexibility was sought to be retained by the Commission. The relevant areas were particularised as follows:
The Arncliffe area
Paragraph B1.16 defines “the Arncliffe area” as Arncliffe or the close vicinity of Arncliffe.
The Arncliffe area is depicted on maps 315 and 316 in the seventh edition of the Sydway Greater Sydney and Blue Mountains Street Directory published by Sydway Publishing Pty Ltd, July 2001.
The geographic bounds of the Arncliffe area cannot be stated exactly, nor is it necessary to be stated exactly (see Queensland Wire Industries Pty Ltd v BHP Co Ltd (1989) 167 CLR 177 at 195-196, Australian Meat Holdings Pty Ltd v TPC (1989) ATPR 40-932 at 50,011 & 50,097, Davids Holdings Pty Ltd v Attorney General (1994) ATPR 41-304 at 42,091, ACCC v Rural Press (2001) ATPR 41-804 at 42,736, para , ACCC v Australian Safeway Stores Pty Ltd  FCAFC 149 at -).
The City of Rockdale area
The City of Rockdale area is depicted on maps 315, 316, 335 and 336 in the seventh edition of the Sydways Greater Sydney and Blue Mountains Street Directory published by Sydway Publishing Pty Ltd, July 2001.
Otherwise, the Applicant repeats the third paragraph of its response to 24(a), (b).
(The third paragraph of the response to 24(a) and (b) was the third paragraph above under the heading “the Arncliffe area”.)
The Campbelltown area
Paragraph B2.9 defines “the Campbelltown area” as Campbelltown or the close vicinity of Campbelltown.
The Campbelltown area is depicted on maps 368 and 369 in the seventh edition of the Sydway Greater Sydney and Blue Mountains Street Directory published by Sydway Publishing Pty Ltd, July 2001.
Otherwise, the Applicant repeats the third paragraph of its response to 24(a), (b).
The Tweed Heads area
Paragraph B4.9 defines “the Tweed Heads area” as Tweed Heads or the close vicinity of Tweed Heads.
The Tweed Heads area is depicted on page 447 in the fourteenth edition of the UBD New South Wales CountryLink Street & Travel Directory published by Universal Press Pty Ltd, 2002.
Otherwise, the Applicant repeats the third paragraph of its response to 24(a), (b).
428 The references in the third paragraph of the response to 24(a) and (b) made clear the Commission’s intention to maintain flexibility at the boundary of the market. Deane J in Queensland Wire Industry Proprietary Limited v The Broken Hill Proprietary Company Limited (1988) 167 CLR 177 at 195-96 spoke of the outer limits of markets, including their geographical confines, to be “blurred”. Sheppard J in Australian Meat Holdings Pty Ltd v Trade Practices Commission ) ATPR 40-932 at 50,097, referred to what Deane J had said in Queensland Wire and also spoke of the arbitrary exercise of the drawing of any line to define the geographic market and there always being a “fuzziness” about geographic definition of the market. See also Davids Holdings Pty Ltd v Attorney-General of the Commonwealth (1994) 49 FCR 211.
429 Market definition is not an exact physical exercise to identify a physical feature of the world; nor is it the enquiry after the nature of some form of essential existence. Rather, it is the recognition and use of an economic tool or instrumental concept related to market power, constraints on power and the competitive process which is best adapted to analyse the asserted anti-competitive conduct. See generally, Breyer S, “Five Questions about Australian Anti-Trust Law” (1977) 51 ALJ 28 at 33-4; Singapore Airlines Ltd v Taprobane Tours WA Pty Ltd (1991) 33 FCR 158 per French J at 175 (with whom Spender and O’Loughlin JJ agreed see 159 and 185 respectively); Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1987) 17 FCR 211 at 218-9 (“Queensland Wire (FC)”); Brunt M, Economic Essays on Australian and New Zealand Competition Law, Ch 5 “Market Definition Issues in Australian and New Zealand Trade Practices Litigation (1991)” especially at 203-214, 218-219 and 230-37; Arnotts Ltd v Trade Practices Commission (1990) 24 FCR 313 at 328-29; Dowling v Dalgety Australia Ltd (1992) 34 FCR 109 at 132; Hospitality Group Pty Ltd v Australian Rugby Union Ltd (2001) 110 FCR 157 at  and ; Rural Press Ltd v Australian Competition and Consumer Commission (2002) 118 FCR 236 at  (“Rural Press (FC)”); and Australian Competition and Consumer Commission v Australian Safeway Stores Ltd (2003) 129 FCR 339 at  and .
430 Thus, once one appreciates the integrated legal and economic notions involved in the concept of a market and its purposive role (to which I will come) one is unlikely to find utility in a debate about the precise physical metes and bounds of a market. The pleader here has not been precise. Suburban geographical areas have been identified by name. Flexibility by reference to the nature of the exercise has been asserted.
431 Dr Walker’s expert evidence was to the effect that the relevant markets were “local retail liquor markets”. She then proceeded to explain them as follows (see  and  and  of exhibit AA):
These are defined in terms of a ‘circle of competition’ of two to five kilometres around the relevant Liquorland and/or Woolworths store in the locality.
In my opinion, the relevant markets in this matter are local retail liquor markets. Retail liquor markets are characterised by considerable product and geographic differentiation. Purchases of liquor are driven primarily by convenience factors, as emphasised by both market research and witness statements from market participants. Based on this information and data on margins for liquor retailing, a relevant market can be defined in relation to any given retailer, which comprises a ‘circle of competition’ of between two and five kilometres around that store. The degree of substitution tends to decrease the further apart are any two retailers in the circle of competition.
In the current matter, the relevant market should be defined in relation to the Woolworths and Liquorland stores located closest to the licence applicant, since it is their alleged anti-competitive purpose with which we are concerned. In relation to each of the alleged instances of the conduct, this leads me to conclude that the broadest extent of the relevant markets are as follows:
· The Arncliffe/Rockdale area, including Bexley, Kogarah and Brighton Le Sands;
· The greater Campbelltown area, including Macarthur, Blair Athol, Ambervale, Glen Alpine and Leumeah;
· Tweed Heads – Coolangatta;
432 The Commission submitted that “local” markets, generally speaking, were to be identified by reference to an area approximating a “circle of competition” of about two to five kilometres around the relevant Woolworths store in each locality. It submitted that exactitude in geographic identity was not essential. What was relevant and sufficient, it was submitted, was the identification of the broad geographic area which is the area of potential close substitution for the relevant goods or services (here packaged takeaway liquor). The Commission submitted:
Thus it does not matter, in the context of the present case, whether the “circle of competition” be somewhat greater than 5 or even as much as 10 kilometres. In each case the locus can be seen to be, relevantly, the general area nominated in the pleading.
433 This provoked a strong reaction from Woolworths. It sought to link the FASC strictly to the two to five kilometres referred to by Dr Walker. Whether I should accept Dr Walker’s evidence, or Dr Smith’s evidence, or whether I should adopt a measure of flexibility to either or both is a matter for me in the assessment of the evidence. The case is to be decided within the framework of the local suburban markets that have been pleaded, with the degree of flexibility claimed in the particulars, recognising that the pleader was working, and the litigation was taking place, in a field of discourse part of which recognises the purposive nature of the enquiry. Thus, the identification of local Sydney and New South Wales suburbs or local areas does not invite a street by street identification of the scope of municipalities or local government areas. It invites a pragmatic analysis of the markets asserted by reference to the geographic areas generally identified.
434 It is also to be recalled that “all competition or substitution does not cease at the outer boundaries of the market; the economy as a whole is a network of substitution possibilities in consumption and production; competition is a matter of degree”: Re Tooth & Co Ltd; Re Tooheys Ltd (1979) 39 FLR 1 at 39. The fact that minds might differ in the placement of the boundary of a local market in a judgmental process of assessing the relevant closeness of substitution for the analytical tool of market definition in a competition enquiry does not deny or rule out a conclusion as to the local nature of the market. Thus, the Commission’s case as to the existence of local suburban markets does not rest solely on the exactitude of circles of competition of two or three or five kilometres radius being shown to be correct.
435 I do not think that the Commission has shifted its case at the “heel of the hunt” as submitted by Woolworths. I will deal with these issues in some more detail in assessing the competing evidence.
Market definition: relevant principles
436 There was no difference in principle that was debated in the submissions. The controversy arises in the proper approach to, and conclusions to be derived from, the evidence. In these circumstances, I am acutely aware of the inutility of my setting out in repetitive detail what others have said about the principles of, and proper approach to, market definition. Nevertheless, it is important to set out the considerations that have guided me to the conclusions that I have reached. This is particularly so, here, where so much is agreed, but nevertheless the conclusions of the expert witnesses are so different.
437 I have sought at  above to encapsulate something which has been said by scholars and courts about the nature of the process of market definition. Market definition is to be approached by beginning with the problem at hand and asking what market identification best assists the assessment of the conduct and its asserted anti-competitive attributes. See generally, Norman N and Williams P “The Analysis of Market and Competition and the Trade Practices Act: Towards the Resolution of Some Hitherto Unresolved Issues” (1983) 11 Australian Business Law Review 399 at 400-401; Queensland Wire (FC) at 218-219; Queensland Wire Industries Pty Ltd v The Broken Hill Proprietary Company Ltd (1988) 167 CLR 177 at 195 (“Queensland Wire (HC)”); Brunt op cit p 236. This approach has been followed in many cases: for some, see Corones SG, Competition Law in Australia (3rd Ed) p 42 ftnt 15. As the Trade Practices Tribunal (of which Professor Brunt was a member) said in Re Media Council of Australia  ATPR 41-497 at 42,262:
[t]he choice of market definition, ie the specification of relevant markets in the particular case, must depend upon the issues for determination. For the Tribunal’s purposes it is the identification of a market or markets that best enables it to evaluate the likely effects of authorized conduct, whether the subject of past authorisation or possible future authorisation.
438 This is not the abrogation of principled analysis in favour of the impugned conduct determining the market. Rather, it is to recognise the consequence of market definition being a tool for analysis and not a physical thing, or essence, which can be identified in a manner divorced from the relevant context. An analysis of market power in Australia in relation to the liquor industry for the purposes of merger evaluation under s 50 of the Act may not turn upon individual analyses of the degree of competition in suburban or regional areas as small as Arncliffe, Campbelltown or Tweed Heads. However, the assessment of the purposes of Woolworths (through Messrs Smith and Meagher) in the placement of the relevant clauses into deeds with prospective local shopkeepers in order to prevent competitive sales from new licences detracting from the sales and hence profitability of their own local suburban liquor shops provides another framework of analysis entirely. The facts and perspectives of analysis in the two circumstances are different. It is the market that best enables evaluation of Woolworths’ conduct that is relevant.
439 That the purposive approach can lead to different market definitions in relation to the same industry is illustrated by the analysis of Professor Brunt in her essay “Australian and New Zealand Competition Law and Policy”, Ch 6 in Economic Essays on Australian and New Zealand Competition Law at 250 analysing Trade Practices Commission v Ansett Transport Industries (Operations) Pty Ltd (1978) 32 FLR 305 and Auckland Regional Authority v Mutual Rental Cars (Auckland Airport) Ltd  2 NZLR 647.
440 In this process of identifying the correct analytical tool or instrumental concept of market definition by which to assess Woolworths’ conduct and purposes in this case, there is significant assistance in recalling the seminal expression of view of the Tribunal (of which Professor Brunt was a member) in Re Queensland Co-operative Milling Association Ltd; Re Defiance Holdings Ltd (1976) 25 FLR 169 (“QCMA”) at 190 (a passage approved by the High Court in Boral at  per Gleeson CJ and Callinan J, in this respect agreed with by Gaudron J, Gummow J and Hayne J):
We take the concept of a market to be basically a very simple idea. A market is the area of close competition between firms or, putting it a little differently, the field of rivalry between them. (If there is no close competition there is of course a monopolistic market.) Within the bounds of a market there is substitution--substitution between one product and another, and between one source of supply and another, in response to changing prices. So a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive. Let us suppose that the price of one supplier goes up. Then on the demand side buyers may switch their patronage from this firm's product to another, or from this geographic source of supply to another. As well, on the supply side, sellers can adjust their production plans, substituting one product for another in their output mix, or substituting one geographic source of supply for another. Whether such substitution is feasible or likely depends ultimately on customer attitudes, technology, distance, and cost and price incentives.
It is the possibilities of such substitution which set the limits upon a firm's ability to "give less and charge more". Accordingly, in determining the outer boundaries of the market we ask a quite simple but fundamental question: If the firm were to "give less and charge more" would there be, to put the matter colloquially, much of a reaction? And if so, from whom? In the language of economics the question is this: From which products and which activities could we expect a relatively high demand or supply response to price change, i.e. a relatively high cross-elasticity of demand or cross-elasticity of supply?
441 At least two elements of this passage are to be steadily borne in mind in identifying the markets here. First, it is the area of close competition. The relative and evaluative judgment as to the degree of closeness of competition relevant to the assessment of the conduct is important. Here, the question is the assessment of the purpose of Woolworths and Liquorland in undertaking conduct directed at local competitors. The degree of closeness of competition in the local area may be seen to be different from, or more important than, the degree of closeness of competition from a broader geographic perspective. In other words, merely because there is what can be said to be close competition on price across the Sydney conurbation for retail liquor, does not gainsay a local market, being a field or area of even closer competition between sellers in suburban areas. Secondly, the notion of giving less and charging more and thus constraint on activity is central to the analysis. This, as with the notion of close competition, can occur at different levels of commercial behaviour and organisation.
442 Thus, the identification of the market as the correct analytical tool or instrumental concept to assess the conduct in question will be assisted by the recognition of the close competition and factors dealing with constraints that may be seen to be affected or advanced by the conduct in question. This relationship between the conduct the subject of analysis, and the correct market for its analysis takes place in the context where value judgments must be made in an economy where markets overlap and where the geographical boundaries (for the reasons given earlier) are likely to be blurred: cf Queensland Wire (HC) at 195-96 per Deane J.
443 Put another way, the purpose of Woolworths in behaving in a particular manner may be relevant in the conclusion about the market. Though the field of activity here was common ground (the sale of packaged takeaway liquor for off-premises consumption) the following passage from Neale The Antitrust Laws of the United States of America (2nd Ed, 1970) at 21, quoted in Heydon JD, Trade Practices Law (Law Book Co Subscription Service) at [3.245] and cited in Singapore Airlines at 178, is relevant (though by no means determinative):
The court will take as the market, for the purposes of deciding cases, just that market which the firm itself takes for its field of activity: if a firm shows an intent to exclude competition from that field it will be assumed that the field sufficiently describes a market – for otherwise what would be the point of the effort to exclude?
444 If, in the real commercial world, the firm in question takes the trouble to be concerned about restricting a new entrant’s capacity, because of the potential effect on the sales and profits of its nearby local outlets (and not because of any concern about the potential effect on sales and profits of other, more widely situated, outlets), that may assist in a conclusion as to the importance of the closeness of competition and the concern as to additional constraints in that local area. The reality of the concern of the firm in question may assist in the illumination of the correct framework to analyse that conduct: cf Rural Press (HC) at 45. Woolworths submitted that whilst the purposive approach requires the relevant market to be defined by reference to the conduct sought to be impugned, the alleged purpose is not a relevant consideration in determining the market in which that purpose is to be assessed. I do not accept that submission. The impugned purpose in connection with the provisions of the relevant deed is the conduct to be assessed. The very fact that the firm behaved with that purpose may tell one something of the market. Further, it is the market analysis or tool best adapted to consider that conduct which is to be chosen.
445 It is appropriate at this point to set out the principles of market definition that appear to be agreed between the experts. Whilst, of course, the views of Dr Walker and Dr Smith in this regard are not determinative or binding on me, the agreement of two such experienced and learned economists is highly persuasive.
the common ground between Dr Walker and Dr Smith
446 Agreement and disagreement between the two experts was recorded in a template which was drafted by them. The first version of it was marked Administrative Exhibit A12. Another version was revised on 5 July 2005 and sent to me (Administrative Exhibit A 13). There is a dispute as to whether I should accept it as it contains views of Dr Smith which were not advanced at the hearing. I will deal with the submissions about this in due course.
447 I do not propose to set out the full text of the agreement between the experts on the role of market definition and purposive market definition. In substance, it is in accordance with the approach that I have identified above, subject to the matter addressed at  above.
448 There was agreement that the relevant product market was takeaway packaged liquor and that the functional market was retailing by liquor retailers through a number of different “channels” including bottle shops, over the counter sales at hotels, mail order and internet sales. (Though, there was agreement that in the relevant period mail order sales and internet sales were not major segments of those retail channels.)
449 There was also agreement between the experts as to the central relevance of the so-called SSNIP test as an appropriate method to provide a more precise analytical framework to answer the question as to relevant closeness of substitution to identify a market. In this test, a hypothetical monopolist would impose a small but significant (between 5 and 10%) non-transitory increase in price (hence the acronym “SSNIP”). Starting with the firm and product at issue, the market is gradually expanded in product and geographic space to include all sources of close substitutes that would defeat the increase. The SSNIP test can be implemented using a uniform price across a nominated market, or by positing differential price increases over different products at different stores.
450 In the context here, where product and functional markets were agreed, the debate was as to the geographic size of the relevant market. This disagreement involved not only questions as to the extent of the geographic market, but also as to the analytical processes used to reach the respective conclusions about those matters. I will come to these disagreements when I deal with the expert evidence in due course.
A description of the approach to the assessment of the market in this case
451 Each side put forward careful and detailed submissions, not only advancing its own case in respect of the market but contradicting at detailed levels of analysis the submissions of the other. The approach that I have taken is to deal with the bodies of evidence relied upon by each, and through that deal with the submissions of the parties. The primary bodies of evidence and subjects to which I will direct my attention are:
· Woolworths’ own concerns about the licence applications
· liquor retailers and consumer behaviour – market research and other documentary evidence
· industry witnesses
· expert witnesses
· an overall synthesis, common sense and commercial reality.
Woolworths’ own concerns about the licence application
452 The first matter put forward by the Commission in support of its contention of the local markets was the nature of concerns displayed by Woolworths itself.
453 The concerns of Woolworths in each episode were directed to the protection from competition of the local liquor stores run by Woolworths. I do not repeat the findings already made in this regard. To a degree, that was entirely understandable on the basis that they were the stores in the relevant “neighbourhood” in the operation of the licensing regime under the Liquor Act. Nevertheless, the evidence given by both Mr Smith and Mr Meagher was that the objection process was undertaken because of the perceived detrimental impact upon the local Woolworths’ stores, not other stores. Whilst the conduct of both Mr Smith and Mr Meagher was influenced by the operation of the Liquor Act regime, their primary concerns were with the potential damage the licences could cause to local shops owned by them. Mr Meagher did refer to the value of an unrestricted licence and its ability to be moved in New South Wales as a whole, but his real concern, and Mr Smith’s, were of the potential effects of new licences on local shops. The Liquor Act regime gave Woolworths (and Liquorland and companies like them) a weapon with which to protect their existing local businesses.
Liquor retailers and consumer behaviour – market research and other documentary evidence
454 The first body of evidence relied on by the Commission comprised various documents of (using that word broadly) Woolworths and Liquorland. In particular, reliance was placed on research commissioned by Woolworths and Liquorland and upon documents which reflected what were said to be the strategic decisions taken by each in the marketing of their respective businesses.
Market research by or on behalf of Woolworths
455 The first body of material relied upon was research conducted by or under a firm named “Bain International” for Woolworths in June 2000. I will discuss shortly the criticisms made of the material by Woolworths. To begin, I will identify the salient features of the documents.
456 The documents consisted of customer research apparently directed at a “liquor strategy” for Woolworths. There were apparently 1,550 telephone interviews of 10 minutes each conducted across the whole of Australia and then 800 face-to-face interviews of 30 minutes each conducted focusing on Sydney, Melbourne, Brisbane and Perth.
457 After detailed debate about these documents at the hearing I made rulings on them and I admitted some of them as evidence of various representations set out in Administrative Exhibit A5. (Administrative exhibit A5 conveniently records the tender bundle tab and document numbers together with the pages of the transcript which contain my rulings. The main body of Administrative Exhibit A5 (being pp 1-57) is supplemented by another document of three pages setting out the admission of documents agreed between counsel to be governed by prior rulings on admissibility.)
458 The representations from this Bain International material were as follows:
In or about June 2000, research conducted by Bain International for Woolworths showed that:
· Day to day and social drinking represented over 75% of liquor purchasing occasions.
· Convenience was by far the main reason for store choice with convenience factors accounting for over 60% of reasons.
· More than 30% of people travelled one kilometre or less for their liquor purchasing, independent of the occasion, and more than 60% travelled less than five kilometres.
In respect of those parts of NSW other than Sydney, that:
· for approximately 50% of people the distance travelled to the liquor store from home was less than five kilometres; and
· for approximately 80% of people the distance travelled to the liquor store from home was less than ten kilometres.
459 The second body of material was another piece of research conducted by Bain International. In or about July 2000, as part of an examination of Woolworths’ liquor expansion plans for Sydney, Bain International, on behalf of Woolworths, analysed the demand for packaged liquor at a postcode level. This research showed:
(a) that convenience was about twice as important as any other customer need with “close to home” having a weighted average score of approximately 7.5, more than double the next most important factor being expressed by the phrase, “it’s cheaper”.
(b) that in Sydney, convenience factors were the main needs identified by approximately 70% of liquor store customers.
(c) that about 40% of customers made a special trip to buy liquor, driving on average 2.7 kms, with almost 80% of those customers driving less than 3 kms and over 90% driving less than five kms; the remaining approximately 60% of customers purchased liquor while going somewhere else, and of those:
· more than half purchased liquor while doing grocery shopping (average distance out of the way 0.5 kms)
· approximately 20% purchased liquor on the way home from work (average distance out of the way 0.9 kms)
· other trips included doing other non-grocery shopping (average distance out of the way 1.0 kms), on the way to a party (average distance out of the way 0.7 kms), going to friends’ place for dinner (average distance out of the way 1.3 kms), on the way to a restaurant (average distance out the way 1.9 kms) and on the way to work (average distance out of the way 0.4 kms).
(d) the following average distances that particular types of customers were prepared to travel for a 1% discount:
· wine connoisseur 0.18 km
· service seeker 0.28 km
· quick and easy purchaser 0.18 km
· bargain shopper 0.19 km
· regular price hunter 0.27 km.
(e) the following average distances travelled when customers made a special trip to buy liquor:
· specialist wine merchant 2-3 kms
· destination store 4.9 kms
· supermarket liquor store 2.1 kms
· convenience bottle shop 2.7 kms.
(f) that approximately 75% of customers at supermarket liquor stores went there while going somewhere else, while over half of customers at destination stores and specialist wine merchants made a special trip there and shoppers at convenience stores were evenly split between special purpose shoppers and those using the store while going somewhere else.
(g) that for high value customers (representing 40% of the population but over 90% of liquor revenue and profit):
· Convenience was the most important factor in format choice.
· Generally, they planned what they would buy in advance and stuck to familiar products.
· They purchased over 70% of their liquor in one store.
· Approximately 40% were not shopping at their preferred format and the main reason for this was that their preferred format was not located nearby.
(h) that only 30-40% of high value customers were ready to pay for home delivery.
460 The third body of material was another piece of research done for Woolworths by a firm called “Q2 Strategic Market Research” between October and December 2002. This research showed that “convenient location” was the main driver of store choice at over 75%, followed by “one stop shopping” at around 40%.
461 All this evidence was attacked by Woolworths. The Bain International reports were addressed in oral evidence by Mr Peter Hardy who had been the Senior Business Manager, Liquor at Woolworths from April 2004. (He no longer worked at Woolworths.) From January 2001 to April 2004 he was the Liquor Licensing and Acquisitions Manager at Woolworths. Between January 1998 and January 2001, he was employed by Franklins Limited as Business Manager, Liquor. Mr Hardy was an accountant by training who had worked for Franklins from 1982 (when 22) as an internal auditor, national audit manager, Queensland State Human Resources Manager and Victorian State Finance and Administration Manager. I will deal more fully with Mr Hardy’s evidence in due course. It is appropriate, however, to say, at this point, that Mr Hardy struck me as an intelligent and practical man, efficient in the discharge of his duties. He had good financial and administrative skills, but his background in liquor went back only to 1998. His views were, at times, somewhat adamantly given. I exercise a degree of caution with his evidence insofar as it involves judgments in respect of the liquor industry likely to be informed by experience in that industry, in particular to the extent that they may conflict with the evidence of Mr Higgs.
462 Mr Hardy did not direct any evidence in chief to the material just discussed. The cross-examiner taxed him on it in connection with the evidence he gave about the establishment of the Woolworths’ four brand format (“First Estate”, “BWS”, “Woolworths Liquor” and “Dan Murphy’s”). Mr Hardy read the reports of Bain International on the first two days of his employment at Woolworths, having moved from Franklins.
463 Mr Hardy first made the comment that he thought the four brand approach had been decided upon and then the evidence to back it up was collated. Mr Hardy was then taken to a document concerning Woolworths’ strategic plan for 2002-2006 (“Strategic Plan”) (a document to which I will come shortly). Mr Hardy said that he had a small part in its preparation. The purpose of the document can be seen to be an important one for Woolworths. It was described in confidential Ex TT, tab 34 at p 42-00142 as follows:
This plan has articulated the critical imperatives and has identified the key strategies for the Woolworths Liquor division over the plan period.
The emphases of these strategies were then set out. The contents of the Strategic Plan clearly used the Bain International research in detail. Mr Hardy’s acceptance that there were “some quotes” from the Bain International research in the Strategic Plan was a little grudging. On the evidence, it can be said that the Bain International research was used in important respects in the Strategic Plan. The Strategic Plan was an important document for the liquor division in the “roll out” (to use Mr Hardy’s words) of the four brand strategy.
464 Mr Hardy then made further comment on the Bain International research. He repeated that he thought that the Bain International studies had been sought to “support a strategic direction that was sought to be taken”. I do not accept that this somehow detracts from the importance placed on the material by Woolworths. To the extent that it might be seen as sought to imply some contrived or artificial attribute of the material, that has not been made out. The Bain International research was used in an important strategy document concerning the expenditure of a very large sum of money. It was seen by those at Woolworths involved in the liquor business, whom I infer were not without skill and experience in the industry, as worthy of incorporation in an important strategic plan involving important decisions on behalf of Woolworths.
465 Mr Hardy was taken to the second Bain International research of July 2000 called a “liquor strategy expansion plan”. (See  above.) Mr Hardy said that he had found some inaccuracies in the research. He thought that the postcode attractiveness weighting was “a load of rubbish”. (I did not take that answer as expressing an entirely dismissive view about the whole report, only the “postcode attractiveness weighting”. Nor do I take Mr Hardy’s views as coming from a witness with any expertise in market research.) When taxed with the nature of internal Woolworths data that had been supplied to Bain International, Mr Hardy reiterated that it had been done before he arrived. He did, however, say that one or two people did supply Bain International with internal Woolworths data relevant to the research.
466 These criticisms of Mr Hardy were neither thoroughgoing nor comprehensive. No one was called by Woolworths to give evidence on the inaccuracies, deficiencies or unreliability of this material provided by Bain International. Nevertheless, counsel addressed at some length both at the occasion of the debate as to admissibility and in submissions and address about the inadequacy of the material. These criticisms were as follows:
· The research was not undertaken by Bain International, but by an organisation called “Leading Edge”.
· No one was called to prove the material given to Bain International or to prove the analysis.
· The criticisms of Mr Hardy were adopted. In particular, it was said that there was a skewing of results towards convenience factors. The submissions stopped short of suggesting that this was deliberate.
· The surveys were conducted in competitive settings which it was said would influence the weight given to convenience.
· The Australia-wide nature of the research militated against its use in respect of the candidate markets in this case.
· The inherent difficulties of interpretation. Some of the text was taken to show its lack of meaningful content.
467 Market research of this kind has its limitations. Care needs to be taken in how much weight it receives against other evidence. Nevertheless, there is significant force in the Commission’s rebuttal. This material found its way into the strategy documents and board papers of Woolworths, a skilled participant in this industry. No evidence was led as to its inaccuracy. Further, though Mr Hardy had his criticisms of the Bain International material, it supported a strategy developed by Woolworths with:
Real-life working knowledge of the market and the direction that the business wanted to go.
468 Woolworths was apparently of the view that the results were both rational and meaningful upon which it could base business decisions. It was treated as reliable by a knowledgeable commercial entity. It should be given some weight.
469 The following should also be noted about the weight to be given to the representations relied upon by the Commission arising from the Bain International material:
(a) As to the representations in  above, the research was done by Leading Edge and interpreted by Bain International. The raw data was not available. The process of research was 1,550 telephone interview of 10 minutes each over the whole of Australia. Exhibit EE was the form of the detailed questionnaire which was the basis of these telephone interviews. The material revealed that from raw data supplied by reference to these questionnaires Bain International analysed the material. (See generally the debate about admissibility at T pp 1226/22-1233/26.)
(b) As to the representations in [459(a)-(h)] this appears to be based on research done by Leading Edge and evaluated by Bain International. No primary raw data or questionnaire was available. Nevertheless the form of the document and the fact that it was given weight by Woolworths entitle the evidence to some weight.
470 As to the representations in  the document revealed the methodology employed and was incorporated into a working Woolworths’ document. There can be inferred a measure of acceptance by Woolworths of the material, for a degree of consideration by those making decisions at Woolworths. It is entitled to some weight.
Woolworths’ own documents
471 A document entitled “Corporate Growth Strategy: Liquor Retail Strategy” was presented to the board on 21 July 2000. This incorporated as relevant for the board’s consideration certain conclusions that had been derived from the Bain International research as follows:
(a) that 40% of customers who were not shopping at their preferred format did so largely because there was no store like that in the customer’s neighbourhood;
(b) that high value customers share the following characteristics:
· customers purchase over 70% of their liquor in the same store
· convenience is twice as important as price in liquor format choice;
(c) that approximately 40% of customers described themselves as service seekers or wine connoisseurs, over 20% described themselves as quick and easy shoppers and less that 40% described themselves as either regular price hunters or bargain shoppers.
472 In the same document prepared by Woolworths and presented to the board it was stated:
that “convenience is universally important”.
473 In April 2001, Woolworths, through its Liquor Division, prepared a document which was entitled “Strategic Recommendations for the Implementation of a Diversified Liquor Offering”. The document recommended the setting up of four liquor channels: destination stores, convenience stores, integrated stores and wine specialist stores. Each “channel” had its features as set out in the document. The document stated that convenience was about twice as important as any other customer need across all customer segments.
474 The document then discussed the different types of store. In relation to the “convenience stores”, the summary of the strategic direction included the proposition that there was to be created a national chain of local convenience bottle shops with a range of product that was store specific and customer catchment area specific, which would match local competitors on core products.
475 In relation to these convenience stores, it was part of the strategic direction to regularly promote its convenience bottle shops to local catchment areas and the positioning of such stores was to be of “local great value”. The marketing plan for these stores was stated to be centred around local media targeting the immediate three to five kilometre perimeter around the outlet; and during the launch phase of these local convenience stores it was stated that the following would take place:
· Full page, full colour press advertisement in local publication for two consecutive weeks;
· Letterbox flyer distributed to households in the three to five kilometre perimeter around outlet for two consecutive weeks;
· Local outdoor opportunities in the immediate vicinity of the store: ie bus shelter, billboards etc.
476 In relation to the “Integrated Stores”, the summary of the strategic direction included the proposition that there was to be a national chain of one-stop grocery and liquor stores which would match the price of local competitors on core products.
477 In relation to its “wine specialist” stores (“First Estate”), the marketing plan was stated to be that all advertising and communications for its wine specialist stores would be centred around local media highly targeted to the appropriate target market. During the launch phase of these wine specialist stores it was stated that the following would occur:
· full page, full colour press advertisements in local publications for two consecutive weeks;
· letterbox flyer distributed to households in three to five kilometre perimeter around the outlet for two consecutive weeks; and
· local outdoor opportunities in the immediate vicinity of the store.
478 In relation to its destination stores, the summary of the strategic direction included the statement that the stores would match local competitors on core products.
479 This document disclosed a perceived strategic recommendation that it was important to focus on the local markets of the stores, whatever the format. This was a view expressed in what was a policy document of the Woolworths’ liquor division. It is evidence of real weight being given in the contemporaneous views of those experienced in the liquor industry of the importance of local competition.
480 I have earlier referred to the fact that the Bain International research material was incorporated into an important strategy document of Woolworths. Mr Hardy said that it was merely confirmatory and not causative of the relevant decisions. So much can be accepted. The strategy document, earlier referred to as Strategic Plan, was entitled “Woolworths Ltd F02-F06 Strategic Plan”. There was an apparent acceptance of the results of the customer research which were detailed as follows:
· Day to day and social drinking represented over 75% of liquor purchasing occasions.
· “Cellaring” represented less than 10% of occasions.
· More than 60% of people travelled less than five kilometres for their liquor purchasing.
· In relation to key purchase criteria for liquor shoppers convenience was the strongest attribute by far.
· High-value customers represented 40% of liquor purchasers but over 90% of liquor revenue and profit.
· For high-value customers, convenience was the most important factor in format choice.
· High-value customers purchased over 70% of their liquor in one store.
481 These findings appear to have been accepted as sufficiently reliable for Woolworths’ purposes of four year strategic planning in respect of the conduct of the retail takeaway liquor business. No separate geographic modelling was thought to be appropriate to any part of Australia.
482 Woolworths attacked the relevance of this material and submitted that it should be disregarded as of little weight. First, it was said that it suffered from the same defects and limitations as the Bain International survey evidence. At one level of analysis that is correct. However, to the extent that there can be seen to be adoption or approval of these views, it is being done by a skilled and sophisticated commercial participant in the liquor industry. This gives credence and weight to the reliability and worth of the views expressed. Real commercial and marketing issues of importance were being dealt with by Woolworths. Its officers and employees in its liquor division produced board papers and other high level strategic documents expressing views, partly, but not wholly, based on market research. One infers that they also had their own skill and experience upon which to draw. It is unrealistic to brush all this aside because of a failure to comply with, for instance, standards of methodology now required for the production of independent expert evidence for the assistance of a court untutored in the market place to which the survey is directed. This is especially so when no witness from Woolworths was called to cast doubt (with the benefit of some hindsight) on the reliability of the views expressed in the Woolworths’ working documents, whether based on the market research or not.
483 Secondly, it was submitted that the material was of limited utility because it was addressing a competitive market situation and not the situation required to be considered in the test used by both experts (the so-called SSNIP test). This is not a valid criticism. What can be drawn from the market research and Woolworths’ material are various propositions in real life about the factors which influence liquor consumers behaviour and also how they tend to behave. The SSNIP test is not the only evidential tool upon which to base the conclusion as to market definition.
484 Thirdly, it was submitted that no higher attribution could be given to the material as adopted by Woolworths because the information presented went to a range of topics, only some of which were relied upon by the Commission and because the material is subject to interpretation. I do not accept that these propositions undermine the significant value of the evidence as indicative of views accepted by Woolworths as having sufficient meaning and reliability to find their place in reasonably high level corporate planning.
485 Fourthly, it was said, relying on Mr Hardy, that the Bain International material did not cause the strategic direction. This is beside the point. It was used as confirmatory and supporting information for the development of the strategy and board documents.
486 Fifthly, it was said that the strategies were national and there was no suggestion that individual decisions were taken on the “narrow candidate markets” at issue in these proceedings, or that national decisions were taken on the basis of consumer behaviour with those narrower areas. There was, however, no indication that Woolworths was of the view that separate research was warranted to differentiate local areas.
487 Of course, the evidence will simply take its place in all the other evidence including that led from industry participants. These submissions do not lead me to conclude that the evidence is without weight.
Market research by or on behalf of Liquorland
488 There were five pieces of market research information provided to Liquorland. Representations from each were admitted under the Evidence Act 1995 (Cth).
489 In or about March 1998, research conducted by Blue Moon Research and Planning Pty Ltd for Liquorland showed that 88% of customers surveyed used the Liquorland store because they lived nearby or were passing. The material in evidence explained the methodology that had been employed.
490 On or about 22 December 1999 research conducted by A C Nielsen for Liquorland showed that 64% of customers surveyed chose a specific outlet because it was “close by”, 25% because it was “near [a] supermarket” and 13% because of “price”. The research was based on telephone interviews of at least 300 people over 18 years old, and in postcodes in which Liquorland had a store.
491 In or about February 2000, qualitative research conducted by a firm called “Bread and Butter” on behalf of Liquorland and entitled “Project ‘Big Box’”, showed that convenience was the primary driver for liquor store choice, based primarily on location (being close by or near the supermarket or other stores they regularly visited, or on another regular route to visit family, for recreation or getting to/from work). The same research recorded responses to the effect that chasing price savings on beer and wine did not justify travelling cost or spare time. This research was based on focus group discussions, two with a focus on beer and two with a focus on wine. A detailed brief was in evidence as to the conduct of the research.
492 In qualitative research carried out by Benchmark Planning & Research Pty Ltd in or about February 2002 for Coles Myer Ltd and Liquorland (Australia) Pty Ltd (entitled “Project Seattle Report”), it was stated that respondents tended to use one liquor store frequently, and generally no more than two others on a regular basis. In the same research, it was stated that respondents said that they tended to stick to the familiar stores and only if they believed they were constantly being “ripped off” would they contemplate changing stores. In the same research, it was stated that very few respondents said they would ever change stores for less than, say, $5 on a case of beer or a bottle of spirits. Though the first part of Ex A5 contained bodies of material objecting to this report, at T p 1237/8-11 there was no objection to the tender of this material (which was behind tab 136). In any event the methodology of the research was set out. Eight focus groups were used.
493 It should be noted, in particular in the light of the debate that took place in the case about the respective attractions of convenience and pricing, that this research, from eight focus groups of different ages and socio-economic backgrounds, revealed a subtle relationship between these two important factors. The two pieces of evidence taken from this research set out above should be understood to have been stated in longer and more sophisticated passages (in which the above passages have been emboldened) as follows:
Do they “shop around”
· There appeared, from this research, to be limited transient behaviour in relation to the liquor store usage. Respondents said they tended to stick to the one or two most convenient stores, even if they believed they might get a better price at some store less conveniently located. It was, for many, a matter of “swings and roundabouts”… what they might gain from driving to a more distant, less convenient store they would probably make up for over time at their most often used store. The belief that eventually their store’s specials and sales would even out or be equivalent to any other store’s was prevalent throughout… very few true “bargain hunters” were evident in the sense that whilst we can assume everyone is to some degree looking for a bargain, most were reluctant to leave the convenience an [sic] familiarity of the known store for something that will, in their eyes, be as competitive “in the wash”.
· To this end, respondents said they tend to stick to the familiar stores. Only if they believed they were constantly being “ripped off” would they contemplate changing stores.
· Infrequently, they said they would travel for very strong specials.
Importance of pricing
· Whilst respondents said they studied pricing intensely, and that pricing was the main driver of where they shop and what they shop for, they did not demonstrate this in actual behaviour. As stated previously, they tend to shop in only one or two liquor stores, so the price issue is more a perceived one than one they regularly check. Very few respondents said they would ever change stores for less than say $5 on a case of beer or a bottle spirits. In fact $5 seems to be the point of change, and even then, if inconvenience exists with the alternative store, respondents said they were unlikely to make a change.
· So, It’s the perception of value, low prices and competition that is vital. This is not to say that price is unimportant… far from it. If people think they are likely to get good value, competitive prices and the occasional bargain from their store, they will continue to shop there.
· If they ever felt that their store was generally more expensive than most of the competitors they will change.
494 Though the reactions were taken from only eight focus groups, they have a resonance of common sense which is worth bearing in mind in evaluating all the evidence, survey, industry and expert. Human behaviour is not always logical, but it is often explicable and based on personal common sense.
495 Finally, in or about July 2002, research carried out by a firm called “TQA Research” for Liquorland showed that uses of both a main liquor outlet and other outlets were primarily driven by location, at 83% and 76% respectively.
496 The criticisms made by Woolworths as to the earlier research material were repeated. For similar reasons as I earlier expressed I think that this research material has some weight.
Liquorland’s own documents
497 A document entitled “Liquorland (Australia) Pty Ltd FY 2000 – FY 2003 Strategic Plan” was admitted into evidence. This document disclosed that Liquorland accepted, for the purposes of strategic planing, that:
· convenience/location, range and price are the main drivers in the purchase decision;
· consumers usually purchase liquor from between one to three outlets, generally within a four kilometre radius of home or on the way to work;
· consumers are looking for quality, service and convenience, rather than cheap prices; and
· price is the most important factor for 20% or less of shoppers in a specific category.
498 Another Liquorland document that was admitted into evidence was a memorandum, on or about 14 March 2002, from Mr Adrian Harrigan, Liquorland NSW Sales Manager, to various persons on the subject of gross profit opportunities based on geographic proximity of competitors. I allowed the document in as evidence of the state of mind of the New South Wales Sales Manager of Liquorland in March 2002. This man, together with one of his colleagues, had prepared some material which was annexed. It revealed a view that the major competitors were local and where there was no direct competition within their local market there was an ability to raise prices by $0.50. The “key competitors” in this man’s view were all within five kilometres. He thought that by a modest increase in price in top selling lines an additional $2 million per annum in net profit could be obtained. To his mind the lack of local direct close competition would allow Liquorland to “charge more or give less” to use the language of QCMA.
Competing considerations from the above written material
499 Woolworths pointed to various aspects of the above market research and corporate material which, it was said, significantly qualified many of the representations relied upon by the Commission. I will deal with each in turn.
500 In answer to the Commission’s submission that the second Bain International material of July 2000 revealed a focus on local markets Woolworths submitted that the purpose was not to focus on local markets but to identify postcode areas which were attractive “for introducing liquor into supermarkets which do not have liquor” and to “roll out the proposed mix of stores”. The point can be accepted, but it still be recognised that the study was to identify local areas to target.
501 Woolworths referred to a strategic plan for Woolworths for liquor for the years 2003 to 2007. (See Exhibit WW, tab 157.) This document looked at the Australian retail packaged liquor market and set out national sales broken down by state. No doubt for some purposes of strategy and overall assessment, Woolworths looked at the liquor industry from a national perspective. It was a national organisation. Nevertheless, within that national and state analysis the document incorporated, for the purposes of discussion, important considerations about customer profile that conformed with the material referred to by the Commission:
2.3.1 Customer Profile
· Income is a good demographic predictor of liquor spend
· High spenders do have more differentiated needs than other liquor purchases, hence different format needs
· The liquor buyer is not gender specific (Male – 56%; Female – 44%)
· Weekly purchases represent the bulk of liquor spend
· Day to day and social drinking represent over 75% of liquor purchasing occasions. ‘Cellaring’ represents <10% of occasions.
· Day to day drinking is skewed towards beer, all other occasions are wine focussed.
· More than 60% of people travel < 5 km for their liquor purchasing
· Key Purchase Criteria for Liquor shoppers (Ranked)
1. Convenience (strongest attribute by far!)
3. Knowledgeable and Friendly Staff
4. Large Product Range
5. Easy Parking
6. Opening Hours
High Value Customers
· High value customers represent 40% of liquor purchases but over 90% of liquor revenue and profit
· Convenience is the most important factor in format choice
· They plan what they will buy in advance & stick to familiar products
· They purchase over 70% of their liquor in one store
502 One methodological aspect of the Leading Edge survey was said to detract from the utility of the results. In the analysis of the research which led to the conclusion that “convenience is about twice as important as any other customer need”, there were differential weightings given for the reasons, depending on the importance of the reason and whether it was the main or other store used. It was said to be important for the SSNIP test that customers shop at a number of liquor outlets even without a price increase. I do not see why this should be so. I do not see how this submission substantially eliminates the weight to be given to this material.
503 Woolworths made a legitimate point about Exhibit VV tab 99 at p 47-00492. This was used as the basis for the representation at [459(d)] above. Woolworths pointed out a fact relevant to the consideration of these representations and how they are to be assessed with the expert evidence . This was that the top 10% most sensitive customers were excluded. These are people most likely to travel in the face of a SSNIP.
504 Woolworths referred to Exhibit TT (Ex TT), tab 37 and the representations taken from it by the Commission (see  above) that convenient location was the main driver of store choice. It pointed to a page of the research that recognised pricing as of importance, and as indicative of destination stores providing a real competitive constraint to “local stores”, even Woolworths’ stores. The relevant parts of the document relied upon by Woolworths were:
· The Woolworths/Safeway brand has two key strengths:-
- Convenient locations – One Stop Shopping AND
- Good pricing – Good specials and supermarket pricing mentality.
· However the warehouse outlets such as Dan Murphy and Theos are perceived to be as good if not better in terms of pricing and are perceived to have many advantages over the supermarket brands (most notably in range and staff).
505 Woolworths also referred to a document in Ex TT, tab 35, being the strategic plan for Dan Murphy’s for 2002 to 2006. It set out the view that:
The organisations which consider Dan Murphy’s their greatest threat include Coles Myer (Quaffers/Vintage Cellars/Liquorland), ALG (Philip Murphy/ Knox Liquor), and other independent operators such as Kemenys, Theos, and Baily & Baily.
This, it was said, supported the conclusion that the existence of destination stores mandates a wider geographical market.
506 In relation to the Liquorland “Strategic Plan” for 2000 to 2003, which the Commission used to found the representation referred to at  above, Woolworths referred to the following passages dealing with how Liquorland viewed the market:
Market – Liquor Industry
· Mature market with extensive competitor activity; relatively low barriers to entry and slow growth.
· Australian packaged liquor market valued at $4.7b (LL 26.3% of market).
· The Market is fragmented with a large number of small players.
· The industry operates on a high turnover and very low profit margin due to significant price competition and increased competition from new and existing competitors.
These were said to be evidence contrary to the Commission’s submissions that Liquorland proceeded on the basis that there were local markets.
507 Woolworths pointed out that Exhibit UU, tab 89, being the research conducted by Leading Edge underlying the representations set out at  above, revealed that approximately 40% of persons surveyed travelled more than five kilometres from home to the liquor store.
508 Woolworths also relied on a “Customer Value Study” undertaken by Austin Thompson & Associates Pty Ltd in 1998 on behalf of Liquorland. This was based on focus group discussions, and customer interviews. In this study “competitive pricing” was rated the most important “value element” by a “clear margin”. It should also be noted, however, that based on the review of the study results and its key findings a “Customer Value Model” (said to be a set of specifications for excellence provided by customers themselves, describing the experience they want to buy in) was described which placed factors connected with convenience at the top of the model. The model was stated to be as follows:
1. Accessible, fast and hassle-free shopping:
- convenient/handy locations
- parking with easy access to store
- easy to find and clearly priced products
- quick checkout service
2. Friendly, knowledgeable and helpful staff:
- friendly, courteous and helpful staff
- sound advice from knowledgeable staff
- help with heavy items
3. Competitive pricing
4. Wide range of products
5. Attractive layout and ambience
6. Appropriate range of chilled product
7. Frequent shopper incentives
8. Try before you buy
9. Internet shopping/home delivery
509 Part of the qualitative analysis of factors at least some of which may be described as convenience which led to this model stated the following:
· When the Value factors convenient/handy locations; parking with easy access to store; easy to find and clearly priced products; and quick checkout service are combined under an umbrella heading of ‘accessible, fast and hassle-free shopping’ it becomes the most important Customer Value Factor.
510 The above material is to be assessed in the light of the industry evidence, in particular that of Mr Higgs. However, it is able to be assessed as a coherent body of material if regard is paid more particularly to those parts of the material, by way of research and analysis, which were incorporated into the documents of Woolworths and Liquorland concerned with high-level strategy and planning. For the reasons that I have already given, the adoption by Woolworths and Liquorland of this material can be taken as evidence that the material was rational and worthy of some reliance.
511 Both sides relied heavily on the evidence of Mr Malcolm Higgs. He was called in Woolworths’ case. He was a most impressive witness. He has spent almost the whole of his working life in the retail liquor industry in the Sydney metropolitan area. He has also been involved for many years in industry associations, including at a managerial level. This has given him an understanding of the liquor industry in metropolitan and regional areas of New South Wales. This working life in the liquor industry has given him a wealth of experience in retail liquor selling and wholesale buying. In addition to this deep knowledge and experience, Mr Higgs was a perceptive, intelligent and articulate man who approached the task of giving evidence in an entirely frank and unbiased way. I give great weight to his views as a reliable body of evidence and insight into the real commercial operation of the liquor industry and the market. That does not mean that I accept all his evidence without question. For reasons later expressed, I do not accept some of it, in particular, the hypothetical questions concerning the operation of the SSNIP test.
512 With that introduction, I will outline Mr Higgs’ evidence. Some very important evidence was given by Mr Higgs orally. Nevertheless, an appreciation of his written evidence is essential. In his statement being exhibit 4 (Ex 4), Mr Higgs set out his experience and knowledge of the industry and, in particular, his establishment of the “Porters” liquor chain.
513 In relation to the running of the Porters chain advertising catalogues were distributed in the local area of the shops in question, advertisements were placed in the local press and occasionally in the Sydney Morning Herald. The advertising was consistent across the Sydney metropolitan area and New South Wales but was directed to each store’s catchment area. In his experience, other groups called “banner groups” (being collections of businesses trading under a common name or “banner” and sharing various function including buying and advertising) advertised in the same way. (See, generally, Ex 4  to .)
514 Mr Higgs dealt with the question of liquor consumption within a 24 hour period. In his statement he accepted that single bottle or small purchases might be consumed within 24 hours, but larger quantities of beer and wine and any quantity of spirits was unlikely to be consumed in 24 hours (see Ex 4  to ). That, however, does not deny that the customer was likely to commence consumption shortly after purchase. Mr Higgs accepted this in cross-examination.
515 There was other evidence, in particular the views of Mr Jeffs, Woolworths’ company secretary, recorded at a meeting with the Commission, (Exhibit NN, tab F), and Mr Hardy in cross-examination, that most takeaway liquor is consumed or commenced to be consumed within 24 hours of purchase. This tended to indicate that consumers tended to focus upon purchases smaller than a stocking-up purchase and close in time to the occasion of the consumption. This too tended to support the market research material.
516 Mr Higgs then dealt with the question of “convenience” (see Ex 4  to  excluding  and  which I rejected). He agreed that the “primary driver” in liquor outlet choice was convenience. To him, however, the word convenience meant a range of considerations depending on the customer: coupling liquor shopping with other shopping, easy parking, proximity to a transport route to and from work, home delivery, a large range at good prices, and a specialist range of product. Of these considerations, he thought that customers especially valued convenience of a shop close to their place of work or route to or from work.
517 In his experience, the customers at his shops were broadly drawn from the local area. Based on the knowledge of his own businesses, those customers were residents in an area two to five kilometres around the store, the business population in that area and business centres around the area and people travelling through the area to and from work. In his view, the relevant convenience factors for each store varied and depended upon the particular store and its location. For instance, a store on a major road may need to adjust its opening hours to be convenient by reference to the hours of lawful stopping and parking outside. (See Ex 4 .)
518 Mr Higgs then dealt with his competitors (see Ex 4  to ). He considered the direct competitors of his stores to be stores in the local area, specialist wine stores and discount or destination stores. He used the word “competitor” to mean stores from which he believed his customers would purchase takeaway liquor if his store was not seen as competitive. He did not consider that his competitors were limited to the local area for three reasons: (a) some of his customers who lived in the local area would travel to destination stores (outside the local area), (b) some of his customers did not live or work in the area, and (c) most customers were “price conscious” and some were “price sensitive” and were generally aware of the prices for a range of products advertised in local and metropolitan newspapers. He then gave examples from the stores he had run. As to his Edgecliff store, all his direct competitors (including Kemeny’s, a destination store near Bondi) were within about five kilometres except 60 Darling Street, a specialist wine store in Balmain, which had a low price reputation 10 kilometres away. As to his Bondi Junction store, the same applied, with the addition of a wine mail order competitor. As to his Gordon store, the competitors were nearby, except 60 Darling Street (fifteen kilometres away) and two destination stores, “Jim’s Liquor Barn” at Waitara and Kemeny’s near Bondi (ten kilometres and twenty kilometres away, respectively). As to his St Leonards’ store, all competitors were local except 60 Darling Street and Kemeny’s (fifteen kilometres and ten kilometres away, respectively).
519 Mr Higgs was cross-examined on his views of the competition provided by the destination stores referred to above. He accepted that to the extent they were outside a five kilometre range they were competitors in respect of the range of advertised wines, not their “shelf range”. He accepted that whilst he checked the shelf prices of local stores, he did not do so in respect of these destination stores.
520 These destination stores were important in assisting the price setting of core products and promotions. The nature of the competition was expressed by Mr Higgs as follows:
It's probably important, if I may, … that it's not a matter of having to match 60 Darling Street's prices; it is a matter of having to be aware of what 60 Darling Street or Kemenys are doing at any given time and then make your own decisions upon the price.
So when I say that I check 60 Darling Street, I'm using that checking, whether it's the local store across the road to see how much it sells a single can of beer or a stubby of beer for, or 60 Darling Street to see whether they are doing a promotion on Cockatoo Ridge and what price they are doing it, in making decisions about not only what is promoted, what is put on the floor, where it is put and whether it is something we need to react to because it might affect consumers' perception of our business.
521 Mr Higgs also agreed during his oral evidence that the destination stores (unless nearby) were not really a competitor for the customers who came in for one bottle of wine or a six-pack of beer. He also agreed that certain categories of his customers were not subject to competition from those destination stores.
522 Mr Higgs then dealt with setting prices (see Ex 4  to ). There were various factors that influence the setting of prices in any particular liquor store: the volume sold, the cost, the advertised “market price”, the price sensitivity of the product and the nature of the individual business. To his observation, this combination of factors resulted in a whole range of products at the same or similar price point in most takeaway liquor stores in Sydney. As to volume, he said the higher the volume the lower the margin. As to cost, he said the provision of wholesale liquor was extremely competitive on price. As to “market price”, Mr Higgs explained that each packaged liquor retailer will generally have three levels of pricing: “normal shelf price”, “in-store promoted price” and “advertised price”. “Normal shelf price” was the standard shelf price which varied according to the retailer’s own pricing policy. It tended to be set by the chosen gross profit margin on the product. The “in-store promoted price” was the retailer’s own promotion. This was determined by the retailer’s own policy, but was influenced by the advertisements of other retailers. One should not put one’s own store promotion against a better well advertised price from a store such as Kemeny’s. The “advertised price” was as seen in promotions and advertisements. Once again, this is determined by the retailer’s own policy, but influenced by the advertising of others.
523 His experience was that the most frequently advertised price for a particular product was at around the same figure (plus/minus 10%). This was the “market price”. There was also a “bottom line” price, close to cost price.
524 Mr Higgs dealt with price sensitivity. Some products were particularly price sensitive – core, or well-known, high-volume selling beers (such as VB and Toohey’s New), spirits (such as Johnnie Walker Red Label) and wine (such as Lindeman’s Bin 65) were products in respect of which it was important for a retailer to set the price close to the market price because many customers have a strong awareness of the widely advertised and promoted prices of these products from many retailers across Sydney. These products have a dual importance. Setting their prices above the market price will cause a loss of sales in that product. Further, it may create a perception that the store is not competitive on overall pricing.
525 Other products were not so price sensitive. But it was still necessary to have regard to the advertised “market price” in order that the price be set within a reasonable range.
526 Mr Higgs found most customers to be price conscious and to have a sense of the appropriate range for a particular product, though they may not have an awareness of the “market price” of that product. It is important to recognise that there was a difference of expression (of some importance) used by Mr Higgs between “price sensitive” and “price conscious” in particular in describing customers. He used the expression “price sensitive” in relation to customers who would change a decision because of price and the expression “price conscious” in relation to customers who were aware of price. The submissions, in particular of Woolworths, sometimes did not recognise this difference.
527 The nature of the individual business is also important in setting the price. In relation to this factor he considered the selection of the gross profit margin, the demographics of the customer base and the competitors. In considering demographics, he used his general knowledge of the area in which it was situated, observation and sometimes statistics from the Australian Bureau of Statistics. Once he had established the demographics of the customers of the store, he used his experience in setting the range and prices of the goods.
528 Mr Higgs returned to competitors in this discussion of price setting. He said that when setting prices he took into consideration both liquor retailers in the area in which he was operating and competitors in the wider Sydney metropolitan area. Mr Higgs said that it was important for any retailer to have a good understanding of what other liquor retailers were doing in the Sydney area. This was so, he said, because of the awareness through widespread advertising of the advertised prices of a range of products. That said, Mr Higgs always first considered his immediate local competition to assess aggressiveness of their advertising. He then looked at newspapers and catalogues to see what Kemeny’s, 60 Darling Street, the Coogee Bay Hotel, Woolworths and Liquorland were doing. This allowed his stores to be competitive Sydney-wide and to allow him to work out the “market price” of particular products. He expressed the view that, as a general rule, his decisions about pricing were based on what retailers in the broader market were doing. In addition to assessing the advertising and promotions of Sydney retailers, he undertook price checking of standard shelf prices in local stores.
529 Thus, the setting of prices was affected by the Sydney-wide advertising of stores, in particular, Kemeny’s, 60 Darling Street, the Coogee Bay Hotel, Woolworths and Liquorland and careful checking of local competitor’s stores. This process and the commercial forces under it were explored in oral evidence to which I will come.
530 Exhibit 5 was a short statement of Mr Higgs that had exhibited to it another expert report of Mr Higgs (Ex MRH1) which I treated as an annexure to the statement. In this statement and expert report (to which I will refer as Ex 5), Mr Higgs brought his considerable experience to bear in giving opinions as to the likely success of the commercial ventures of Jin Ro, Ettamogah, Palms Village and Global Beer. The relevant opinions proffered were:
(a) As to Jin Ro:
In my opinion the location of the Jin Ro Premises would have significantly restricted the ability of the business to operate profitably even if Jin Ro was seeking takeaway sales from members of the public or was able to change the council zoning restrictions on its operation.
(b) As to Ettamogah:
After reviewing the application, location, business plan and competition of the Ettamogah, and relying on my experience in the liquor industry, it is my opinion that should the Ettamogah have obtained an unrestricted licence permitting takeaway sales, it would have been unlikely to have any impact on competition for packaged liquor in the Campbelltown area.
(c) As to Palms Village
In my experience, the location of the Dry Dock bottle shop is the most significant limiting factor when considering its success. Whether the licence restrictions existed or not, the business would be limited in its ability to succeed because due to its location, the many other outlets in the area and its customer base, it would be unlikely to be able to achieve the turnover necessary to make the business profitable. Accordingly, in my opinion the Dry Dock would not change the competitive nature of the vigorously competitive retail packaged liquor industry in the Tweed Heads Area even if there were no trading restrictions applicable to its operation.
(d) As to Global Beer
Having reviewed the documents I have been provided with in relation to the Dixon Global Beers licence application, visiting and examining the Tweed Heads area from a take away liquor perspective, and visiting the site where the Global Beers business operated from, I am of the opinion that, based on my experience, the business would not have achieved its business plan goals and that due to its low sales turnover, its impact on the competitors in the Tweed Heads Area would have been minimal, with or without the restrictions placed on its liquor licence.
531 These opinions were preceded by careful assumptions and reasoning. To the extent they are relevant they are views to which I would give real weight.
532 Before embarking upon the reasoning leading to these conclusions, Mr Higgs made some comments on the organisation and structure of the packaged liquor industry and retail stores in New South Wales. Mr Higgs described the various “channels” of sale of takeaway liquor: traditional liquor stores, hotels selling packaged liquor, mail order, internet and registered clubs. The vast bulk of the sales took place through liquor stores and hotels.
533 Mr Higgs described a variety of liquor stores: local suburban stores which rely on regular customers from local and surrounding areas and passing trade, specialist stores with a large range and high-quality service, hotel drive-in stores, liquor barns and destination outlets, and supermarket based stores.
534 Mr Higgs saw the packaged liquor industry as fragmented and competitive with many retailers attempting to use price to distinguish themselves from competitors. Mr Higgs thought that the most successful liquor shops, and the best locations for a liquor shop, were close to other retail shops where customers can do other shopping.
535 In Ex 5 [8.1]-[8.34] Mr Higgs dealt with specific factors relevant to liquor stores dealing with matters in part dealt with in Ex 4: location, convenience, service, mix of business, understanding customer demand, pricing and setting prices, buying prices, advertising and promotion, and profit and turnover expectations. A significant part of this evidence was prefatory to the reasoning and expression of opinions about the four locations in question. Some, however, was relevant to the market analysis in this case.
536 The location of the outlet, relative to other shops was crucial. The local catchment area and the degree of activity in it were important. Large high profile retailers such as Kemeny’s, Coogee Bay Hotel, 60 Darling Street and large mail order businesses such as Cellermaster Wines have a direct influence on a business.
537 Convenience in the sense he referred to it in Ex 4 was important.
538 Service to customers was critical. It can permit higher levels of gross profit, through higher prices.
539 Convenience and location were, in Mr Higgs’ view, the main determining factors for customers to choose one liquor outlet over another. Price alone was not enough of a point of difference to make a customer shop at an outlet and continue to do so. However, Mr Higgs said, price was an important element in the “retail mix”. It was important that customers view a store’s prices as “competitive” or within an acceptable range. If they did, they would shop there on a regular basis.
540 Mr Higgs elaborated upon these conclusions in cross-examination. They were not specific to any particular demographic. If the store appeared “competitive”, customers will become regulars. Regulars were the core of any business. The primary reason customers commence at any store was a convenient location. Range and service were vital to retaining them, and improved service provided an environment where price was not critical, as long as the shop was seen as competitive.
541 The competitive nature of the industry was shown, Mr Higgs said, by the extent of advertising in local, regional, state and national papers, making it difficult to achieve a point of difference by price alone, but making customers well informed about the advertised prices of what can be seen as core products.
542 In exhibit 6 Mr Higgs gave evidence about visiting the Tweed Heads, Campbelltown and Arncliffe and Rockdale areas in late 2004 and early 2005. He reported on observations that he made through photographs and descriptions of many liquor outlets in each area. It is unnecessary to descend into this detail.
543 Exhibit 7 was a further expert report of Mr Higgs. It was an attempt to adduce real underlying evidence for the operation of the SSNIP test debated by the experts. I will return to this report when I deal with the experts.
544 Mr Higgs’ oral evidence (to which I have already referred in part) consisted of a body of evidence in chief and extensive cross-examination. I found the opportunity of exchange with Mr Higgs of great benefit.
545 In chief, Mr Higgs was asked about destination stores in 1997 to 2000, being the relevant period under consideration. In his initial questioning about Kemeny’s, Mr Higgs said the following:
At that time, we were starting to use the term "destination outlet", one that attracts a business from way outside its normal conventional area of influence.
546 I should say at this point, that the timing of the assessment of the relevant market is important. The years 1997 to 2000 were before the implementation of Woolworths’ plans to establish Dan Murphy’s destination stores all over the Sydney metropolitan and regional areas. Mr Higgs’ evidence is important for his recognition of the limited number of such destination stores at the relevant time. I should also say at this point that the evidence, in particular the oral evidence, of Mr Higgs is central to the recognition that the destination stores and their operation were central to understanding whether what Mr Higgs referred to as the “normal conventional area of influence” (in effect the local area) should not be taken as the basic market paradigm in which to analyse conduct concerning liquor shops which is said to have a competition perspective.
547 Mr Higgs described the format of destination stores as having a large format (1,000 to 2,000 m2), high profile advertising, aggressive pricing and a delivery service for consumers not close to hand.
548 Mr Higgs identified the following stores in the Sydney metropolitan area as destination stores between 1997 and 2000: the Coogee Bay Hotel, Kemeny’s near Bondi, and Quaffers at Alexandria in the eastern and southern suburbs; Theo’s Crown of the Hill at Naremburn, West Lindfield and Forestville, the Dee Why Hotel, Brookvale Cellars, Jim’s at Waitara, Quaffers at Waitara, Castle Hill Tavern, and some liquor barns in the western suburbs in the western and northern suburbs.
549 Depending on the demographics of the area, these stores had a different emphasis compared to each other. Some had an emphasis on beer and price and may not have offered a delivery service; some had a greater range of wine and spirits.
550 These stores advertised in the Sydney Morning Herald and the Daily Telegraph or Sunday papers. They also extensively advertised in local papers.
551 There was also extensive local and Sydney wide advertising by buying or banner groups, such as Porters and Bottlemart.
552 Mr Higgs was asked about the influence of these destination stores. He stressed the need to be aware of the available market information of all these stores and their advertising. For instance, a careless promotion $2-3 above Kemeny’s price and:
you were asking for your customers to directly price compare and damage the credibility of your retail outlet from a price perception point of view.
553 Most customers, in Mr Higgs’ experience had an understanding of the range of advertised prices of the major products or “beacon brands”. Mr Higgs also said that most purchases of takeaway liquor were of the well known brands.
554 The more distant the destination store, the more indirect its effect. Earlier, I noted the particular destination stores affecting Mr Higgs’ own stores. There was an indirect effect of destination stores by their advertising. Mr Higgs described the nature of this knowledge of advertised products especially, I infer, beacon brands:
Yes, inasmuch as every retailer in the Sydney area is affected by the prices that are advertised in newspapers by any other retailer, because they're sending messages to consumers that that is the price of a product.
So, where an outlet is exposing itself either in a local geographical area in its local paper, particularly in a full-page format, or in the mainstream press of the Sydney Morning Herald, the Sun Herald, the Sunday Telegraph or the Daily Telegraph, then consumers see that. Whether they are close to that outlet or not, they still see the price, so everybody in Sydney has to be conscious of what is happening in the marketplace broadly and making their own decisions from there as to where they want to price their products. Obviously, you can't be as cheap as every advertisement in the newspaper, or you won't make any money whatsoever, but you have to be conscious of it.
555 In recalling his customer’s comments that led him to believe he might lose customers to destination stores, he gave the following answer to questions seeking to assess the direct constraining effect of the relative proximity of destination stores:
HIS HONOUR: Q. Can I ask you this question, Mr Higgs. I can readily understand the generality of the effect of advertised prices in quite a wide area, as you say, informing the consumers, and it's a fairly well-informed market, as it were, as to, as you say, for beacon brands in particular, what the going freight is, as it were, a special freight, a non-special freight, et cetera. So there is a fairly well-known band of price to be within, and there would be a constraining effect on people's conduct in any suburb, however wealthy or however not wealthy, for certain types of products, different products for different suburbs. Part of that constraint is based on a good availability of knowledge through newspaper advertising and other advertising, but in particular newspaper advertising. From your experience, and I'm now talking only about the shops that you ran and were personally involved in, you spoke earlier quite clearly about the first-hand, as it were, consumer data that you received about Kemenys while you were at Old South Head Road. What is the furthest destination store from those stores that you can recall obtaining that kind of first-hand consumer information from, including what they were doing, but also a sort of implied threat at the time that they would toddle off and go and buy from, as it were?
A. Yes, I understand. Kemenys would be by far - would have an impact over the whole of the Sydney region, and they have, by industry understanding, a very large turnover, which backs that up. Next to Kemenys would be - my business at Gordon wouldn't have anybody come in and say that they saw VB at a low price at Colyton. That would be most unusual. That would be too far away, and it would be unlikely that those people would have been there. But as to Kemenys and Jim's at Waitara, they would make the comment on a reasonably regular basis. I guess the trick of a retailer is to be one step ahead of that and try not to put yourself in a position where you have to tell somebody you can't match prices. The absolute worst thing you can do, as a retailer, is to have somebody walk out the door without buying something. So the distance depends on the profile of that retailer. If another Kemenys popped up tomorrow --
Q. I'm talking about your recollection of actual people in your store identifying somewhere. There is Edgecliff and Kemenys, that is, Edgecliff to Bondi Junction?
A. Yes. Belrose to Dee Why; Curl Curl to Dee Why, which is not very far away; East Killara to Hornsby; East Killara to West Lindfield; Turramurra to West Lindfield again, the Crown of the Hill at West Lindfield; as I've mentioned, Gordon to either Jim's at Waitara or Quaffers at Hornsby.
556 Thus, one can conclude that some destination stores, in particular Kemeny’s in 1997 to 2000, had a constraining effect beyond advertising over a wide area. Mr Higgs’ experience of the other stores was to a degree more locally based.
557 Mr Higgs, however, was clear in his view as to the important role of destination stores in informing the market and thus as being a price constraining factor on core brands, even though direct competition for customers by a destination store outside the local area was, to a degree, limited to a section of the profile of customers.
558 During cross-examination, I attempted to distil from Mr Higgs’ evidence what I saw as important, and to understand the importance of geographic proximity of competitors’ stores. The following was clear: destination stores and other advertisers created a detailed market awareness for core brands. This set a well-known range for such prices. If a liquor store priced outside this range or set promotional specials badly against well-advertised specials elsewhere it might attract a reputation for being expensive. If that occurred, even single bottle purchasers may be dissuaded from patronising the store. Shelf-prices of products not usually advertised were not constrained by such stores, but by local store competition. The regular clientele forming the base of the business come (by reason of location of work or home) from a radius of two to five kilometres. In discussing this geographical local competition and the somewhat wider effect of destination stores Mr Higgs said the following in an answer to me:
Q. Now, what I am interested in knowing is whether you can assist me and whether there is anything sensible to say about an effective radius; if the question is not sensible, then just say so, or if it creates difficulties, just say what they are.
A. I don't think there is a simple - there is an answer but not a simple answer.
Q. That is all right.
A. Any additional outlet that opens up within what is accepted as generally that 2 to 5 kilometre catchment is where most of your customers in reality come from, then anything that happens within that, depending on the conduct of the new entrant, is going to have some form of impact on your business, depending on how the traffic flows. If it is 5 kilometres away, then it may have very little impact. If it is 2 kilometres away it may have more.
If a Kemenys, 60 Darling Street or destination store outlet opens within that 5 kilometres or beyond - and we have very good examples happening now in 2005 with the Dan Murphy destination brand being rolled out - then again, depending on the geographical nature of the traffic flow particularly, an outlet like that can have an impact almost immediately, quite a substantial impact almost immediately. It doesn't matter whether it is 5 kilometres away, 2 kilometres away or really 10 kilometres away if it is on a major thoroughfare. I hope that is helpful.
559 That most of Mr Higgs customers would be drawn from an area of about a two to five kilometre radius was illustrated by the distribution of catalogues for the Porters chain. Each catalogue was distributed around each store in that range with an allocation of about 3,000 catalogues per store, which was seen by those who ran Porters as the likely catchment area for the stores.
560 Mr Higgs recognised the importance of close competition from local stores. This was illustrated by the close attention to shelf pricing in local stores to which I have referred.
561 Mr Higgs referred to the importance of flexibility and adaptability in running a liquor store including, size, layout, location, range and value of stock.
562 Mr Higgs made it clear that the successful running of a liquor shop took skill and experience.
The Commission’s reliance on Mr Higgs’ evidence
563 In many respects Mr Higgs’ evidence confirmed the market research material adopted and incorporated with Woolworths’ and Liquorland’s own documents and the views expressed in those documents. It also placed that sometimes disjointed and disembodied evidence in human context.
564 The Commission relied, legitimately in my view, on a number of important elements of Mr Higgs’ views. The importance of the natural catchment area of about two to five kilometre radius, the importance of location and convenience, the place of price as reflected in the well-understood price band, at least for beacon products, that constrained store owners in pricing, the general loyalty of most customers if the store remained generally “competitive” on price within a reasonable band, the close comparison of local stores on shelf prices, the concentration of advertising in the local area, the fact that destination stores outside the local area were only competitors for a given profile of local customers (12 or more bottles of wine at $7 or $8 per bottle) were all factors which illuminated the importance of the local area. Most of Mr Higgs’ competitors in the 1997-2000 period fell within a five kilometre radius with the exception of certain destination stores.
565 To the extent that Woolworths submitted that most consumers were price sensitive as the foundation for a conclusion that price will drive them easily away from any store, Mr Higgs’ evidence was generally to the contrary. He was clear that many customers were price conscious based on the plethora of advertising in particular as to core products. Any store must retain the appearance of competitiveness. If it does so, it will retain its customers. His evidence was very similar to the customer research referred to at  –  above done for Liquorland (entitled “Project Seattle Report”). A store’s customers being price conscious does not lead to the conclusion that such customer will change stores chasing the best price on the day.
566 The effect of the destination stores is crucial to understanding Mr Higgs’ evidence. They were, together with banner and other buying group advertising, a clear indirect constraint on pricing policy of any store by the constant provision of information to the public. The focus of Mr Higgs’ businesses was, however, very much toward creating customer loyalty within the two to five kilometre local area. The majority of customers were in that area. Non-advertised shelf pricing was constrained by competitors in the area, and direct competition for business from destination stores was limited.
567 I have already mentioned Mr Hardy. In his statement, Mr Hardy set out the structure of the retail industry as he became aware of it after January 1998 when he was employed by Franklins Limited as Business Manager, Liquor. From his evidence it can be accepted that during the period 1997 to 2001 liquor retailers in New South Wales included:
(a) Woolworths which operated liquor stores attached to supermarkets and stand-alone liquor retail outlets branded as Mac’s Liquor;
(b) Coles Myer Limited stores including Liquorland, Theos, Vintage Cellars and Quaffers;
(c) branded independents such as Kemeny’s, 60 Darling Street, Jim’s Cellars, the Dee Why Hotel, the Coogee Bay Hotel, Amato’s, Georges and Liquor Brothers;
(d) small chains of co-owned stores, such as Chambers Cellars;
(e) small chains of separately owned outlets, including bottle shops attached to hotels, that were members of banner or buying groups.
Also, at this time, banner groups and buying groups operating in New South Wales included the Porters Group, Cellarbrations, Liquorstax, Liquorwise, Pubmart, Liquorstop, IGA Liquor, and Bottlemart.
568 Mr Hardy’s evidence recounted (as did other evidence) that there have been changes in the industry structure since 2001. Both Coles Myer Ltd and Woolworths have made acquisitions of liquor retailers. Also, Woolworths has introduced four different formats:
(a) liquor outlets previously branded Mac’s Liquor and attached to a Woolworths supermarket were rebranded Woolworths Liquor;
(b) BWS – mid-range, generally suburban, popular range and good service (re-branded freestanding Mac’s liquor stores);
(c) First Estate – premium brand with wide range of wines and expert advice (re-branded freestanding Mac’s liquor stores);
(d) Dan Murphy’s – these outlets are claimed to have the widest range and the lowest prices (five stores in Sydney and two elsewhere in New South Wales).
569 During his time at Franklins and Woolworths, Mr Hardy’s responsibilities involved choosing where to establish liquor outlets. He saw the four most important factors for the successful operation of a liquor store as price, service, quality and range. Mr Hardy gave evidence upon which Dr Smith relied for an important assumption made by her that a business relying on passing trade and small volume sales will have a low level of sales. Mr Hardy said at  of his statement:
In my experience, I consider that a suburban takeaway liquor store which predominantly services only its immediate local area, and focuses only on sales of single bottles or small quantities of takeaway liquor to ‘walk-in’ customers will, unless there is limited local trade competition, have a low level of sales. As a result, the business is unlikely to be economically sustainable unless it is owner-operated, in which case it will not have the additional expense of paying a manager’s wage.
570 To the extent that Mr Hardy’s evidence differed from Mr Higgs, I prefer that of Mr Higgs. He was vastly more experienced than Mr Hardy in the liquor industry. Thus, in particular I accept that the primary driver in liquor outlet choice was convenience, using that expression as Mr Higgs did. I also do not accept Mr Hardy’s evidence to the extent that it undermined Mr Higgs’ view that his customers were largely drawn from the local area.
571 Mr Hardy dealt with advertising on a State-wide basis by way of the industry participants.
572 Mr Hardy dealt with pricing at Woolworths after 2001. It set its standard shelf price at supermarkets BWS and First Estate stores by applying a methodology by reference to cost, selected gross profit and competition. Since September 2000, it has been assessing the pricing of competitors by a consultant monitoring nominated competitors’ retail prices. Prior to then, Woolworths’ stores monitored competition on an ad hoc basis. The adjustment of prices was to make them competitive with main competitors such as Liquorland.
573 Mr Hardy also dealt with pricing at Franklins. Its pricing was similarly organised, but, in particular, with a view to being cheaper than Woolworths and Liquorland which it saw as its main competitors.
574 However, Mr Hardy also said that at Woolworths local stores had a discretion to adjust standard prices at a store level for a core range of products to match local competition. Stores were expected to maintain the shelf price of core products of the store’s nominated local competitors. Franklins had a similar policy.
575 Mr Hardy said that promotional prices were set centrally at Franklins and Woolworths, though they could be organised at the local level to match the price of local competition.
576 Mr Hardy dealt with range. He said that in many independent liquor shops the range may be 350 products with a core of high profile products such as those described by Mr Higgs (VB, Johnnie Walker red label and Lindemans Bin 65). Like Mr Higgs, Mr Hardy expressed the view that many customers would know the market price of these core products. He said that some shops have substantially more lines (Woolworths Liquor and BWS have between 1,100 and 1,300 lines and Dan Murphy’s 4,000) but Mr Hardy said that 25% of the range in these stores delivered about 80% of the trading volume.
577 Mr Hardy in his time at Franklins and Woolworths visited most of the liquor outlets in New South Wales. These visits were not extensive. With that background he commented on the Rockdale, Campbelltown and Tweed Heads areas.
578 In his evidence, Mr Hardy described an area in which people in Arncliffe and Rockdale moved about in day to day activity. Exhibit PJH-15 (Ex PJH-15) showed this as an irregular area with dimensions of nine to twelve kilometres in distance, with distances from Rockdale shopping centre of six to seven kilometres. I think that Mr Hardy was giving me nothing more than a commonsense view based on a less than detailed knowledge of the area. I do not place much weight on his views in this regard.
579 Mr Hardy did the same in respect of the Campbelltown area. Marked on Ex PJH-15 was an area in which Mr Hardy considered shoppers at Campbelltown would be drawn. It was a significant area 10 to 12 kilometres to the north east of Campbelltown past Macquarie Fields and 16 kilometres to the west past Camden. I repeat my comments as to the weight to be given to this evidence.
580 Mr Hardy accepted that the brand positioning of Woolworths’ BWS stores was intended to be and has been as a local bottle shop. He also indicated that First Estate wine shops use local letter box drops and mail outs. In this context Mr Hardy gave the following evidence:
HIS HONOUR: Q. If this is too general a question to answer, Mr Hardy, just say so. As I would understand it, the organisation of the sorts of things you’ve been asked about is, by and large, centrally planned, if I may use that expression, within the organisation. But I would take it that, from your experience at Franklins and at Woolworths, a significant key to the success of any one of these stores would be a strong local following in the area in which the store is located?
A. Every liquor store relies on a strong local following.
581 Mr Hardy accepted a breakdown of takeaway liquor purchasers as those who make a special trip to buy liquor and those who purchase liquor while going somewhere else – most significantly shopping, work, restaurant or social occasion. He accepted, in relation to this second category, that the issue is not how far these people will travel from home, but rather, how far out of their way they will go to get to the liquor store.
582 During his cross-examination, Mr Hardy was shown notes of a meeting on 16 January 2003 at which members of the Commission met with Mr Jeffs, the company secretary of Woolworths, Mr Dimasi, a consultant to Woolworths (and a witness in this proceeding), Mr Hardy and a retained outside lawyer. At the meeting a confidential written presentation was delivered and spoken to concerning the proposed acquisition of Theo’s Liquor by Coles Myer Ltd. Ten local areas were analysed in an endeavour to show that there was a substantial overlap between areas of Theo’s and Coles’ liquor operations in Sydney and that in those ten catchment areas the acquisition might result in a significant lessening of competition. On the first page of the analysis the following appeared:
Methodology: Local Area Analysis
· There is substantial overlap between areas of Theo’s and Coles’ liquor operations in Sydney;
· Analysis of the proposed acquisition on a store by store basis, similar to the analysis used by the Commission in the Franklins acquisition, suggests two factors determining store “catchment areas” from a customer’s perspective:
- the nature of the store’s offer (eg, destination or local store); and
- travel patterns resulting from:
· convenience and accessibility of locations;
· residential aggregations and geographical factors;
· topographical factors;
· Within 10 of these catchment areas, the acquisition may result in a significant lessening of competition for reasons including:
- a reduction of suppliers within the area to two or simply Coles; or
- Coles holding a significant number of adjacent substantial liquor outlets within the area.
583 The ten areas in which the competition issues were said to arise were St Ives, Windsor, Forestville, Padstow, Mosman, Baulkham Hills, Belmont, Long Jetty, Boolaroo and Neutral Bay. Most of these areas are in suburbs of greater metropolitan Sydney.
584 As was made clear in the debate that took place over the legitimacy of the questioning of Mr Hardy over this document, a measure of reality must be brought to bear in weighing its significance. Woolworths were putting submissions against the interests of a rival in circumstances where (from past experience in relation to Woolworths’ acquisition of Franklins) it was thought that the Commission might take a local perspective to competition. The context was the approval of a merger. Nevertheless, it was thought rational to put these submissions.
585 Mr Hardy accepted that the notes of the meeting were substantially accurate. The memorandum is not without importance in that it gives the views of senior officers of Woolworths about the industry. The following is to be noted:
RJeffs explained that, in regard to liquor stores, some are destination based while others are convenience based. Many liquor stores carry a narrower range but deal with specific needs of purchasers, and purchases for specific reasons. RJeffs noted that 80% of liquor sales are through 20% of lines, so even those bottle shops with a small range can make a reasonable margin. Essentially, the differentiation is on the basis of stores which are a “destination”, or price competitive, or offer a wide range.
GCG [the external lawyer] explained that in looking at the geographical areas it is difficult to draw a definitive line to establish a specific “market” – the boundaries are arguable, and it is more difficult in the context of liquor stores (as opposed to supermarkets) to define stores which are not meaningfully a competitive constraint. For instance, in this case, the nature of the competitive offering in local areas differs, and those stores with a small floor space can have an offering that is well-attuned to the local area. It is necessary to have very detailed information to determine which stores are/are not competitive.
RJeffs explained that another relevant dynamic is that 80% of alcohol purchased is consumed within 24 hours, and there are different dynamics/motives related to the purchase of different products. TD commented that there are different market segments and the competitive constraint offered by small outlets comes down to a question of degree. Most alcohol is purchased for immediate consumption, while customers that do not intend to consume their purchase immediately will probably purchase their requirements from a destination store – it becomes a question of degree.
GCG commented that Woolworth’s analysis of the situation had concentrated on the acquisition from a demand perspective, and it was important to consider the nature of a store’s offer and how that might draw customers in. Travel patterns in local areas were also important with regard to establishing the boundaries of local areas. Tony Dimasi is responsible for the manner in which the local boundaries have been established and have been done so by taking geographical, topographical and infrastructure issues into consideration. RJeffs commented that it was not just a matter of drawing rings around the area. TD then commented that in Sydney, neighbourhoods are very important due to the difficulty in getting around the city. However, to define a local area or trade area does not mean that all local customers go to businesses in that area. However, the dynamics of the areas defined suggest that it is reasonable to see them as a local trade area. Woolworths has outlined 10 areas, but TD commented that he suspects that there would be others.
At this point, the conversation turned to the discussion of Woolworth’s proposed acquisition of Super Cellars. RJeffs explained that in this matter, Woolworths had adopted the same local market approach/local area analysis. Tony Dimasi conducted the analysis and it appears that there is virtually no overlap between the store already owned by Woolworths in Adelaide and the outlets that Woolworths is intending to purchase. Ten outlets that are the subject of the purchase are located in Adelaide (generally in the southern suburbs), 2 are located in regional SA, and 3 are in Melbourne. Woolworths has provided a more comprehensive analysis in its submission. The two stores that Woolworths are not intending to acquire are located in Aberfoyle Park, and Glenelg Nth. Woolworths believes that there will be no anticompetitive effects as a consequence of the proposal b/c it is not represented in the areas in which it is intending to purchase businesses.
586 This document is not an answer to all the arguments in this case. It does, however, contain a tolerably clear recognition that there is utility in analysing the operation of the retail liquor industry at a local level in order to examine some issues of competition. (To the extent that some of the above was said by Woolworths’ retained lawyer, the note recorded no demur from Mr Jeffs or Mr Dimasi or Mr Hardy.)
587 In qualification of one aspect of what Mr Jeffs is recorded to have said in this document, Mr Hardy said that it was generally understood that 80% of alcohol purchased is begun to be consumed within 24 hours.
588 Mr Hardy said that he agreed with the document that was put to the Commission.
589 Mr Hardy said that it was his experience that unrestricted licences were difficult to come by in 1998-2001 by way of grant.
590 Mr Hardy was asked about evidence that he gave in his statement about establishing new liquor stores in areas where “Woolworths was under-represented in the area from a liquor perspective”. The following evidence was given:
HIS HONOUR: Q. With regard to paragraph 29(b), and you may not be able to answer this question without reference to any particular area or suburb, but are you able to assist me in understanding how widely you would look to make your assessment as to the matter in paragraph 29(b) in Sydney?
A. The starting point would be city-wide and then you would look for gaps in your network throughout the city, and then look at how you can plug those areas. A good example is the North Shore and Manly-Warringah, Woolworths has historically been under-represented; and the Mosman Peninsula, it has been under-represented. So there are tracts throughout Sydney where Woolworths does not have good representation, or hasn't over the years.
Q. So what you are describing in paragraph 29, was that a process looking at, if I can use the expression, the emptier areas, from a Woolworths point of view of Sydney, or were you going to particular areas for other reasons?
A. Well, no. I was looking at locations, specific locations, where there may be an opportunity to seek a new grant, which was the minority of instances, where there was an opportunity to purchase an existing operator and add that to the network.
MR RENEHAN: Q. And the gap that you have referred to - that might be, depending on the particular area, a gap of a suburb, or perhaps two suburbs?
A. It could be.
591 This reveals an importance of suburban coverage for the purposes of the reach of Woolworths’ liquor business. It reflects an importance of presence within local or suburban areas.
592 Mr Hardy was asked some questions about the nominated local competitors for Woolworths’ stores for the purposes of checking shelf prices. In Ex NN at tab 180 there was a confidential list of nominated competitors for Woolworths’ New South Wales stores. All appear to be within a few kilometres of the nominated store. In relation to these local nominated competitors, Mr Hardy gave the following evidence:
HIS HONOUR: Q. Mr Hardy, in relation to the nomination of who appears under the right-hand column in that document and the process, to the extent that there is a process, of deciding who goes into that column, are you familiar with that process at Woolworths?
Q. Would I be correct in understanding that the process reflects a recognition of the competitive businesses that may have the most significant effect on that particular Woolworths store in the ordinary course of trading?
A. Within the general area, yes. And I say that on the basis that this is a list of monitoring further competition. The normal shelf price is addressed centrally, as is the special price, but this is a way of further monitoring competition in the general area.
Q. And this further aspect of monitoring is, however, by reference to what I indicated, that is, that they are the stores that most closely affect the substantive operation on a day-to-day basis of these particular stores - perhaps I should be more precise - in terms of their revenue and turnover?
A. Yes, that's probably fair.
593 Mr Hardy was shown another document of Woolworths of a character with which he was familiar (see Ex NN, tab 142). It was a form for a proposal to go to the property committee for the purchase of a new liquor store. The document (which was approved in April 2002) was directed to the opening of a BWS store at Campbelltown at the Market Fair Shopping Centre. In the document, under the heading “Competition Commentary”, there appeared a list of five shops – two Liquorland shops, the Ambervale Liquorbarn, Macs at Macarthur Square and BWS at Lindesay Street Campbelltown which were 1, 2, 2.5, 1 and 2.5 kilometres, respectively, distant from the site. Mr Hardy said that the space on the form was limited so “you normally list the closest competitors”. I reject this answer. It tended to reflect a willingness that I perceived at this point in Mr Hardy to push Woolworths’ interest. I have no doubt that a significant document of this kind, signed as it was by the National Liquor Development Manager, the Chief General Manager Supermarkets and the General Property Manager would not have been completed inadequately because of space restrictions on a pro-forma document. These stores, out of the numerous stores in the Campbelltown area, were no doubt chosen as the most important competition for this store in the area. All were proximate. It reinforces the importance of local competition in the context of a practical, and important, day-to-day business decision.
594 As I have said earlier, Mr Hardy said that in his view price was of a much higher importance than convenience. I prefer the evidence of Mr Higgs in this regard.
595 Mr Anthony Dimasi was called by Woolworths. Mr Dimasi was an economist and statistician by training. He had three years tertiary teaching experience before embarking, in 1982, on a career of retail and shopping centre analysis and consultancy. In this latter endeavour, Mr Dimasi has, for over 20 years, undertaken market analysis, strategic research and planning and given advice to many developers, retailers and businesspeople. He has a long history of advising Woolworths in relation to its shopping centres and, since 2001, he has advised Woolworths in connection with the development of its Dan Murphy’s chain. Notwithstanding his significant commercial connection with Woolworths, I did not see any display of partisanship in his evidence. Mr Dimasi was deeply experienced in his field of work. He had a sound background by training for undertaking it. He gave his written and oral evidence clearly and with some precision.
596 His written evidence was a forty-page report being exhibit AD4 to his written statement, which was exhibit 12. His report (a) identified all takeaway packaged liquor stores in the relevant period in the areas pleaded in the FASC, identified in Dr Walker’s report and disclosed otherwise in the evidence, (b) identified the catchment areas of the relevant Woolworths’ stores in each episode and of the applicants’ stores (that is Ettamogah, Jin Ro, Palms Village and Global Beer), and (c) commented on what he called the “catchment areas identified by Dr Walker”.
597 The identification of all relevant liquor outlets (taken in part from Mr Hardy’s evidence and in part from his own enquiries) and the placement of them on helpful maps of the respective areas was of considerable assistance. For convenience I have annexed relevant maps to these reasons.
598 It is important to understand what Mr Dimasi’s report was directed to. Mr Dimasi sought to describe catchment areas of the stores in question. He did this by having regard to what he described as the “main trade area” in relation to each store which he defined as:
- [the area from which] the store or centre in question will draw the majority of its business, typically 70-80%; and
- the area across which the store or centre in question will achieve a much higher level of penetration or share than it attracts from any other area. The exact penetration achieved though will depend very much on the specific circumstances of each situation, and can vary significantly from situation to situation.
599 He said that doing this in respect of any given store was not a task undertaken merely by drawing circles of defined radii around a central point. Rather, it was a careful analysis in respect of each individual store, taking into account a number of factors which he described as follows:
· the size, composition and trading strength of the retail outlet or retail centre in question as compared with the alternatives (or competitors) which residents of any given area may be able to use;
· the level and quality of accessibility, particularly in most instances the pattern of road accessibility to the outlet or centre in question;
· physical or man-made barriers which may serve to, as a matter of custom or convenience, orient the population of a particular area in one direction or another. For example, a river which has few crossing points, or a railway line or a large tract of industrial or non-residential land may all serve as logical trade area boundaries;
· the locations and relative strengths of competitive alternatives.
600 He said that it was not feasible or useful to define a catchment area for 100% of custom. Rather the main trade area was the analysis that he found useful.
601 This catchment area or main trade area (the two expressions being accepted by Mr Dimasi to be synonymous) was assessed by reference to customers’ residence. Thus, to the extent that the question of the market definition is, at least in part, to be considered by reference to how far people will go out of their way to buy liquor, Mr Dimasi’s catchment areas are of little utility. The Commission sought to downplay the significance of the evidence by reason of this limitation. In my view, Mr Dimasi’s evidence is of considerable importance. The catchment area by reference to residence is one important element in understanding the likely dynamics in the exercise of power posited in the SSNIP and in understanding consumer and retailer behaviour.
602 One needs, of course, to recognise, as Mr Dimasi frankly did on a number of occasions, that the task is not a scientific one and there is a degree of judgment. Another important qualification to Mr Dimasi’s evidence in his report should be noted. It was a matter upon which he was cross-examined, but not pressed as to his credit. I therefore accept Mr Dimasi’s explanation (which is not relevant to discuss) for leaving reference to it out of his report. In other work that he did for a commercial party in relation to the Macarthur Square Shopping centre in Campbelltown (the shopping centre in which the Ettamogah Pub and a relevant Woolworths store were located), being a detailed economic impact assessment of Macarthur Square, Mr Dimasi used primary, secondary and tertiary trade areas, rather than the concept of the “main trade area” used in his report prepared in respect of these proceedings. These terms were explained in his evidence under cross-examination. The “primary area” was an area two to three times as high in terms of “penetration” as the “secondary area”, which in turn was an area two or three times as high in terms of “penetration” as the “tertiary area”. He said the following:
So the "primary", by definition, ends up always being an area that is closer, that is the closest area to the centre in question, and therefore it is most convenient or easiest for residents of that sector to shop most often at that sector; the secondary, a little less so; and then the tertiary, considerably less so. But it's only regional centres such as Macarthur Square that normally have a tertiary trade area. For most other supermarket or subregional centres, there's only usually primary and secondary sectors.
He explained “penetration” as follows:
Q. Just so that I understand it, by the "penetration", do you mean frequency of patronage?
A. Market share of available expenditure, which can relate to frequency of patronage, yes.
603 He also explained that neighbourhood stores would be viewed as only having one relevant area.
604 Mr Dimasi summarised the position in oral evidence:
The way it tends to work really is that neighbourhood centres tend to have essentially only a primary trade area; subregional centres tend to have primary and secondary; and then regional centres tend to have primary, secondary and tertiary sectors.
605 These terms will become important in examining the catchment areas of the respective stores.
606 I turn now to Mr Dimasi’s evidence about the relevant areas.
607 Annexed and marked A1 is Mr Dimasi’s map 3.1 with all packaged liquor outlets at Campbelltown and in the surrounding areas. The two circles of two and three kilometre radii centre upon the Woolworths’ liquor store at Macarthur Square Shopping Centre.
608 Annexed and marked A2 is Mr Dimasi’s map 3.2 which covers a slightly greater geographic area than map 3.1, but which reveals the main trade areas of the Woolworths’ store and the Ettamogah Pub in the Macarthur Square Shopping Centre. The main trade area so outlined was the catchment area of the shopping centre itself. The shopping centre, which was described in detail by Mr Dimasi, was a large and successful regional shopping centre with which Mr Dimasi was very familiar. The centre’s main trade area’s boundaries were determined by the limits of the existing urban area. It should be noted in this regard that large areas of the main trade area in map 3.2 are uninhabited or sparsely inhabited.
609 Annexed and marked A3 is a map that Mr Dimasi prepared in 2003 when doing the detailed economic impact assessment of Macarthur Square to which I have referred. One can see that the highway and adjacent shopping centres constrict the primary trade area as depicted. The primary and secondary areas accord with Mr Dimasi’s “main trade area” in his report attached to Ex 12. When one considers the extent of uninhabited or sparsely inhabited area all around the densely developed area in which Macarthur Square, Rosemeadow Marketplace and Campbelltown Mall sit, one can identify a significant catchment area for Woolworths and Ettamogah within three to five kilometres.
610 Mr Dimasi was dismissive of a simple distance-based calculation of catchment areas. He emphasised (and with respect, this can be readily accepted) that the catchment of each store is an individual assessment based on the factors to which he referred and which are set out above. Even so, a five kilometre radius around Macarthur Square takes up all the densely populated primary areas and some of the densely populated secondary areas. A seven kilometre radius even more so. The ten kilometre radius takes up virtually all the densely populated primary and secondary areas.
611 Though Dr Walker was not discussing catchment areas in her report, and to this extent Mr Dimasi does her less than justice in his criticisms, these catchment areas may be wider than her circles of competition of two to three kilometres. Nevertheless, they indicate catchment areas which can be viewed as local in one sense, in particular in relation to Campbelltown, the primary catchment area being bounded by the expressway, sparsely inhabited land and the shopping centres to the north.
612 Annexed and marked A4 is Mr Dimasi’s map 3.3 in his report, identifying the main trade area of the Mac’s Liquor Store at Lindesay Street. This store was part of a small neighbourhood centre located on a secondary street. This store plainly had what could be called a local catchment area.
613 Dr Walker in  of her report, in discussing the relevant market, said the following:
Drawing a two to three kilometre circle around the Mac’s store at Macarthur Square (adjacent to the Ettamogah premises), would bring in Campbelltown, Blair Athol, Ambervale and Glen Alpine. Drawing two to three kilometre circles around the Liquorland stores would bring in Leumeah as well. In my opinion this is the broadest extent of the relevant market, and could be described as the greater Campbelltown liquor market. This delineation of the market is consistent with witness statements from liquor store owners in the area, who identify their competitors as other liquor stores in the Campbelltown area.
614 Mr Dimasi was heavily critical of this approach, treating it as a discussion of a catchment area, saying at [3.13] and [3.14] of his report:
I consider that the catchment areas as defined by Dr Walker are of little assistance in seeking to understand the competitive situation for packaged liquor retailing in the Campbelltown area as at 1998. In my view, the broad and generic description of catchment areas utilised by Dr Walker suffers from the following shortcomings:
i) it has little regard for the specific nature of each individual store, particularly locational circumstances, which vary widely.
ii) it has little regard for accessibility issues impacting on each relevant store and its competitors.
iii) it has little regard for the total competitive context in the area or region, and indeed does not even identify the competitive stores within the area.
In my view, because of the locational circumstances of the Woolworths Liquor store at Macarthur Square Shopping Centre, and particularly the scale and nature of the centre itself, the relevant main trade area for the Woolworths Liquor store is far more extensive than a 2-3 km radius around the store.
615 For reasons which will become evident when I deal with the experts, Dr Walker and Dr Smith, this is an inadequate description of what Dr Walker was doing. Nevertheless, I agree with Mr Dimasi, that if one were to seek to identify the catchment area of a liquor shop by reference to place of residence, the exercise described by Mr Dimasi, and of which he has long experience, appears to be appropriate.
616 Annexed and marked B1 is Mr Dimasi’s map 2.1 with all packaged liquor outlets at Arncliffe and Rockdale and in the surrounding areas as at 1997. The two circles of two and three kilometre radii centre upon the central shopping centre at Rockdale. The circle of five kilometre radius centres upon the Jin Ro location.
617 Annexed and marked B2 is Mr Dimasi’s map 2.3 which depicts the Woolworths’ liquor Rockdale main trade area. There was no map depicting the primary and secondary areas. However, Mr Dimasi accepted that as the Woolworths’ liquor store at Rockdale was situated in the Rockdale Plaza which was a sub-regional shopping centre, the primary area would be a subset of the main trade area shown on annexure B2 (map 2.3).
618 As can be seen from annexure B2 (map 2.3) the distances to the northern and southern boundaries of the main trade area from Woolworths Liquor Rockdale are approximately four and six kilometres respectively. I infer that the boundaries of the primary area would be shorter distances than this.
619 Mr Dimasi's reasons for coming to this main trade area for the Woolworths’ Rockdale store were as follows:
2.11 The trade area defined for the Woolworths liquor store within Rockdale Plaza Shopping Centre reflects what in my view would be the main trade area served by the centre. Because the centre is a sub-regional centre of approximately 15,000 sq.m, including as anchor stores a Big W discount department store as well as a large Woolworths supermarket, it will serve an extensive area as shown on the map. The major factors which determine the extent of the centre's main trade area are the physical and geographic barriers, including Botany Bay to the east, the Georges River to the south, and Cooks River to the north, and the locations of competitive centres.
2.12 To the south-west the existence of Westfield Hurstville Shopping Centre, a major regional centre which is considerably larger than Rockdale Plaza, is a constraining factor that determines the extent of the Rockdale Plaza main trade area in that direction.
2.13 To the north-west the extent of the Rockdale Plaza main trade area is primarily determined by geographic and accessibility issues. There is a significant green wedge between Bexley and Bardwell Park for example, and accessibility is quite difficult from areas further north-east than Bexley. This factor means that residents of Bexley North or Bardwell Park and areas further west would be more likely to be oriented to more easily accessible centres, including Campsie, Roselands and Hurstville.
2.14 To the south-west, in the area around Kogarah and Carlton, the railway line is a major constraining factor which will limit the likely extent of the trade area for Rockdale Plaza, particularly given the location of Westfield Hurstville in relation to these areas. The railway line alignment therefore forms the trade area boundary around Carlton and Allawah, while the residents of Bexley, immediately west of Kogarah, are considered more likely to direct the majority of their shopping to Westfield Hurstville rather than Rockdale Plaza given their need to cross both the railway line and the Princes Highway in order to access Rockdale Plaza
620 I accept this as a reasoned, sensible analysis of the main trade area.
621 Mr Dimasi then discussed the Jin Ro catchment area. He saw it as much smaller. Its main trade area (not distinguishing between primary and secondary areas) is set out in annexure B3 (map 2.4). Mr Dimasi’s reasons for this small trade area were as follows:
2.15 By contrast with the main trade area defined for the Woolworths liquor store within Rockdale Plaza Shopping Centre, the main trade area shown for the Jin Ro premises at Arncliffe would be much more localised. As noted at paragraph 2.9 above, the Jin Ro premises are located on a dead end street which abuts a railway line to its west. This is a critical factor, making accessibility to the site extremely poor. There are other reasons why, in my view, a liquor store at the Jin Ro premises would serve a very constrained trade area, which are discussed further below.
2.16 The area surrounding the premises is an industrial area, which appears to be generally disused or has very low intensity of usage. There is quite a lot of graffiti in evidence, as well as many high barbed-wire fences around the surrounding properties. A number of these properties appear to be derelict.
2.17 In short, the Willis Street site is unappealing to potential customers and extremely difficult to access, with the railway line acting as a major barrier on its immediate west and the Princes Highway acting as a very significant barrier a short distance to its east. Furthermore, there is no available carparking on the site, which is very small, and very limited on-street carparking in the general vicinity.
2.18 As a retail analyst with some 22 years experience, it is my view that no retail premises could operate successfully from this site, and that therefore the trade area likely to be served by any retail establishment on this site, and particularly by a freestanding packaged liquor store on this site, would be extremely confined.
622 These views were expressed on the basis of a store at the site. On this premise, I accept them as reasonable and persuasive.
623 Mr Dimasi had views dismissive of Dr Walker’s conclusions in - of her report. I do not repeat my earlier comments.
624 Once again, to the extent that the catchment areas of liquor stores are relevant for the purposes of market definition, this work by Mr Dimasi assists in illuminating the important local suburban catchment area of Woolworths Liquor Rockdale of within a range of about five kilometres (not using that as the yardstick, but accepting Mr Dimasi’s methodology).
625 Annexed and marked C1 is Mr Dimasi’s map 4.1 showing all packaged liquor stores operating as at 2000 at Tweed Heads South, Tweed Heads and in the surrounding areas. The three circles of two, three and five kilometre radii are centred on the Woolworths’ liquor store at Tweed Mall shopping centre.
626 Annexed and marked C2 and C3 respectively are Mr Dimasi’s maps 4.3 and 4.4 which reveal the Tweed Mall main trade area and the Tweed City Shopping Centre main trade area. It will be noted that the Woolworths’ liquor store in the Tweed Mall was in existence from 1997 to 2001 but the Woolworths’ liquor store in the Tweed City Shopping Centre did not open until 2001.
627 Mr Dimasi said that in relation to the catchment of the Woolworths’ store in the Tweed Mall, there was no extensive secondary trade area. Though he did accept that part of the area denominated as the main trade area south-east of the Palm Beach Hotel would be secondary area.
628 In relation to the catchment of the Woolworths’ store in Tweed City which opened in 2001, Mr Dimasi accepted that the area south of the Tweed River would be a secondary area.
629 Mr Dimasi expressed his reasons for the assessments of these main trade areas in [4.5]–[4.10] of his report, as follows:
4.5 In defining the main trade area that is served by the Woolworths Liquor store at Tweed Mall Shopping Centre, I have had regard to the fact that the store is located within a major sub-regional shopping centre. Tweed Mail Shopping Centre (refer attached layout plan at Figure 4.1) contains a Target discount department store as well as Coles and Woolworths supermarkets in addition to some 90 other retail stores and services, and records annual sales of approximately $100 million. My records show that Tweed Mall Shopping Centre has not undergone any refurbishment or expansion since 1996. The attached layout plan at Figure 4.1 is therefore an accurate representation of the centre as it operated in 2000.
4.6 In my view, the relevant main trade area for Tweed Mall Shopping Centre is the Tweed Heads/Kirra Beach area north of the Tweed River as shown on Map 4.3. The Woolworths Liquor store and Liquorland store both located in Tweed Mall Shopping Centre would in my view serve a similar main trade area to the entire centre.
4.7 The extent of the main trade area for the Woolworths Liquor store at Tweed Mall Shopping Centre is clearly defined to the north and the east by geographic limitations, namely the South Pacific Ocean. To the west the main trade area is also clearly defined by the limits to urban development, with Cobaki Creek being a significant barrier. To the south the Terranora Creek, which separates Tweed Heads from Tweed Heads South, is a significant limiting factor, particularly in view of the existence of Tweed City Shopping Centre at Tweed Heads South. This is not to suggest that Tweed Mall Shopping Centre, or Woolworths Liquor within that centre, does not draw any business from the area south of Terranora Creek, but simply that I do not regard that area as part of the centre's main trade area, by virtue of the existence of Tweed City Shopping Centre.
4.8 Tweed City Shopping Centre, in which a Coles Liquorland store operated in 2000 and a Woolworths Liquor store was opened in 2001, is even larger than Tweed Mall Shopping Centre. Tweed City contains Kmart and Big W discount department stores as well as Woolworths, Coles and Action supermarkets and further 120 retail stores (refer attached layout plan at Figure 4.2) and achieves annual sales of approximately $190 million. My records show that Tweed City Shopping Centre has not been refurbished or extended since 1999. The layout plan at Figure 4.2 is therefore an accurate depiction of the centre as it operated in 2000.
4.9 In my view, the main trade area that is relevant for Tweed City Shopping Centre encompasses all of the South Tweed urban area (i.e. south of Terranora Creek) as well as the Kingscliff urban area south of the Tweed River, as shown on Map 4.4. There are no significant higher order facilities available in Kingscliff, and these residents would regularly use Tweed City Shopping Centre. The Woolworths Liquor store at Tweed City Shopping Centre would in my view serve the same main trade area as the centre itself.
4.10 The extent of the main trade area boundaries for Tweed City are determined on a similar basis as is the case for Tweed Mall. To the north, Terranora Creek represents the main trade area extent. To the east, the South Pacific Ocean limits the main trade area, while to the west Terranora Broadwater similarly presents an insurmountable physical barrier. To the south the trade area is likely to extend for a greater distance than any of these other three directions, simply because accessibility from the south is quite straight forward and there are no significant retail facilities of any scale approaching Tweed City in the Kingscliff area.
630 I accept this reasoning, with, however, the qualification of the greater importance of the primary area for the Tweed City Store.
631 Once again, to the extent that catchment areas by reference to residence can be seen as relevant to market definition, Mr Dimasi’s evidence gives some illumination of the relevance for these Woolworths’ stores of a local area with boundaries of up to five kilometres (ten kilometres if one includes Tweed City’s whole secondary trade area).
632 Mr Dimasi had views dismissive of Dr Walker’s conclusions in  to  of her report. I do not repeat my earlier comments about that.
633 Annexed and marked C4 is Mr Dimasi’s map 4.7 setting out the Dry Dock, Palms Village main trade area. His reasons for coming to this area were set out in [4.17] to [4.21] of his report as follows:
4.17 The trade area that is relevant for the Dry Docks [sic], Palms Village liquor store is in my view severely constrained by the circumstances of the store's location (refer Map 4.6 attached). The location of this outlet is such that it could only ever reasonably expect to serve a localised trade area. The outlet is situated on the southern side of Dry Dock Road, and to its immediate north is Terranora Creek. While the Pacific Highway runs virtually adjacent to the site, the highway alignment is above Dry Dock Road, and there is no access either from the highway to Dry Dock Road or vice versa.
4.18 The area surrounding the site is generally non-residential, with further caravan parks located nearby, and a large pioneer park (holiday ranch) situated to the south. There is some residential development currently occurring in the area immediately south of the Palms Village site, and those residents would fall within a reasonable catchment area for the Palms Village liquor store.
4.19 To the west the existence of Terranora Broadwater, and the lack of access from that area to Dry Dock means that the western extent of the possible catchment for Dry Dock is severely constrained.
4.20 There is a substantial residential area approximately 2 km south of the Palms Village site, namely the Banora Point residential area. That area however is able to be much more directly served by the existing liquor store within the Banora Point Shopping Centre and also the Tweed Heights bottleshop, as shown on the map.
4.21 Taking all of these relevant factors into account, Map 4.7 details the likely extent of the main trade area relevant for a packaged liquor store at the Palms Village site.
634 I accept these as reasonable and persuasive views.
635 Annexed and marked D1 is Mr Dimasi’s map 4.5 showing the main trade area for Global Beer on Ourimbah Road. His reasons for this area were set out at [4.11] to [4.12] of his report as follows:
4.11 Global Beer Importers site is situated, on the northern side of Ourimbah Road in the suburb of Tweed Heads. The site is situated within an industrial area, directly opposite a bus depot. Furthermore, Ourimbah Road is a small dead-end road, inaccessible from the west (refer Map 4.2 attached).
4.12 As a retail analyst, I consider that the Global Beer Importers site is extremely poorly located to serve any useful customer function. In order to access this site, residents of the Coolangatta/Tweed Heads area would need to travel along what is essentially a secondary road (Ducat Street/Miles Street) and then turn into a dead-end street (Ourimbah Road) within an industrial area. Such a site would go against all principles of retail premises, both commercially and from a customer amenity point of view. The extremely poor suitability of the site for retailing would in my view be reflected in the extent of the main trade area which a liquor store on this site would be able to serve. I have shown the extent of the likely main trade area for a liquor store on the Global Beer Importers site on Map 4.5, reflecting all of these factors.
636 These views were expressed on the basis of a store at the site. On that premise, I accept them as reasonable and persuasive.
637 A number of other matters should be noted from the oral evidence of Mr Dimasi. He has been involved in advising in respect of most if not all of the Dan Murphy’s stores that have been opened in New South Wales. The scale of these stores is large compared to previous formats in New South Wales. Mr Dimasi described them as follows:
They tend to serve extensive trade areas. A Dan Murphy's store is usually anywhere between 1,000 and 2,000 square metres in size. A typical bottle shop that perhaps a lot of people, particularly in Sydney, would still use most of the time is probably anywhere between 80 and 120 square metres in size. So a Dan Murphy's store is between 5 and 10 times the size of a typical bottle shop, probably closer to 10 in most cases….
You can imagine, therefore, that there's an enormous amount of liquor of all types and all tastes and of course all price ranges, from premium wines down to discount beer in these stores. So, therefore, they act as what we call a destination store and one of the most common users, if you like, customer types, that use a Dan Murphy [sic] store are males purchasing large trolleys full of liquor, so the typical basket size - the typical transaction is about $75 and there are many transactions that are $150 or $200 or more.
So it's a destination to which people are drawn from a very wide region, usually a trade area that will have a population of greater than 50,000 and sometimes greater than 100,000 - a very, very different proposition to a neighbourhood bottle shop, but certainly that's what we've found with all the Dan Murphys [sic] we've [been] involved in.
638 Mr Dimasi preferred not to express a general opinion as to the geographic reach of such stores. He saw their drawing of customers to be based on accessibility, location, volumes of passing traffic and like factors.
639 All these stores opened in Sydney and New South Wales after the relevant period. I prefer to rely on Mr Higgs’ views about destination stores existing in the relevant period to aspects of the Dan Murphy’s stores discussed by Mr Dimasi.
640 Mr Dimasi agreed that a store such as a BWS store that is a local bottle shop would tend to serve a localised trade area of the scale of two to three kilometre radius. He agreed that local convenience was important for these stores as well as First Estate Wine shops.
641 Mr Dimasi gave some context and illumination to the record of the meeting in January 2003 between representatives of the Commission and Woolworths to which Mr Hardy was also taken. The local areas there discussed were not catchment areas of stores there identified. Rather, local areas were identified by reference to a concurrence or close proximity of Coles’ and Theo’s stores.
642 A number of matters should be noted concerning Mr Dimasi’s evidence that arise from the submissions made about it. I have already said that, to a degree, I disagree with the Commission’s dismissal of Mr Dimasi’s evidence as relating to catchment areas and not markets. The two are related.
643 A second criticism, and one with some validity, is that the catchment area analysis does not say much about how many people come to the store and whence they come. For instance, Mr Dimasi regarded Ettamogah as being poorly located as a potential bottle shop, but it had the same large trade area as Woolworths’ bottle shop, because it was in the same shopping centre.
644 Mr Dimasi’s approach (of analysing catchment by reference to residence) was different to Dr Walker’s approach of focussing on a local area defined by where customers were “at any particular point in time”. I disagree with the Woolworths’ submissions that only one approach (that of Mr Dimasi) is valid. Plainly catchment areas (as Mr Dimasi analysed them) are relevant. So are issues addressed by Dr Walker. The SSNIP is applied to the hypothetical monopolist of liquor outlets; not supermarket outlets. Thus, how far consumers will go out of their way is relevant. Mr Dimasi has great experience. I give his evidence weight. It tends to the conclusion that the Campbelltown and Tweed Heads catchment areas are more than five kilometres in radius, but not greatly more, especially if weight is given to the primary catchment areas, and that the Rockdale, Arncliffe catchment area is about five kilometres in radius.
645 There was a resonance of Mr Dimasi’s evidence in Mr Higgs’ evidence. Mr Higgs’ mailing list in evidence had many people who had addresses not in the local area. Nevertheless, Mr Higgs’ evidence was clear as to the importance of the catchment area of two to five kilometres.
646 Ms Phyllis Margaret Stapleton who was called by the Commission, was, and had been since 1998, the owner and licensee of “The Bay Boozatorium”, a bottle shop at Tweed Heads. Its location can be seen on annexure C1. Prior to acquiring the shop Ms Stapleton had no experience in the liquor industry. Ms Stapleton was an intelligent and precise person who gave her evidence with clarity.
647 Her shop is located in a small retail shopping area that at the time of the hearing consisted of a hairdresser, nursery, chemist, bakery and a small redevelopment. The shop was displayed in photographs exhibited to Mr Higgs’ March 2005 statement being Ex 6.
648 In the description of her shop, Ms Stapleton described her customers as loyal and repeat. Approximately 70% of customers were local residents on the northern side of Terranora Creek or Tweed River. (This reinforces the importance of such physical barriers in the catchment area of the stores in Tweed Heads that were described by Mr Dimasi in his evidence.) The shop is in an area in which many people who are retired or on social security benefits reside. She described the Tweed Heads area as “not a very rich area”.
649 In her written statement, Ms Stapleton described 10% of her customers as tourists, and another 10% whom she described as “very price conscious and … more likely to shop around for the best price and buy more when they find cheap prices.” In her cross-examination, Ms Stapleton said that a huge majority of her customers were “price conscious”. I think that she was using that phrase at that point in her evidence in a way different to the use of the phrase in her statement. Most of her customers were price conscious, but loyal. They would buy from her as long as they were of the view that her prices were “within the range”. The “very price conscious” who would shop around for the best price can better be described in the taxonomy used in this case as “price sensitive”.
650 The majority of Ms Stapleton’s customers bought chilled products, except those who bought red wine.
651 Ms Stapleton identified convenience and staff service as the shop’s main attractions. Price was a factor. She said that she sought to keep prices as low as possible and comparable with other outlets in the area.
652 Her only advertising was signage.
653 Ms Stapleton considered her main competitors to be the South Tweed Tavern, Woolworths, Liquorland and the Kirra Beach Hotel bottle shop.
654 Ms Stapleton monitored competitors’ prices when they were advertised in local newspapers and on signage. She said that she tried to match prices, but could not always do so.
655 Ms Stapleton said that she tried to distinguish the store by selling lines not found in her main competitors’ stores.
656 She said that the Tweed Heads area was “very, very competitive, … the Northern Rivers [being] one of the most fiercely competitive areas in the liquor industry.” She described the behaviour of people in the area in the following terms:
A But we also have a market whereby people - it doesn't matter even if it's a dollar - they will travel anywhere and everywhere to save that dollar.
The socio-economic area that we're in, the majority of people are drawing either a pension of some sort; they're on unemployment or some sort of social benefit. So it is a very, very poor area. And we do have our own clientele, yes, but there are certain others that will travel to save a dollar, or maybe $2, and travel elsewhere.
Q. And travel more than five kilometres, in your experience?
A. I don't know how far they would travel.
Q. There are certainly people who, because they are very price conscious, are prepared to travel a distance to secure what they regard as an attractive price?
657 Ms Stapleton accepted that her customers were price conscious, and it was essential for her to be “competitive on price”. If her shop was regarded as “uncompetitive on price” she said that “we would lose our customers”. In this context, she said that a 10% increase in price on products held by competitors’ stores “would have quite an effect, because the people are so price conscious”.
658 Ms Stapleton agreed that though her prices were not the lowest in the area, she sought to keep them competitive and stable and “within the range of competitive prices”, and that if they went outside that range she would lose custom from people who would otherwise be loyal customers. This evidence in respect of a small but profitable liquor shop so close to an aggressive discount store such as South Tweed Tavern is illuminating. The elasticity of demand of the individual store is triggered by the store being seen to be outside the competitive range of prices – that is to be an uncompetitive store in that sense. This is even in what Ms Stapleton described as a fiercely competitive area. Thus even price conscious customers in a fiercely competitive area will pay higher prices as long as they feel the stores prices are “within the range”. If being “within the range” is important for the individual store it may be seen as relevant also for the hypothetical monopolist and the SSNIP test.
659 One answer given by Ms Stapleton when being asked about the Dry Dock bottle shop revealed a mundane, but important, distinction that was related to the notion of competition and substitution. The following exchange took place:
Q. You don't list the Dry Dock Bottle Shop in paragraph 34 [of your statement] as a main competitor.
Q. Why is that?
A. It's a very small store.
Q. Would you regard it as a competitor at all?
A. Oh, everyone's a competitor, but not a main competitor.
There are competitors and there are main competitors. There is competition and there is close competition. The analysis and the description depends on the context.
660 Mr Michael Gordon was called by the Commission. He was the Managing Director and Chief Executive Officer of “Liquor Marketing Group” (“LMG”). He had been involved for most of his working life since the 1970s in the liquor industry. He and a partner established the Liquorland chain of stores, and later the Mac’s Liquor chain, before each was sold, respectively, to Coles and Woolworths. Mr Gordon was articulate, intelligent and helpful.
661 LMG was a hotel liquor buying and marketing group with over one thousand members.
662 Mr Gordon expressed views on what he saw as the features of successful takeaway liquor retailing, those features being store location and access, design and layout, supply and range, promotion and advertising, pricing and service. He recognised the growing role of destination stores which draw people from a considerable distance with the offering of a very large range and “better pricing”.
663 In discussing advertising, he said that LMG advertises state based specials across New South Wales, Victoria, Queensland and the Northern Territory. He said that advertising in papers such as the Sun Herald and the Daily Telegraph (in New South Wales) was very effective in raising awareness in many customers of the competitive prices of LMG members, but the advertisements always directed people to local stores. In his oral evidence, Mr Gordon spoke of his experience of letter drops undertaken by LMG as well as Liquorland and Mac’s Liquor. He said he found them effective to increase sales, but costly.
664 Mr Gordon gave evidence of an episode some years ago when LMG recognised that the shelf prices being charged by its members were not “generally competitive” with Liquorland and Woolworths. LMG then sought to emphasise to its members that they needed to be competitive on a range of about 200 core top-selling lines of liquor products.
665 Mr Gordon said that the top 200 lines in LMG liquor stores accounted for around 78% of total sales turnover. Thus these 200 lines have to be priced “appropriately”. Of these 200 lines he described 40 as “super core”. He accepted that a bottle shop had to be competitive as to price on the top-selling lines of liquor, being the 200 lines, though he did say that convenience affected this to a degree. He said that it was important to be within a band or competitive range and that it was important for bottle shop operators to know what that band was and to operate within it. Mr Gordon did not put, and was not asked to put, a figure on that band or range. He said the following:
Q So that what you record there, is this right, is the essentiality of bottle shop operators, if they wish to be profitable, to be competitive on a range of top-selling lines of liquor?
Q Because if you aren't competitive on those 200 top-selling lines of liquor, even though you may be a store which is convenient to your consumers, you are unlikely to do well?
A Probably true. It depends how convenient convenience is.
Q I appreciate that, and I appreciate that some of these questions are at a level of generality which belies the sophistication of the market, as it were. But as a general proposition, if you have a bottle shop and you are not competitive on the 200 top-selling lines, you risk, in a very real sense, people appreciating that fact and not going and buying from your shop?
A You do, but convenience I'll leave for the moment because you could be very convenient and all that. But also I'll take a little - with the word "competitive". Competitive does not necessarily mean the same price all the time as your neighbour up the road.
Q Quite so.
A That's all I say. It's within a band perhaps - perhaps.
Q One can probably express that by saying that there is, at any one time for any particular products, a range of prices which could be regarded as competitive; do you agree?
Q And it's important that bottle shop operators know what that range is?
A And operate within that band, let's call it, yes.
Q. So they don't have to be competitive in the sense of matching the lowest price for a particular product in the band, but they should be within the band?
A They should certainly be within the band.
Q And if they are outside the band, then convenience is unlikely to make up for their being uncompetitive on price?
A It depends how inconvenient it would be to go to the other place, really. I'm not going to drive from my home to Cabramatta to buy a bottle of beer because it's cheaper. I'm not going to do that.
Q. I know that one can test propositions by the extreme illustrations. But, as a general proposition, if a store is habitually uncompetitive in the sense of outside a band of competitive prices, it risks --
A Yes, it does risk, no question about that - in my view, it does risk it.
Q Conversely, you would give advice to any bottle shop operator that they should be within the band --
A Yes, on the top 200 products, yes. That's shelf pricing; that's not advertised pricing, which is slightly different.
666 Mr Gordon said that the profitability of bottle shops (by reference to gross margins) has declined since the 1970s. The size of all margins has reduced significantly.
667 Mr Gordon said that one of the services that LMG offered its members was the monitoring and reporting of the prices of local competitors. He said that being competitive with competitors was important. He said, however, that it was not always essential to be competitive on price. It depended on the service offered and other factors. He did agree, however, that it was important not to have a reputation of being uncompetitive on price, and that price perception was important. He agreed that there was a range of prices that could be said to be competitive.
668 Ms Kylie Barr was called by the Commission. She has managed the Dry Dock bottle shop. She had previously worked at the Coolangatta Hotel from 2000. Her experience was not adequate to enable me to rely upon her views as to the likely performance of the Dry Dock bottle shop under different conditions. However, some of her observations of the local liquor industry were of relevance.
669 She said that many of her customers had informed her that convenience was the main reason that they bought liquor at the shop. Her assessment of her customers was that 5 to 10% came from the Palms Village residents, about 10% were local small business owners and tradespeople, residents of other nearby relocatable home parks and the users of the nearby boat ramp.
670 Ms Barr carefully monitored the prices of nearby liquor stores. She did not monitor prices more broadly. She concentrated on providing excellent service to her customers and did not attempt to compete directly with the larger stores in Tweed Heads on their lowest priced specials. She viewed convenience and location of her store as central – nearly all her customers are locals and repeat. Convenience to her was proximity and good service. She identified the catchment area as local within five kilometres. (This was confirmed by Mr Dimasi’s evidence.)
671 Ms Barr did say that at least in relation to such discounted products as she did provide she attempted to be “within the range” of market prices for such products.
672 Mr Neil Derrick Haslam was called by the Commission. He was an owner and the manager of the South Tweed Tavern. His company, Haslam Hotels Pty Ltd, was an objector in the Palms Village episode and a party to the Palms Village Deed (annexure C to these reasons). Mr Haslam had the benefit of a letter from the Commission that in exchange for his co-operation it would not take action against him for any contravention of the Act. Mr Haslam had been involved in the liquor industry for over 25 years, being all of his working life, commencing with his work during his school holidays at his father’s hotel. Mr Haslam was an intelligent and careful witness who appeared reliable in his expressions of view.
673 Mr Haslam gave a description of how the South Tweed Tavern operated in effect as a significant discounter and destination store. He identified three types of customers for the South Tweed Tavern. The first were “destination customers” who came to buy bulk purchases of takeaway liquor at low prices, typically buying beer by the case and purchasing requirements for a week or more. Mr Haslam said that the population of Tweed Heads had a high proportion of retirees and pensioners. He estimated that 70% of the South Tweed’s customers (by reference to gross sales) are over 55 years, chiefly price-conscious and destination customers. He accepted a description of these customers as price conscious people who were prepared to travel to get a good price. Mr Haslam estimated that 70 to 80% of his destination customers would be prepared to travel more than five kilometres to get a good price.
674 The second category of customer was the “convenience customer”, who typically purchased smaller volumes of cold beer and wines and ready-to-drink pre-mixed drinks for immediate consumption. They were described by him as “less price-sensitive”. They accounted for about 20% of gross sales. Though a smaller group, they are important because sales of individual bottles of beer and wine involve a higher profit margin.
675 The third category of customers was “wholesale customers”: clubs, bars and surf clubs in the area. They purchased bulk purchases and accounted for about 10% of gross sales.
676 The importance of the South Tweed Tavern as a discounter can be gauged by the fact that it was the largest retailer of beer in New South Wales.
677 The South Tweed Tavern advertised in Gold Coast and Tweed Heads newspapers which were distributed from Coolangatta to Sanctuary Cove and throughout Tweed Heads and Murwillumbah.
678 Mr Haslam agreed that the nature of the business of South Tweed Tavern was that it sought to project a goodwill or reputation that a customer will get the cheapest or a very cheap product – whatever product was being bought.
679 Mr Haslam identified his local Tweed Heads’ competition to be Liquorland, Woolworths and local independent shops within five kilometres. He said that he had noticed a slight drop in sales since the opening, in 2004, of a Dan Murphy’s store about 30 minutes’ drive away.
680 He said that he monitored the pricing of local competitors in local newspapers and catalogues. He also monitored the Gold Coast Bulletin and the Daily Telegraph.
681 He said that, in his experience, destination store customers were price-sensitive and that South Tweed Tavern would lose custom to other outlets in the region if it increased its average prices above those offered by competing liquor stores in the region.
682 Mr Haslam said that since 2001 South Tweed Tavern had been advertising through “Liquor Legends” spending $400,000 to $500,000 per annum directed to the area between and including Broadbeach, 25 kilometres to the north, Byron Bay, 80 kilometres to the south, and Murwillumbah, 30 kilometres to the west, distributing 110,000 brochures, 10 times a year. He said that South Tweed Tavern had been successful in achieving a substantial custom from customers more distant than five kilometres and that this advertising area was his catchment area.
683 Mr Haslam said that if he were to increase the price of all his products by between 5 and 10% he would expect to lose customers to stores as far away as Dan Murphy’s, which was about 25 kilometres. He said that he regularly kept an eye on prices at Dan Murphy’s.
684 It was Mr Haslam’s experience that destination customers regularly travelled distances of 25 kilometres to take advantage of destination store prices. He estimated that about 65% of his customers in gross sales terms were prepared to travel distances up to 25 kilometres to secure liquor at what they saw as attractive prices.
685 Mr Haslam agreed that South Tweed Tavern competed with Dan Murphy’s, monitored their prices and tried to keep pace with their prices. To put his prices 10% above Dan Murphy’s would, he said, risk the loss of a significant portion of 65% of his custom.
686 Mr Haslam identified a number of stores of a destination or discount nature in the area he described as his catchment area (Broadbeach to Byron Bay and west to Murwillumbah): Dan Murphy’s, Kirra Beach Hotel, BWS and Liquorland. He said, however, that some outlets in the Tweed Heads area did not seek to compete on price with South Tweed Tavern.
Mr M A Cahill
687 Mr Michael Anthony Cahill, who was called by the Commission, was the licensee and manager of the Dolphin Hotel in Tweed Heads (which is marked on annexure C1). He had worked in the liquor industry since 1981 (effectively the whole of his working life) having been a licensee, manager and assistant manager of a number of hotels.
688 Mr Cahill was intelligent and articulate.
689 He expressed the view that customers who purchased takeaway liquor from the Dolphin Hotel did so largely for the sake of convenience.
690 He described the use of local newspapers and radio advertising for the hotel.
691 He described the competitors of the hotel as eight neighbouring outlets, though the takeaway liquor portion of the hotel’s business was not important.
692 Mr Cahill accepted that the prices for retail liquor in Tweed Heads were competitive. He also stressed convenience, especially of location as important. He did accept, however, that if a liquor shop was not within “the range price-wise” convenience would not help it.
693 Mr Lindsay Paul Brennan was called by the Commission. He was the Sales/Operations Manager for Novacastrian Wholesale Liquor Pty Ltd (Novocastrian) which operated three banner groups in the region of the New South Wales Central Coast. His background in the liquor industry went back to 1991. From 1991, he had worked casually in a bottle shop for four years, had worked as a field officer for the TAB in pubs, clubs and other agencies and, since 2001, had worked at Novocastrian. He described banner group operations and advertising. He gave evidence of the local nature of much of this advertising, in particular letter box drops and community newspapers.
694 His experience was that Novocastrian found a greater response to local community paper advertising than State-wide advertising. Such local papers were, however, those which had a much wider sales area than a circle of radius of five kilometres. For instance the Port Stephens Examiner was distributed in an area 40 to 50 kilometres north to south and 35 kilometres east to west. Letter box drops were, however, targeted to small portions of this area centering on the business of the local member of the banner group with a width of distribution depending on the type and location of the local banner group member’s shop.
695 In his cross-examination Mr Brennan discussed the importance of convenience, and of usually, but not always, staying within a range of competitive prices. He thought that being in “the range” was not as important in certain geographic locations – because, I infer, of an absence of immediate local competition.
696 Mr Keiron O’Donoughue had been the bottle shop manager of the Court Tavern bottle shop in Campbelltown. (This can be seen on annexure A1.) At the time of his evidence, he was second-in-charge of the fine wine department at Dan Murphy’s at Wentworthville. He only had a few years experience in the liquor industry. Before that he had worked in various retail outlets.
697 Mr O’Donoughue estimated that 60% of customers were regulars and locals. The store was near the railway station.
698 He thought that convenience was the most important factor causing customers to buy at the store; but he accepted that his views on convenience assumed that the store was otherwise within the correct price range. He said that other than spirits and red wine most product was sold cold.
699 Mr O’Donoughue looked at the Daily Telegraph everyday to check specials offered by large discount retail takeaway outlets like Woolworths and Liquorland. He also read the local papers for specials of other shops. He also went to Liquorland, Woolworths and Theo’s stores around Parramatta, where he lived, to look at their prices.
700 He discussed the setting of prices and said that the normal selling prices of beer at the Court Tavern was $1 to $2 per carton more expensive than Woolworths and Liquorland, but the store still sold a satisfactory volume.
701 The store did not advertise, other than through the weekly “Pubmart” advertising of specials.
702 Mr O’Donoughue agreed that for the products widely advertised the price in the store must be in the range, “not out of the market”. He agreed that it was the “kiss of death” for a store to have a perception that it sold above reasonable prices. In that sense, he agreed, the prices operating throughout the Sydney market had an effect on the prices in Campbelltown.
The Expert Witnesses
the essential differences of opinion
703 Dr Walker concluded that each relevant market was best described in terms of the circle of competition of approximately two to five kilometres around any given Woolworths’ store. In a country town, Dr Walker concluded that the relevant circle may be a little more than five kilometres.
704 Dr Smith disagreed with Dr Walker’s views as to local markets and concluded that the relevant geographic market may be as wide as New South Wales or, in the alternative, the markets included:
(a) an area around Campbelltown extending to Liverpool, Sydney and Wollongong;
(b) an area around Tweed Heads including Coolangatta and as far north as Brisbane;
(c) an area around Arncliffe and Rockdale extending as wide as Sydney.
the structure of the debate
705 It is convenient first to analyse the views of Dr Walker. Dr Smith’s report was in significant respects a response to Dr Walker. Thus it is convenient to structure discussion of the debate around the views of Dr Walker. It will be necessary also to deal with parts of Dr Smith’s views as separate topics.
706 Dr Walker took as her starting point a candidate market represented by a circle of competition in the order of two to five kilometres around the relevant Woolworths’ store. She derived this candidate market from her examination of market research and industry evidence.
707 The second stage involved Dr Walker posing the question whether marginal customers in sufficient number would be prepared to travel further than five kilometres in search of a better price, so as to broaden the candidate market. This translated into the use of the SSNIP test.
708 The third stage involved Dr Walker employing a critical loss analysis (“CLA”) from various sources of figures (all of which faced criticism) to estimate what percentage of customers the hypothetical monopolist in the candidate market would have to lose in order to make the SSNIP unprofitable, and thus to require the candidate market to be broadened.
709 The fourth stage involved Dr Walker, having ascertained the relevant percentages from the CLA calculation, assessing the question whether the hypothetical monopolist would lose the percentages of customers that the CLA had thrown up. She concluded from the information available to her (distinct from her CLA calculations) that the hypothetical monopolist would be unlikely to lose the percentages of customers thrown up by the CLA. Thus, the candidate market was not required to be broadened.
710 The first and fourth stages referred to above involved a central debate in the case as to the utility and reliability of the market research information and the correct conclusions to be drawn from the industry evidence in the proceedings.
711 The third stage involved a debate as to the utility of the use of a CLA given the data employed by Dr Walker for that task. This debate covered the reliability of the underlying raw material used by Dr Walker, not a debate about the methodology of CLA.
712 While I was writing these reasons I called for the assistance of the parties in clarifying the evidential status the documents contained in the two bundles marked exhibits AA1 and AA2, being the documents referred to in Dr Walker’s report. The parties have set out that position in a folder provided to me which I will mark, with their consent, exhibit AA4. With Ex AA4, I will also mark a letter dated 26 May 2006 to Ms Kathryn Wilson, a legal researcher who assisted as my associate in these proceedings, together with its enclosure. The enclosure contains the agreed evidential status of all documents referred to by Dr Walker.
the two to five kilometre radius candidate market
713 I will first deal with the material referred to by Dr Walker at  to  of Exhibit AA (Ex AA) as the basis for her conclusion that the candidate market was two to five kilometres radius around the relevant Woolworths’ store.
714 After discussing the various types of purchasing occasions for liquor Dr Walker referred to the content of the July 2000 Bain International material dealing with distances travelled to buy liquor as follows at :
According to research by Bain International for Woolworths, about 40 per cent of customers make a special trip to buy liquor, driving on average 2.7 km, with almost 80 per cent of shoppers driving less than three kilometres and over 90 per cent driving less than 5 km. Even for destination stores, the average trip length was only 4.9 km. The remaining 60 per cent of liquor shoppers purchase liquor while going somewhere else: more than half purchase liquor while doing the grocery shopping and around one fifth buy liquor on their way home from work, while other trips include on the way to a restaurant, party or dinner at friends.
The last sentence of the quoted passage was footnoted thus:
Not surprisingly, most shoppers at supermarket liquor stores (approximately 75%) went there while going somewhere else, while over half of shoppers at destination stores and specialist wine merchants made a special trip there, and shoppers at convenience stores were evenly split between special purpose shoppers and those using the store while going somewhere else (WW.020.001.0239).
(See [459(c), (e) and (f)] above.)
715 Dr Walker then referred to the following proposition also taken from the July 2000 Bain International material about the importance of driving to liquor stores.
Most liquor shoppers drive to the liquor store, approximately 80 per cent in Sydney. For destination stores, driving is particularly important, accounting for over 90 per cent of customers.
716 Dr Walker then referred to the individuals in the market research material indicating the primary importance of convenience in the choice of a liquor store, relying specifically on the following representations that were referred to earlier:
“Convenience is about twice as important as any other customer need”, “Convenience is twice as important as price in liquor format choice” for high value customers and “convenience is universally important”.
717 At this point, Dr Walker referred to industry witnesses who emphasised convenience, though she recognised, in particular by reference to what Mr Higgs said, that convenience meant many things to many people.
718 Dr Walker then referred to further market research by Bain International and other research for Liquorland dealing with the choice of a particular liquor store and the importance of proximity and convenience.
719 Dr Walker drew from the market information the following:
Taken together, this market information suggests that, while liquor may be bought on either a special purpose convenience trip, while buying groceries, on the way home from work, or on a large special purpose trip to stock up, liquor stores generally draw their custom from the local area, in the sense that people either live there, do their grocery shopping there or pass through there on the way to somewhere else.
720 At this point, Dr Walker recognised the place of destination stores as aiming to attract customers from a wide area. However, she concluded that research for Liquorland suggested that convenience was the predominating factor and that people were not prepared to travel distances such as ten kilometres to save a few dollars.
721 Dr Walker then referred to industry witnesses describing their catchment area and rivalry with a two to five kilometre range. This, she said, was consistent with the market research information indicating limited distances travelled for special purpose liquor trips (under five kilometres) and limited travel distances out of the way for liquor purchases.
722 Dr Walker then referred to industry witnesses who referred to local advertising as the most efficient means of sales promotions. Dr Walker recognised, however, that broader advertising was also used, especially by more broadly geographically organised groups.
723 From the submissions and the evidence of Dr Smith the following issues involved in or flowing from this part of Dr Walker’s evidence need to be decided:
(a) What weight, if any, should be given to the market research material?
(b) If it should be used, what does it reveal?
(c) What usefully can be said about “convenience” at this point?
(d) What usefully can be said from the industry evidence as to the candidate market posited by Dr Walker?
724 To a degree, these issues can only be seen as preliminary to the central question dealt with by both Dr Walker and Dr Smith in their respectively different ways: What is the likely response to a SSNIP in the two to five kilometre candidate market? I will delay analysis of this question until I have dealt with Dr Walker’s CLA. Nevertheless, the above questions require answering at this point.
(a) What weight, if any, should be given to the market research material?
725 Dr Smith set out in her report (exhibit 15) at  –  considerations which are important to take into account in using the market research to draw conclusions: the need for an adequate sample; the need to understand the purpose of the research and the terms of the questioning; the need to understand the selection process for participants in the study; the need to understand the process of information collection and other matters of technique. She also noted, and legitimately so, that none of the market research appears to have been undertaken with a SSNIP test in mind.
726 It is fair to say that none of the market research was proven thoroughly. All went into evidence as business records. In respect of some, there was some disclosure as to the techniques and processes employed. Thus, if it were the only available information upon which to draw conclusions, I would exercise a distinct degree of caution about using it. Two factors, however, persuade me that, within limits, I should place some reliance upon it. The first factor is the incorporation by Woolworths and Liquorland of important parts of the research into their own decision making processes. In particular, in relation to the material incorporated by Woolworths into its decision making processes, one can infer that a knowledgeable and skilled participant in the liquor industry placed weight on the material as rational and meaningful upon which to base decisions. The second factor is the extent to which the information accords with the views of industry witnesses. Though, it should be said that much of the evidence of the industry witnesses (as with the market research) can be seen as anecdotal and personal. This can be seen from the earlier review of the industry witnesses.
(b) If it should be used what does it reveal?
727 Notwithstanding the criticisms made in submissions of the two to five kilometre radius candidate market, I think that the market research material assists in underpinning a posited market of a local nature. In particular, the material incorporated into the Woolworths documents and discussed above, and taking into account the competing considerations emphasised by Woolworths, allows one to draw some conclusions which not only underpin the candidate market but which also assist in the ultimate question about market definition. It is unnecessary to track the precise statements relied on in footnotes or text by Dr Walker. In my view taken as a whole the market research material, taken together with the industry evidence permits one to draw the conclusions Dr Walker does about the candidate market and, indeed (as discussed below) her conclusions about the SSNIP test.
728 Without repeating or limiting all the representations contained in the paragraphs referred to above, at least the following can be extracted as useful propositions about the liquor market (using that phrase broadly) in the relevant period between 1997 and early 2001 from the market research material:
(a) First, convenience was a significant factor in purchasing and for many people more significant than price, as long as the store was one that was not seen as outside a general competitive price band. Convenience was seen as universally important, especially for so-called “high-value” customers. Price was an important driver, however, along with convenience, location and range of product. Price was the most important factor for 20% or less of shoppers.
(b) The local area was important for the success of any liquor shop of whatever marketing format.
(c) Day-to-day and social drinking represented over 75% of liquor purchasing occasions.
(d) More than 60% of people travelled less than five kilometres for their liquor purchasing.
(e) Consumers usually purchased liquor from between one to three outlets within four or five kilometres from home or to or from work.
729 It can readily be accepted that the above propositions are an incomplete body of knowledge about the workings of the industry. Nevertheless, I am prepared to use them in formulating an approach to market definition in this case. Their ultimate utility must be assessed in light of the rest of the evidence.
(c) What usefully can be said about convenience at this point?
730 It is plain that the market research was not directed to the weighted importance of convenience in the face of an hypothesised general price increase over a given area as posited in a SSNIP test. Nor was much of the material clear about the precise content of the word “convenience”. However, as an indicium of imprecise meaning, it was sufficiently meaningful to loom importantly in the documentation of Woolworths, in particular. Of course, it means different things in different contexts. It may mean adequate parking, it may mean geographical proximity. However, it was an indicium which can be seen as distinct from price and as a relevant consideration. Taken with the evidence of industry witnesses it can be seen to be a central consideration which takes its place in the framework discussed by the material being the “Project Seattle Report” and referred to earlier. It was vital for a shop to stay “within the range”. If a shop were to be perceived to be “outside the range” or generally uncompetitive on price it would suffer significant loss of custom. If a shop stayed “within the range” people would not change stores because of specific price issues. Within that broad construct, convenience was critical, and particularly so given the significant body of purchasing done by people travelling less than five kilometres.
731 I will discuss this so-called “range” in due course. There was little precision in the evidence about its numerical assessment. It will be, however, important to consider it in terms of the application of the SSNIP test – the fourth stage of Dr Walker’s approach.
(d) What usefully can be said from the industry evidence as to the candidate market posited by Dr Walker?
732 To a degree the industry evidence was disjointed. This reflects the way in which much of it was adduced. All of it, of course, is to be understood by reference to the background and experience of the witnesses in question. It will be necessary, in due course, to discuss what can be legitimately taken from it as to whether the posited SSNIP would cause people to move beyond a hypothetical monopolist of a two to five kilometre radius, and in particular Dr Smith’s conclusions as to price sensitivity and willingness to move exhibited by consumers. At this point of the analysis, it can be concluded that influential parts of the industry evidence support the posited candidate market. In this respect, I rely in particular upon Mr Higgs and Mr Dimasi.
733 The following important aspects of Mr Higgs’ evidence are relevant:
(a) His views that convenience (though understood broadly) was the “primary driver” in liquor outlet choice.
(b) His view that customers were drawn broadly from the local area.
(c) Subject to the additional competition of destination stores in particular, the importance of local competition. His competitors were not limited to the local area, but local competition can be seen as important to him. I will deal with destination stores more fully in dealing with Dr Walker’s fourth stage, but it can be usefully said at this stage that their influence did not negate the importance of the local area in Mr Higgs’ evidence, at least for the positing of a candidate market.
(d) His view that local liquor retailers were relevant, to a degree, in his setting of prices. I should say that he described many other influences on setting prices. At this point, however, in discussing the candidate market, the relevance of local pressures is simply to be noted.
(e) His view that regulars who came to the store for its convenient location were the core of any business.
(f) His view that the local area was the “normal conventional area of influence”.
734 The Commission’s reliance upon Mr Higgs was, in my view, legitimate, certainly at this point of the assessment of the legitimacy of the candidate market.
735 Though Mr Dimasi’s evidence was put forward by Woolworths as destructive of the posited candidate market, in my view, it had no such effect. True it was that Mr Dimasi was dismissive of Dr Walker’s mere positing of a fixed distance around each store. I have already dealt with this in discussing Mr Dimasi’s evidence. As a methodology for determining the catchment area of any particular store, it would be arbitrary and less than attentive to the circumstances of local geography and demography. That, however, was not Dr Walker’s purpose. She was not identifying a catchment area. She was positing a candidate market for her analysis. Of greater utility in the deployment of Mr Dimasi’s evidence is its place in assessing the validity of a two to five kilometre radius for these particular Woolworths’ stores.
736 The analysis of Mr Dimasi’s evidence reveals that a catchment area of about a five kilometre radius around each Woolworths’ store would include the main catchment area or at least the primary catchment area of each store: see  above and annexure A3 as to Campbelltown;  and  above and annexure B2 as to Arncliffe/Rockdale; and  above and annexures C2 and C3 as to Tweed Heads.
737 To the extent that catchment areas of the particular stores are relevant, as I think they are, Mr Dimasi’s evidence gave support to the view of the legitimacy of a candidate market of about a five kilometre radius, perhaps slightly further in relation to the Woolworths’ Campbelltown stores and the Tweed City store.
the CLA debate
738 There was no argument between Dr Walker and Dr Smith as to the potential utility of CLA in assisting in the determination of the boundaries of product and geographic markets. In appropriate cases, critical loss calculations provide an opportunity to obtain a more objective assessment of market boundaries than a merely qualitative approach.
739 The CLA is a measurement tool designed to assist answering questions posed by the SSNIP test. Both economists advocated the use of the SSNIP test in identifying the relevant area (here geographical area) of close substitution. The revised template of agreement and disagreement (Administrative Exhibit A13) identified the following agreement of the experts as to the SSNIP test:
· The SSNIP test is a means of identifying the relevant area of close substitution. It identifies the market as the smallest area in product and geographic space over which a hypothetical monopolist would impose a small but significant and non-transitory increase in price. The SSNIP can be defined at any level, but is generally 5-10%. Starting with the firm and product at issue, the market is gradually expanded in product and geographic space to include all sources of close substitutes which would defeat such an increase.
· While in practice the SSNIP test generally is implemented using a uniform price increase across a nominated market, in principle, price increases by the hypothetical monopolist are not constrained to be uniform across the nominated market. Prices may be increased by different amounts at different stores and for different products. In fact, differential price increases across locations and products may be a more realistic description of real world behaviour.
740 The template of agreement and disagreement identified the following agreement of the experts as to the nature of the CLA:
· CLA involves a trade-off between marginal and infra-marginal consumers. Marginal consumers are those who would switch in response to a nominated price increase, infra-marginal consumers are those who would not switch. CLA tells us how many marginal sales the hypothetical monopolist needs to lose and how many inframarginal sales it needs to retain, for a specified SSNIP to be profitable.
· CLA identifies how many sales must be lost, and how many sales retained, in order to make a nominated SSNIP profitable for the hypothetical monopolist. If the hypothetical monopolist would likely lose more than the critical loss, then the SSNIP would likely be unprofitable and the market should be expanded. If the hypothetical monopolist would likely lose less than the critical loss, the SSNIP would likely be profitable and the market is no wider than that nominated.
· The size of the critical loss depends on the size of the “contribution margin” (the difference between price and marginal cost, calculated as a percentage of price). The intuition behind this is that the larger the margin, the greater the contribution to fixed costs and profits that is lost from lost sales.
· The CLA simply tells us how many sales need to be lost or retained to make a SSNIP profitable or unprofitable. The CLA does not identify the actual loss or the reasons for the loss. In determining whether the actual loss will exceed the critical loss, supply and demand side factors should be taken into account.
741 A helpful description of the process of CLA was contained in the article by Langenfeld J and Li W, “Critical loss analysis in evaluating mergers” in Antitrust Bulletin (2001) Summer 299. Dr Walker was cross-examined upon the article. Neither expert indicated anything but substantive acceptance of the methodology contained therein. That methodology has three steps:
(a) estimating the hypothetical monopolist’s per unit margin before prices would be increased;
(b) determining the percentage of customers this hypothetical monopolist could lose before a price increase becomes unprofitable; and
(c) estimating whether this hypothetical monopolist would lose the percentage of customers if it increased its prices.
742 The first of these steps relies upon satisfactory data to conform with the posited hypothetical monopolist in question. Here, there were significant debates as to the legitimate use of the statistics used by Dr Walker to apply the analysis.
743 The second of these steps is a mathematical step that relies for it variables upon the data chosen from the first step and the size of the SSNIP, for example 5 or 10%. There was no debate about the legitimacy of this mathematical step. This step was explained in exhibit BB which contains a letter of explanation by Dr Walker of  of her report. It was also explained in the Langenfeld and Li article.
744 The third of these steps (which is the fourth stage referred to at  above) is a process not assisted by the mathematics of CLA or any quantitative analysis. It is necessary to assess from available real world information whether the hypothetical monopolist would loose the percentage of customers thrown up by the CLA analysis. If so, the market is likely to be wider than the candidate market; if not, the candidate market may not be changed.
745 It is also important to realise that the choice of the candidate market is not directly influenced by the CLA calculation. It is derived or posited from existing data, here the market research data and the industry evidence. Thus, the first stage (the choice of the candidate market) and the third stage (the estimation whether the hypothetical monopolist would lose the relevant percentage of customers, the fourth stage at  above) are open to debate upon the same body of information, largely qualitative, anecdotal and personal which is taken from the market research and the views of participants in the industry.
746 Dr Smith engaged with Dr Walker’s CLA analysis at the first and third stages referred to above: Dr Smith said that the data for the first stage was inadequate, thereby making the mathematically derived percentage unreliable; and Dr Smith said that the qualitative data was such as to lead to the conclusion that sufficient customers would be lost to the hypothetical monopolist in a two to five kilometre radius area applying a SSNIP. The qualitative information which led to this second view was such as to lead to the conclusions as to the width of the geographic market for which she, Dr Smith, contended, which is set out at  above.
747 The agreement of Dr Walker and Dr Smith on the CLA calculations was set out in the template in Administrative Exhibit A 13 as follows:
· If the ABS data on retail costs and revenues are accepted, they suggest a contribution margin for liquor retailing of 12-20% and a critical loss of 33-46% (in inverse relationship), depending on the degree to which labour is a variable cost, for a SSNIP of 10%.
· Labour costs are partly fixed and partly variable. The fixed element of labour costs relates to both hiring and firing costs and the fact that a minimum number of staff are required to operate a liquor store. However, given the casual and part-time nature of much retail employment, it is likely that a large proportion of labour costs in liquor retailing are variable.
· The ABS data generally excludes hotel bottleshops. If hotel bottleshops have significantly different contribution margins from standalone bottleshops, this will affect the CLA calculation.
· The ABS data are national in scope. If contribution margins in NSW differ significantly from average contribution margins nationally, this will affect the CLA calculation. Average margins are likely to differ between states to the extent that the height of barriers to entry (principally the licensing laws) differ. Average margins within a state would normally tend towards equality as resources move from areas of low returns to areas of high returns. Use of the licensing laws to restrict entry may, however, slow this process down.
· If margins are over estimated, the critical loss will be under estimated and the extent of the relevant market will be over estimated; and vice versa.
· The relevant concern in the current matter is if the data under estimates margins, this will tend to over estimate the critical loss and suggest the relevant geographic market is narrower than it really is.
748 The debate in the cross-examination and in the expert reports concerned the reliability of the ABS data, Dr Smith saying that it was too unreliable to be of utility. In the revised template (Administrative Exhibit A 13) Dr Smith introduced a matter not previously dealt with by her in her report and which was not the subject of cross-examination. This further proposition was that the CLA undertaken by Dr Walker failed to take into account the proposition that the individual store’s demand is more elastic than that of a hypothetical monopolist. Thus, it was said, using data for actual stores will not be an adequate guide to the contribution margin of the hypothetical monopolist, but would underestimate the contribution margin of the hypothetical monopolist and thus overestimate the critical loss percentage.
749 I will deal first with the legitimacy of the ABS statistics. Various potential problems were identified by Dr Smith. First, the data were obtained by sample not census, leaving them open to response and random sampling errors. From her cross-examination one can conclude that the latter error may not be critical.
750 Secondly, bottle shops attached to hotels appear to be excluded. In this criticism Dr Smith assumed that bottle shops attached to hotels were numerically important and that hotels had typically stable and higher margins. The basis for the latter assumption was not solidly founded. I am left without reliable information as to whether hotel bottle shop margins were habitually higher than stand-alone bottle shops. The evidence of Mr Gordon did give some basis to conclude that at least some hotel bottle shops operated at a higher margin in the “late 1990s”.
751 Thirdly, Dr Smith identified as a critical issue in the calculation of the contribution margins the categorisation of cost into fixed and variable. Given the nature of the contribution margin as recouping fixed costs as a fundamental element in the calculation of the percentage loss, so much can be readily accepted. Dr Smith referred in particular to labour costs, costs in relation to electricity, gas, water, petroleum products and marketing. I do not think that these criticisms are destructive of Dr Walker’s opinions. Dr Walker took the distinction of fixed and variable costs into account in presenting a range of figures based on different categorisation (a fact recognised by Dr Smith in her cross-examination).
752 Fourthly, Dr Walker used data that was aggregated across (i) stores, (ii) products and (iii) States. I do not propose to descend to the level of detail that was entered in submissions on this part of the case. It is sufficient to conclude that the data used constituted a proxy. The Commission did not use its compulsory power to seek to obtain more precise data concerning margins. Woolworths did not bring forward its own data which may have illuminated the issue. I am left with the competing views of experienced economists about the reasonableness of the ABS statistics as a proxy for the candidate areas under examination. Some comfort is to be gained from the alternative calculations made by Dr Walker on data extracted from the Bain International and from data taken from Mr Higgs’ evidence (see exhibit EEE). Upon these various bodies of data the range of critical loss was 33-46% using ABS data, 29-47% using the Bain International data and 29-48% using data from Mr Higgs’ evidence.
753 Given that I intend to approach the market definition question on two bases deriving such assistance as I can from the CLA of Dr Walker and examining the question qualitatively as Dr Smith did, it is perhaps unnecessary to reach a final view about the reliability of the statistical base. However, in this regard I should note that Dr Walker’s use of the data from Mr Higg’s evidence is some real foundation for the submission made by the Commission that the aggregation criticisms were more theoretical than real. In Ex 5, Mr Higgs dealt in some detail, from his (considerable) experience in running various liquor stores, with the main overhead items. There was a debate about Dr Smith’s evidence in cross-examination and re-examination on this evidence by Mr Higgs and whether or not she resiled from evidence she gave in cross-examination. I think the proposition that she did so resile has some force. Perhaps it is better expressed that she gave a qualification (in her cross-examination) which later (in re-examination) founded an addition to her evidence. What she did not qualify was this answer about the calculation on Mr Higgs’ figures:
Q. If his Honour accepts that evidence as being generally applicable to takeaway liquor businesses in New South Wales, then it's an easy thing, isn't it, to work out from the evidence that he has given there a contribution margin and hence a critical loss figure?
A. Well, I would assume that you could work it out from that.
754 Mr Higgs was put forward by Woolworths as a person able to give reliable evidence about the operation of the New South Wales liquor industry. He was such a person. I conclude that his figures gave a reasonable proxy for the areas in question.
755 This issue as to the utility of Mr Higgs’ figures led to the debate about the legitimacy of the additions to the template by Dr Smith after the close of evidence. I deal with this below.
756 The use of Mr Higgs’ figures subsumes and overcomes the asserted difficulties about aggregation across products.
757 In a supplementary revised report exhibit 16 (Ex 16) Dr Smith made three particular criticisms of the use of surrogate data rather than location-specific information. None of the criticisms were persuasive, in particular, in the light of Mr Higgs’ material. Exhibit 28, referred to in [1.2] of Ex 16 as MFI 13, did not deal with contribution margins; a lower margin in Tweed Heads because of the socio-economic level of people in that area would only increase the relevant critical loss percentage (thus the ABS statistics would tend to overestimate the relevant margin and underestimate the critical loss percentage); the higher freight costs tended, according to Mr Higgs, to be reflected in higher prices, thus not affecting the margins.
758 Subject to the debate about the new template, I am prepared to accept that there is a degree of approximation in the data used by Dr Walker. Dr Smith’s views were such as to discount entirely the utility of the critical loss calculation, in particular, because of that approximation of data underlying it here in Dr Walker’s work. Dr Walker’s professional judgment was that the data were a reasonable surrogate. My conclusion is that, with Mr Higgs’ data as a support, some assistance is to be derived from Dr Walker’s CLA calculations using the data that she did. However, as I said, I propose to approach my conclusions on two bases – using Dr Walker’s CLA and without using it.
the tender of the amended template
759 During the latter stages of hearing of the case it was recognised that it would be necessary to bring the experts’ template of agreement and disagreement up to date to reflect their views ventilated during the hearing. The experts’ commitments were such that this could not be done conveniently during the hearing.
760 Prior to the conclusion of the oral addresses, I received a revised template. It had new entries made by Dr Smith. The Commission objected to its receipt saying that it contained new material. I conditionally admitted it as Administrative Exhibit A13 and gave the parties leave to address me on the document.
761 Three objections were taken by the Commission in submissions filed under cover of letter of 26 July 2005. The first and second relate to the same issues. These concerned additional comments made by Dr Smith that allowance needed to be made in the CLA data for the difference between the contribution margin for a hypothetical monopolist and the average margins of competitive liquor stores. The former would be higher than the latter because of the monopolist position of the hypothetical monopolist.
762 The receipt of this material raises serious issues about the conduct of the trial and fairness. The submissions of the Commission signed by counsel, including senior counsel, state that if this material had been placed before the Court in due time, Dr Smith would have been cross-examined on it, including on her credit. To support this submission, I was provided with a copy of one page (p 17) of Dr Smith’s first report which was not read or tendered. Serious questions arise from reading that document as to whether Dr Smith altered her views, in circumstances which require explanation. In saying this, I am not expressing a view as to whether there was such a change of view; nor am I intending any criticism of Dr Smith. Nevertheless, the issue is one which warranted agitation.
763 Contrary to the submissions of Woolworths, the point was never advanced (certainly not with any requisite clarity) in the ample time and opportunity that the experts had to consider this issue. It is somewhat surprising that it arrived at the “heel of the hunt” after the attack on Dr Walker’s reliance on ABS data appeared to have been undermined by her alternative reliance on Mr Higgs’ evidence. The material put forward in the Commission’s submissions persuade me that I should not accept Dr Smiths’ new material without having had the benefit of cross-examination. To allow the material in without cross-examination would do an injustice to the Commission, and, potentially, to Dr Smith. Whilst Dr Walker has responded in yet another revision of the template provided under cover of a letter from the Commission dated 1 August 2005, I think having this contested expert issue dealt with in this way is most unsatisfactory. This is especially so when cross-examination of an expert would have occurred had the issue been propounded timeously, as it clearly should have been.
764 The third objection was to the words added by Dr Smith in  of the template. No submission was put that further cross-examination of Dr Smith would have been required. Dr Walker has had an opportunity to deal with the issue in the further version of the template propounded by her (which I will mark Administrative Exhibit A 14 – see below). I will allow this new material.
765 Thus in my orders I will deal with these matters as follows:
(a) I will reject from the contents of Administrative Exhibit A13 the following parts:
(i) The proposed addition in the points of disagreement, in relation to “CLA data”, being the paragraph: “Allowance needs to be made for the difference between the contribution margin for a hypothetical monopolist (which is likely to have a higher margin because it is a monopolist) and the average margins of competitive liquor stores, even if collected form the relevant locations”;
(iii) the proposed addition in topic 11, in relation to “CLA: calculations”, being the paragraph: “As the individual store’s demand is more elastic than that of a hypothetical monopolist (see 12 below), using data for an individual store will underestimate the contribution margin of the hypothetical monopolist and overestimate the critical loss”;
(b) I will admit as Administrative Exhibit A14 the template sent to the Court by the Commission under cover of letter 1 August 2005, but without any part of that document which repeats the matters rejected from Ex A13 or which responds to such matters.
Would the SSNIP be defeated?
766 Dr Walker expressed the view in  of Ex AA that the percentages of sales thrown up by the CLA would not be lost. She stated:
Given, the catchment areas defined by liquor stores, consistent with data on trip lengths recorded by market surveys, and market survey data on the importance of convenience in liquor purchasing, it seems highly unlikely that such a hypothetical monopolist would lose 34 per cent of sales if prices were increased by ten per cent, let alone lose 46 per cent of sales. This expectation is confirmed by market research data on how far consumers would be prepared to travel to obtain a cheaper price for liquor. Data from Bain International’s market research indicates that even the “regular price hunter” was only prepared to travel 0.27 km for a one percent discount, while “bargain shoppers” would only travel 0.19 km. According to Liquorland’s market research, “respondents tended to stick to the one or two most convenient stores, even if they believed they might get a better price at a store less conveniently located. Consumers will not generally change liquor stores for less than a five dollar saving on a case of beer or a bottle of spirits, which translates to approximately a 16-21 per cent discount on the price of a case of beer.
767 This was elaborated upon in  -  of her report.
768 As is apparent from the above quote, Dr Walker’s conclusion in this regard is a qualitative one by reference to the matters to which she refers.
769 Dr Smith’s views are likewise qualitatively based, but without reference to an assessed percentage of sales to be lost by the hypothetical monopolist.
770 At this stage, the assistance gained from the experts merges into my own assessment of the whole of the evidence, in an overall synthesis, applying common sense and commercial reality.
771 Before embarking on that task it is necessary to deal with one other aspect of the evidence of Mr Higgs – his Ex 7 which attempted to deal with the SSNIP test directly. This was a supplementary statement dated 29 May 2005. He began his oral evidence on 2 June 2005.
772 Mr Higgs was asked to put himself back to the period 1997-2000 and make certain assumptions. The first assumption was that he caused the store which he owned and controlled known as Porter’s Edgecliff to increase prices on all products by 10%. Secondly, he assumed that he could increase the prices of all liquor stores within a two to five kilometre radius. Thirdly, all these other stores increased their prices on all product by 10%. These increases of all stores were for a sustained period. The opinion that he was asked to express was:
Whether I have any, and if so, what, opinion as to whether the price increase which I have been asked to assume was made, would result in my store and the other stores losing more or less than between 34% - 46% of sales.
773 The opinion given by Mr Higgs at  of the statement was as follows:
My answer in those circumstances to the question whether the bottle shops, including my store and the other stores would lose more that 34% or alternatively, 46% of sales is that I would expect that they would do so at some point in time. It is obviously difficult to be precise about when and I do not suggest that I could be. However, I am confident that the loss of sales on the facts which I have been asked to assume, would at some point significantly exceed 46%, and probably in my view, would be as high as 60%.
774 The Commission submitted that little weight should be placed on this evidence. The first criticism was that there had been an elision between what would happen at his store and in all stores in the same area. There is some force in this. Much of the reasoning in  of the statement is tolerably clearly recounting an anticipation of what would happen in his store, which, of course, would have a much higher elasticity of demand compared to a wider area such as that posited of two to five kilometres and the residual elasticity of demand by reference to it. The statement reveals a focus upon the individual store and the reaction of customers to a price increase at that store. I think the criticism that his reasoning in  to  of the statement was so focussed was legitimate. I do not find the assertion in the last sentence of  persuasive. It was said that this should have been the subject of cross-examination. I do not think that undermines the difficulty that the evidence itself throws up. Very little of the statement directs itself to whether people, and how many of them, would move their custom outside the whole area.
775 One aspect of importance in  of the statement was an implicit view that customers would view an across the board 10% increase as making a store uncompetitive. It should be recalled that Mr Higgs expressed the view that the variations in market price across Sydney in core products was plus or minus 10%. Thus, it is not necessarily easy to see how a 10% price rise takes the shop “out of the range”.
776 The difficulty posed by his evidence is revealed by  and  of the statement. In  he is talking about one store. He says that a 10% increase might lead to a loss of sales of 60%. In  he reaches the same conclusion about all the stores. I think this reveals the translation of conclusions about the individual store to all controlled by the hypothetical monopolist.
777 I also think that there was a degree of inflexibility and rigidity in the way the assumptions were put to Mr Higgs. This is revealed by the last paragraph in his statement which was as follows:
The assumptions which I have been asked to make are in my view unrealistic. In the 32 year period that I have been involved in the retail liquor industry, I have never contemplated increasing prices by 10% on all products in any of my stores, nor am I aware of any other competent liquor store operator in Sydney ever doing so. It would be commercial suicide to do so.
778 The exercise of market power by the hypothetical monopolist is a framework distinct from the individual shopowner. However, the hypothetical monopolist is a shopowner and need not be stripped of the shopkeeper’s skill and marketing qualities. Mr Higgs’ sworn evidence was that the market range of core specials varied by plus or minus 10%. A carefully framed set of price increases variably between 5 and 10% over core, non-core and other shelf products undertaken by a skilled retailer acting as the hypothetical monopolist would not, it seems to me, necessarily take all these shops outside the range or outside the market.
779 I am however prepared to give some weight to Mr Higgs’ views and take from them that a consistent across the board 10% price rise in an area with a two to five kilometre radius would have a real impact on the stores in those areas. I am not prepared to place conclusive reliance on the figure of 60%. I will use this evidence along with the other evidence in the case to reach a conclusion as to the market.
780 Mr Higgs’ evidence was also criticised for the use he made of the hypothetical store having a weekly turnover of $25,000 to $27,000. That figure did not have any source material. Its importance was said to be in the contribution of turnover to fixed costs. I do not find this to be a powerful criticism. What Mr Higgs’ evidence was directed to was the diversion of customers upon a price rise. I do not see how that would be affected by turnover.
781 The further criticism that Mr Higgs did not state where the hypothetical stores were should be rejected. First it was not put to him in cross-examination. Secondly, he did posit his Edgecliff store.
conclusion on SSNIP, an overall synthesis, common sense and commercial reality
782 The debate about Mr Higgs’ evidence highlights, it seems to me, the danger of searching for quantitative answers to a relative and judgmental analysis. What must be decided upon is the appropriate economic tool or instrumental construct in which to judge the conduct and purpose of Woolworths through Mr Meagher and Mr Smith. There is a danger that the detail of the methodology of assessing the SSNIP test imperceptibly moves the analysis into a search for the existence of a physical feature of the world.
783 The conduct was directed to the local area. There was a fear that a competitive licence, whether in the hands of the applicant in question or a transferee, would damage the local business of Woolworths. This degree of close competition was unwelcome. The primary task is to decide whether the respective local areas pleaded are a rational and appropriate analytical tool with which to assess this conduct and purpose.
784 In my view, the markets in question were local for the purpose of the undertaking of the analysis of this conduct. I reach this conclusion by reference to the evidence in the case which I have discussed and which I will attempt to synthesise in summary form as best I can.
785 First, the catchment areas of liquor stores as described by Mr Higgs and Mr Dimasi were primarily local. Mr Dimasi’s evidence would place the relevant catchment areas, in some respects, somewhat beyond Dr Walker’s boundaries, but not sufficiently so to rebut the pleaded markets. The catchment area of a liquor shop is not determinative, but it provides a fundamental customer base. It provides the gravity for shopping at the shop and in the area. This is reinforced by the evidence of the strong effect of local targeted advertising such as by letterbox drops.
786 Secondly, there is a body of research material and internal Woolworths’ documents stressing the importance of the local area, that most people travelled less than five kilometres to buy liquor, that convenience was a central consideration and that day-to-day and social drinking represented the overwhelming occasions for purchase. Though this research was undertaken in a competitive environment, it nevertheless, points to important characteristics of consumer behaviour.
787 Thirdly, there was a clear and consistent body of evidence from Mr Higgs and other industry witnesses reinforced by some of the research material which revealed the relative importance of price perception. If a store was within a so-called range, its custom remained loyal; outside the range people would perceive it as expensive and would go elsewhere. There was little discussion of the extent of that range. It can be seen as a question of perception, though Mr Higgs indicated that well-advertised market prices for core products might vary by plus or minus 10% over Sydney.
788 Fourthly, essential to understand and come to a view about is the degree of likelihood that people will move from the local area if all liquor shops in the area seek to take more or give less and thus buy substitutes outside the local geographic area. The experts did this by applying the SSNIP test. No ultimately reliable evidence points one way or the other in a quantitative sense to what consumers would do in the construct of a SSNIP. Some of the research material indicated that many people would not travel significant distances for a cheaper price. Destination stores in the period 1997 to 2000 were not as numerous as they have become with the development and spread of Dan Murphy’s stores. Mr Higgs described their influence. Certainly they provided a significant portion of the Sydney-wide and state-wide advertising for core lines. They were a source of alternative supply for those who saw price as important.
789 Fifthly, I am not persuaded that a significantly large number of customers would leave the local geographic areas if faced with the largely uniform behaviour amounting to an exercise of a small but not insignificant degree of market power in those local geographic areas as pleaded. So to conclude would, it seems to me, require a significant and lasting change in buying behaviour of people. With most liquor bought for immediate (at least in part) consumption, with the importance of day-to-day and social drinking occasions, with the importance of local catchment areas, with the cost and inconvenience of travelling to avoid a price increase of between 5 and 10%, when the market price on core lines can vary between plus and minus 10%, I am unpersuaded that a significant percentage of the business of all local stores in the areas pleaded and identified in Mr Dimasi’s maps would go outside the local area if a small but not insignificant exercise of market power was evinced by an hypothetical monopolist.
790 Sixthly, in so concluding, it is necessary to say a little more about Dr Smith’s views. Dr Smith assumed in her report (Ex 15 [14(f)]) that “the views of retailers are that a significant number of customers would purchase liquor outside the local area in response to a SSNIP”. This was in fact an assumption based on Mr Higgs’ evidence. It gave no greater weight to that evidence. In Ex 15 at  Dr Smith expressed the view that:
If the assumptions in paragraph 14 above are correct, this suggests that buyers are likely to be relatively responsive to a SSNIP imposed by all liquor retailers in a particular local area and that indicates that the relevant markets is/are broader than the local markets suggested by Dr Walker.
791 The assumptions in  of the report need to be examined with some care. They were repeated in substance in  of her report:
· Assumption 1: “most consumers are relatively price sensitive”
The basis for this was  of her report. This paragraph led to a number of other assumptions. The word “relatively” was not explained and to a degree there was a mixing of “price sensitive” with “price conscious”. The terms of  were as follows:
The views of those engaged in liquor retailing which I have assumed (as follows and noted in Annexure 5) appear to indicate that demand is sensitive to price differences:
(f) Some retailers claim that customers are very price sensitive. For example, Mr O’Donoughue states that price is very important in attracting customers and he also states that he would lose sales if he priced above the large discount takeaway liquor retail outlets.
(g) Others also claim that customers are price sensitive.
I will come to annexure 5 in a moment. As to Mr Donoughue, whose evidence Dr Smith particularly identifies, the evidence does not support her assumption. Mr Donoughue was clear in his evidence (as were others) that it was important not to be “out of the market” and that it was important not to be seen as charging more than reasonable prices. He did not say that he would lose sales if he charged above the large discount takeaway liquor retail outlets. Nor did the specifically cited evidence of Mr Newbery or Ms Barr take the matter very far. I turn to annexure 5. Some of the references legitimately support the notion of price sensitivity in the diversionary sense – that price will cause customers to go elsewhere. Mr Haslam’s evidence is the best example. His store, however, had been developed as a destination store. His evidence as to the effect of Dan Murphy’s related to a time after 2001. The evidence makes clear that within the local Tweed Heads area the South Tweed Tavern operated a successful destination store deriving its customers from a far broader catchment area than the local Tweed Heads area. A great proportion of its customers were purchasing for reasons of price. That can be accepted. It does not assist greatly in the more judgmental question as to the degree of close substitution likely to occur by a significant number of people in the local area abandoning all the local stores to go appreciably further than five kilometres if the local area stores made a small but not insignificant price increase. I think the bald notion that consumers are price sensitive overstates the evidence to the extent that it seeks to say that consumers (that is most buyers) will change stores because of price changes. At most, looking at stores individually, only a small proportion will do so. Most will remain loyal, unless the shop is perceived as being “outside the range”.
· Assumption 2: “alternative retailer options to the hypothetical monopolist exist that involve minimal switching costs – for example, one aspect of convenience is substituted for another (purchase near home is replace by purchase en route to/from work or other activities)”.
This assumption must also be understood in the context of the evidence that most liquor is bought to consume (at least in part) immediately, for day-to-day drinking or social occasions. Opportunities no doubt exist in a mobile society, where the motorcar is central to purchasing, to change one’s buying habits, but people will only drive so far before the convenience and cost of a local purchase is exceeded by travel and inconvenience to obtain a cheaper price.
· Assumption 3: “certain groups such as retirees, who are the main demographic group in some areas, have a low opportunity cost of time”.
Equally many others apart from pensioners do not have a low opportunity cost of time.
· Assumption 4: “additional travel costs can be reduced, for example by combining liquor purchases with other activities to a greater extent and/or by purchasing liquor less often but purchasing more an a particular visit”.
But if people shop locally the question is: will they change shopping venues? All these suggestions impose a degree of formality and restriction on convenience, which the evidence reveals is fundamentally important.
· Assumption 5: “search costs are low because of the relatively uniform geographic pricing policies of the major liquor retailers (including the buying groups and the banner groups), and the advertising of specials”.
The evidence is clear that there is abundant knowledge about the market prices of core lines (see Mr Higgs’ evidence). There is, however, not as much advertising of shelf prices of products other than core specials.
· Assumption 6: “the views of retailers are that a significant number of customers would purchase liquor outside the local area in response to a SSNIP”.
This was a reference to Mr Higgs’ evidence in Exh 7, with which I have dealt.
792 The most, in my view, that these matters show is that there are factors which tend towards some responsiveness to a SSNIP. That is undoubted. Taken overall, however, I do not consider that these assumptions or the evidence as a whole detracts from the influence of a number of factors tending towards local suburban geographic purchasing, despite some exercise of a small but not insignificant exercise of power. These factors are the general importance of convenience, including locational convenience, the local catchment source, the loyalty of most customers if the retailer remains within the price range and does not appear “out of the market”, the dominance of day-to-day drinking or social occasions as the purchasing occasions and the apparent lack of desire of many people to travel significant distances for liquor purchasing.
793 Seventhly, I have given weight to the clear evidence that there is a degree of constraint on all local stores by an informed market through widespread advertising, in particular in the print media. The evidence of Mr Higgs and others was clear about his. It assisted to set the range of prices of which many people were aware tied all stores in Sydney and New South Wales to some basic price constraints. That does not gainsay, however, the importance of local buying and the ability for even closer competition in the local area.
794 Eighthly, I have given weight to the linking of geographic regions and what Dr Smith called the “ripple effect”. In any analysis of retailing markets in urban or regional areas there will be overlapping of boundaries and the potential for customers at the margins of one region to move into adjacent areas. Based on some of the assumptions she makes in annexure 5 to Ex 15, Dr Smith concluded that the local geographic areas are sufficiently linked to form a broader market. I do not find this persuasive. Many of the references in annexure 5 that Dr Smith used to found this conclusion were derived from Mr Haslam’s destination store in Tweed Heads. The other assumptions were less than compelling. It is undoubted that there is a Sydney-wide (indeed New South Wales-wide) price constraining effect from the heavy advertising, in particular in daily newspapers. That, however, only sets a framework of the “range”, in particular for core lines. It does not assist in a conclusion that sufficient people will move outside the local areas should a small but not insignificant display of power occur to make the exercise of such power unprofitable. I find the knitting together of local geographic markets leading inexorably to a blanket or quilt as wide as the areas suggested by Dr Smith to be unpersuasive.
795 Ninthly, I have taken into account that, to a degree, Woolworths and Liquorland and others organise and operate their business on a State-wide basis. Pricing is set significantly by major retailers on State-wide parameters. Mr Hardy’s evidence made this clear. However, there is also clear evidence that a real degree of discretion is given to local operation to adjust prices for local competition – being the effects of potential close geographic substitution. Likewise, advertising is carried out broadly and beyond local areas by groups such as Woolworths, Liquorland and banner groups. However the evidence permits the conclusion that local advertising (perhaps beyond a five kilometre radius) is also very important. Further, when Woolworths was setting up and planning its new four store format there was a degree of local emphasis for each format. This reflected the importance of local close competition.
796 Tenthly, I have given weight to the role of destination stores. It is important, however, to recognise that they should be examined by reference to the role they placed in the areas in question in the period 1997 to early 2001. The development and proliferation of Dan Murphy’s stores in New South Wales since that time does not reflect some pre-existing essential character of the liquor retail market. Such stores may, as they develop, change the organisation or structure of the market. The market research undertaken for Liquorland in 2000 (“Project Big Box”) stated that the “concept of the destination store simply doesn’t exist (yet) in mainstreamers’ liquor buying behaviour”. That proposition should be read as qualified by Mr Higgs’ evidence as to their potentially constraining effects. Yet as Mr Higgs said in cross-examination, the destination stores such as Kemeny’s and 60 Darling Street which affected his business did so principally involving the purchase of wine in cases above about $8 per bottle. The proposition in the above referred to market research should also be qualified by the views expressed in further market research conducted for Liquorland two years later in “Project Seattle”. This material certainly contained a more optimistic view about the likely success of destination stores. However, it also supported the view that local loyalty and convenience were very important in the respects discussed earlier. As was submitted by Woolworths, Mr Haslam’s store in Tweed Heads certainly can be seen to draw its custom from a significantly wider area than two to five kilometres. Woolworths submitted that Dr Walker had conceded that if a destination store such as South Tweed Tavern constrained liquor stores in the area, then all those liquor stores were in the same market. She did not say that. She conceded that in the SSNIP analysis Mr Haslam’s store might lose a significant percentage of customers, but that did not mean that the same percentage of the hypothetical monopolist’s customers would be lost. The proximity of Mr Haslam’s store to the two Woolworths’ Tweed Heads stores, together with the regional, as opposed to suburban, environment, assists one to conclude that the market in which these Woolworths’ stores existed may be greater than one with a five kilometre radius. However, these factors, taken with all the evidence do not lead me away from the views that in 1997-2001 the appropriate analytical tool to judge this conduct in Tweed Heads is the local market pleaded by the Commission rather than a market of the breadth contended for by Dr Smith.
conclusion as to market definition
797 Taking into account all the matters to which I have had regard and approaching the matter from the point of view of the SSNIP test using CLA and without using CLA, I would conclude that a small but not insignificant non-transitory price increase of variably 5-10% over all the products in all the liquor stores in the respective pleaded geographical areas would not cause either 30-48% of customers to move outside the area or would not render the increase unprofitable. To express the matter this way is to express conclusions about the market definition question in terms of quantitative analysis. It must be recalled what the process of market definition is – it is the choice of the appropriate framework of analysis or focus in which to view the conduct in question from a competition perspective. Thus understood, for the reasons that I have given, I accept that the geographical areas pleaded and particularised are cohesive economically significant trade areas of close competition which can be viewed as areas in which a degree of market power could be exercised by a hypothetical monopolist.
798 As can be seen from how I have approached the matter, the evidence is comprised of a diffuse body of facts and assertions, often personal and anecdotal. The evidence, as a whole, does not permit reliable conclusions from quantitative analysis. Taken as a whole, there is sufficient material to persuade me to the view that the relevant markets as the appropriate economic tools or instrumental concepts to judge the impugned conduct were the local markets pleaded by the Commission.
the effect of the conduct
799 No part of the case pleaded against Woolworths was that the impugned conduct had the effect, or was likely to have the effect, of substantially lessening competition. Yet both expert witnesses and the parties in submission (though, in particular, Woolworths) expended significant time and energy on dealing with the effects of the conduct. It was submitted by Woolworths that it is relevant to consider the effect of the impugned conduct because a direct inference as to purpose may be drawn from the effects of the conduct.
800 It goes without saying that purpose can be inferred from effect. Here, however, evidence was given by two witnesses whose purpose was the purpose of Woolworths. I see little assistance in analysing all the events to assess effect in the local markets when I have the direct evidence of the relevant persons.
801 I accept the Commission’s submissions that there is little or no assistance provided by embarking on a collateral enquiry as to the effect or likely effect on competition.
802 Woolworths also submitted that as a matter of principle it was necessary to undertake a “counterfactual analysis” to analyse purpose. This was said to flow from Stirling Harbour Services Pty Ltd v Bunbury Ports Authority (2000) ATPR 41-783 at . That case included an allegation of an effect on competition. It can be readily accepted that one must, to assess effect, analyse the world with the conduct and without the conduct. However, it is meaningless and distracting to discuss the world with and without the purpose. To require a case based only on purpose to contain a real effect on competition is to insert into the statute an element not provided for by Parliament. I decline to do so.
803 One does not escape this difficulty by saying that all that one is doing is to assess whether the purpose intended was meaningful or relevant to the competitive process and then attempt to assess that by reference to the effect on competition through some counterfactual analysis.
804 With respect to both Dr Walker and Dr Smith, I think that the purpose in question should be analysed without the distraction of counterfactuals. Rather, the evidence of Mr Meagher and Mr Smith must be assessed and a judgment made as to their purpose. If their purpose was such as to be characterised, using economic concepts relevant to competition, as one substantially to affect competition in the three local geographic markets then the Act has been contravened. That conclusion is not dependent on the Commission showing that there was in fact a meaningful effect on competition in the relevant markets.
805 Before returning to the issue of the purpose of Woolworths, one aspect of the evidence and submissions about the effect of the conduct and the counterfactual should be addressed. Dr Walker said that the correct counterfactual was to hypothesise what the position would have been had the objection not been made. She saw the objection and the pleaded deed as inextricably linked in their anti-competitive purpose. Dr Smith said that the relevant counterfactual was the deed not being entered, and so the objections (which were otherwise lawful) proceeding to a hearing. For the reasons I have given, it is unnecessary to deal with this debate. Woolworths submitted, however, that even if Dr Walker’s views were to be accepted, one should not infer a purpose of substantially lessening competition from the fact of the Woolworths’ objections. Dr Smith’s views were called in aid in this regard. At  of Ex 15 Dr Smith said:
In a very competitive market, exclusion or curtailment of one or even a few entrants would be likely to have a negligible effect on the price in the relevant market. Similarly, entry would be unlikely to lower prices. Therefore, unless it also stimulated new demand (Dr Walker assumes aggregate demand for liquor is relatively price inelastic) it would spread existing demand over more suppliers, thereby lowering turnover per store. In a situation where licences must be purchased in order to participate in the relevant market, and if it is assumed that the amount paid for licences reflects expected turnover at the time when the licence was issued, entry will also have the effect of reducing the value of the licence. The licence is not a sunk cost but a marketable asset. As a matter of economics, it is rational to expect incumbents to take steps to object to the grant of a new licence in their local area, to minimise that loss of sales, in circumstances where one can still conclude that those steps had no impact on the process of competition in the market.
Dr Smith also dealt with this issue in her evidence under cross-examination. The following exchange took place:
Q. One of the key structural features of any market for the purpose of competition analysis is the height of barriers to entry, isn't it?
A. It is.
Q. You referred to that just a few minutes ago, didn't you?
A. I did.
Q. In undertaking any analysis of whether particular conduct affects the process of competition, economists are alive to the potential of anti-competitive conduct by incumbents to raise the barriers to entry of new market entrants in an attempt to prevent effective competitive entry; that's right, isn't it?
Q. From the perspective of economics, it would be rational to engage in conduct that raises the barriers to entry if, by doing so, there is a prospect that effective competitive entry will be prevented or deterred?
A. Would it be economically rational? Yes, if you can - I mean, it might be illegal, but if you can stop competitors from coming into a market that is not a competitive market, I mean, that's the other qualification that you need to put in there, so if the market is already competitive, whether a particular new entrant comes in or even whether a number of new entrants come in might make no difference. Assuming that you have a concentrated market, a small number of players, then if you can find some way of raising barriers to entry, you may be more profitable as a consequence.
Q. It would be rational to engage in conduct that raises the barrier to entry even if the market was competitive?
A. It depends what the objective is.
Q. Can I suggest this: the objective is to keep competitors out?
A. Why do you want to keep competitors out?
Q. To stop them competing against you.
A. Well, keeping a competitor out, if you've already got a highly competitive market, is not going to have much effect.
Q. We can take it, can't we, that if a particular incumbent thought that it was important to take steps to keep a competitor out, then that would be a good indicator of the importance of that potential entry on the process of competition in that market?
A. Not necessarily.
Q. The costs of engaging in conduct that excludes competitors could be recouped through higher prices, couldn't they?
A. Only if the market is not competitive at the moment.
Q. And the cost of engaging in the conduct that excludes competitors from the market could be recouped through the retention of revenue that would or might otherwise be lost if the entry was more competitively effective?
A. If in fact what you're saying is that the party - I assume you are meaning a party - is excluded from the market and they would come in and do something dramatically different in that market from the already-competitive market, then in fact what you are saying could be right.
Q. I'm not just saying that. What I'm suggesting to you is that it would be rational to seek to exclude a competitor from the market if one were seeking to protect one's turnover?
A. If in fact the demand for the product is inelastic so that there is a relatively - you know, there is a certain amount of revenue, and it's going to be divided between however many players there are in the market, then, yes, that could be a reason for wanting to exclude somebody from the market, to protect the investment.
Q. You would agree, wouldn't you, that the requirement to obtain a liquor licence under New South Wales law in the context of the present matter is a barrier to entry?
A. I'd agree that it's a barrier to entry.
Q. If you don't want the licence that is being applied for to be granted - and I'm talking about the incumbent here - because you are concerned that the licence, if granted, would adversely affect your business, then we can take it, from an economic perspective, that the purpose in opposing the licence application and raising the needs objection is an exclusionary purpose?
A. The word "exclusionary" is usually used in a competition context, and it's therefore usually saying that you are doing something anti-competitive --
A. -- that your purpose is something anti-competitive. It could be that you engage in the conduct that you suggested that is not for an anti-competitive purpose but rather for a commercial purpose of protecting your position in the market. That doesn't have to be anti-competitive.
Q. Can I suggest to you that an anti-competitive purpose would be one where the purpose was to protect your business from harm by the grant of the licence which is being applied for?
A. Through a reduction in competition?
A. Yes, I would agree with that.
Q. And simply through the fact of deterring that person from either making, continuing with the licence application or limiting the licence that they obtain to one which is of no competitive significance to you?
A. If those are the assumptions that you're making, then, yes, I would agree with that.
806 From this material, it was submitted that the purpose of the prevention of one more entrant into an already competitive market with a given volume of sales might rationally be not to affect competition but to protect sales from being shared with one more supplier. It was submitted that Dr Smith’s evidence supported the proposition that an anti-competitive purpose would only arise where the purpose was to protect the business from harm through a reduction in competition. The Commission submitted that a gloss was being put on Dr Smith’s evidence. I am not sure about that. As I read Dr Smith’s evidence one would need to discern, in any case about the purpose of substantially lessening competition, a relevant aspect of the purpose to be to affect the competitive process. That would not be satisfied merely, so it was said, by discerning a purpose to prevent the entry into the market of a competitor or, more relevantly here, of a platform for competition which, if deployed effectively, might damage the firm in question by reducing the revenue and profitability of the firm, if the market was otherwise competitive.
807 There is a danger in disembodying the debate about purpose from the evidence that is available. Even if a market is workably competitive or highly competitive, the appearance of a new entrant actively engaging in the winning of market share and recognition is the working of the competitive process. The effect of a new entrant may have a detrimental effect on the business and turnover of incumbents. That, of itself, will create competitive pressures and close competition to defeat the new entrant’s attempt to gain market share and a place in the market. There may be cases where a firm acting to prevent a new entrant can explain that by a desire divorced from competition and the competitive process. If a firm has a purpose to impede or prevent the entry of a new competitor into a market lest that new entrant conduct itself competitively to wrest business from the incumbent and so damage its business, that purpose involves the process of competition. It involves preventing entry into the market and preventing a state of affairs of lost sales through additional competitive activity. Such lost sales and damage to business will, in the ordinary course call for steps, if available, in response to meet the challenge of any new entrant. The available steps may be marginal if the market is already highly competitive. To say as much, however, is only to posit even closer, or more fierce, competition. If a purpose is to prevent or impede market entry and so to prevent competitive activity, that is sufficient it seems to me to amount to a purpose directed to the competitive process. One does not need to superadd a further purpose that the success of that purpose is to affect the degree of competitive activity as opposed merely to preventing the firm’s share of revenue in a mercantilist sense. The entry of competitors is an essential attribute of the competitive process. It is the means of access for competitive trading and for pressure on incumbent firms, through their revenue and profitability, to offer more or charge less in order to retain their places in the competitive (on this hypothesis increasingly competitive) market. If the grant of new licences were seen as a competitive threat they were so seen because they were a threat to business through competitive activity. A purpose to prevent or impede such competitive activity is a purpose concerned with the process and conduct of competition.
The resolution of the contested issues of statutory construction and conclusions as to construction
sections 4D and 4F and 45(2)(a)(i) and (b)(i)
808 I have already dealt with some of these issues along the way, see in particular - above. The first group of contested issues of construction is strictly unnecessary to answer. They concern whether it can be said that Woolworths was competitive with each of the applicants. It is admitted in each case that Woolworths was competitive with Liquorland, and, also, in relation to Palms Village, with Mr Haslam’s company. I have dealt with this issue already in respect of each episode: see  to ,  to ,  to  and  to  above.
809 I have also dealt with the purpose of each of the parties to the deeds. In each case, Woolworths, on the evidence, was one of the parties as a result of whose efforts the relevant provisions were included. I reject the submission of Woolworths that Pont Data is irrelevant because that case only has relevance where a provision or deed is entered into or undertaken under protest. In each case, the provisions were included as a result of the efforts of Woolworths and Liquorland. In any event, the purposes of the other parties can be inferred as I have.
810 Section 4F does not require that there be one substantial purpose or the substantial purpose, the relevant purpose need only be a substantial purpose.
811 I reject the submission of Woolworths that s 4D can have no application on the facts here because at the time of entry into the deeds all the applicants who were subject to the relevant restriction had no legal right to sell the product (takeaway liquor) in question. There is no reason, it seems to me, to conclude that a purpose is not to prevent sales to particular persons (or classes of person) merely because the purpose is to prevent the sale in the future of goods to a particular class formed in the future. I do not see anything said in Rural Press (HC) or Australian Competition and Consumer Commission v Visy Paper Pty Ltd (2001) ATPR 41-799 at  as providing for such a restriction to be read into the provision. The question is: What was the purpose of the provision? In this case: What was the subjective purpose of Woolworths as to the provision? Was it, relevantly, to prevent, restrict or limit supply or acquisition of goods to or from particular persons or classes of persons. If the restriction is to operate through a party not yet able to supply, that does not gainsay the purpose which is one which is to operate in the future. The future operation of a relevant restriction is contemplated by s 4D(2). I see no reasons to constrain s 4D(1) by the implication of a need for a present legal right or capacity to supply, if a purpose otherwise satisfying s 4D is found, though only to operate at some future time or in some future circumstance.
812 For the same reasons, I reject the submissions of Woolworths that the s 4D case fails because of the futurity of the class. The task is not an over-elaborate one. It is to ascertain the relevant purpose of the provision, here, by ascertaining the purpose of the party, Woolworths, by whose efforts the clauses were included in the deeds. If, taking into account any element of futurity, the class has the requisite particularity, the provision will be satisfied.
813 Woolworths submitted that the particularity of the persons or class must arise entirely otherwise than by the characteristic of being excluded from supply. Reliance was placed on what Callinan J said in Souths at . However, as I sought to show earlier, the passage from Pont Data (set out at  above) which was criticised by Woolworths has not been disapproved. In my view, the passage referred to at  above is an expression of view by a Full Court of this Court (Lockhart, Gummow and von Doussa JJ) in a joint judgment which I should follow. Thus, relevant to the particularity of the class, is the fact that its members are the objects of the purpose in question.
814 It was submitted by Woolworths that the class cannot be “some unidentified potential group of customers”. The relevant question is not an isolated proposition capable of independent analysis; rather, the relevant question is whether, on the facts as they present themselves here, a purpose of each relevant provision was to prevent, restrict or limit the supply of goods to particular persons or class of person. The degree of definition and the common characteristics that lead one to the conclusion that a class is “particular” is not capable of being expressed otherwise than by application of the language chosen by Parliament to the facts and purpose in question. To seek to do so is to embark on a process of deconstructing, or glossing, of Parliament’s words with the almost inevitable (and certainly impermissible) substitution of a different word or phrase for that chosen by Parliament. That one person’s view that the definition of a class to which the purpose in question was directed is sufficiently “particular” to fall within the section is open to debate is an inevitable consequence of the indeterminate frame of reference contained within the adjective “particular”.
815 It is necessary to turn to the episodes here and assess whether s 4D (and so, s 45(2)(a)(i) and (b)(i)) is satisfied.
816 Woolworths’ purposes included, relevantly, the purpose of preventing the supply of takeaway packaged liquor (other than themed liquor) to all future customers of the Ettamogah Pub. The commercial aim of Woolworths was to protect the existing business of Woolworths in the local area from losing custom to the Ettamogah Pub. The purpose therefore can also, and separately, be expressed to be preventing the supply of takeaway packaged liquor (other than themed liquor) to future customers of the Ettamogah Pub who might otherwise buy such liquor from the Woolworths’ stores in the area. I do not think that one can define the group any more closely. Though the evidence tells one that there is likely to be a geographical catchment for people who will shop at the Ettamogah Pub or the Woolworths’ stores at Campbelltown, that does not really assist in the delineation of the class. This can, perhaps, be contrasted with the class defined by the trial judge in Rural Press (HC) (see  above). Nevertheless the class can be defined in one of two ways. It has a degree of particularity in both forms. This is sufficient, it seems to me, for the class to be called a particular class. The purpose of Woolworths was directed towards restricting supply to that identifiable (and particular) class. I therefore conclude that the purpose of the provisions of the Ettamogah Deed, in particular clause 1.2, was to prevent or restrict or limit the supply of takeaway packaged liquor to the above particular classes of persons. I conclude that Woolworths thereby contravened s 45(2)(a)(i) and (b)(i) in that respect.
817 Mr Smith’s purposes did not include any purpose to prevent Jin Ro doing anything. He believed that the restrictions in the Jin Ro Deed reflected the parameters of Jin Ro’s commercial intentions or that it did not prevent Jin Ro from doing anything that it desired to do. Mr Smith’s purpose was to ensure that this licence was not able to be used by any person (Jin Ro or a transferee) as a platform for competition with the soon to be opened Woolworths’ store. That is, his purpose was to prevent this licence being or becoming a competitive threat in the future in the Rockdale area by disabling it from being used by a future market entrant. Thus understood, there was no purpose of preventing, restricting or limiting the supply of takeaway liquor to any particular person or class of persons. The purpose was to neutralise this licence for the future and to eliminate any potential for it being available to be used as a competitive threat to the Woolworths’ store soon to be opened.
818 The essential difference between this episode and the Ettamogah episode is that in the latter the purpose was directed to the prevention of supply of takeaway liquor to a class, whereas here the purpose was not directed in the same way.
819 I conclude that there was no contravention of s 45(2)(a)(i) and (b)(i) by Woolworths in relation to Jin Ro.
820 As discussed earlier, the purpose of Woolworths in the restrictions required was to ensure that the business carried on under the licence was not able to expand in any way at this site or any other site. The purpose was not directed to particular persons or classes of persons. As I have found, Mr Meagher did intend that the restrictions conform to what he understood the applicant wanted to do with the licence. Thus his (and Woolworths’) purposes did not include a purpose to prevent customers at the Dry Dock bottle shop being sold any particular liquor. Limits were placed on the licence, but the purpose in this was not one directed to preventing, restricting or limiting the supply of liquor to particular persons or classes of person, but to ensure, as far as possible, that the licence could not be redefined or relocated to be used in a way which might facilitate the entry of a competitive threat to Woolworths’ Tweed Heads liquor stores.
821 I conclude that there was no contravention of s 45(2)(a)(i) and (b)(i) by Woolworths in relation to Palms Village.
822 Whilst Mr Meagher and Woolworths did not view Mr Dixon’s application as a serious threat in itself, they were determined to include in the deed being negotiated and they did include in the Global Beer Deed a provision directed to preventing, restricting and limiting the supply of certain types of takeaway liquor by Mr Dixon to his future customers. The purpose of clause 1 was to prevent Mr Dixon selling to his future customers takeaway beer that was other than there defined. This provision was directed to preventing Mr Dixon selling beer which during negotiation it had become evident he wanted to sell – boutique or imported beer which might be generally sold from Woolworths’ stores at Tweed Heads.
823 Thus, though Mr Meagher’s purpose was principally to ensure as far as he could, or as far as he thought was necessary, that the licence could not be used by any potential competitor in the area to the detriment of Woolworths’ stores in the Tweed Heads area, a real and, in my view, substantial, purpose was to prevent the sales of certain competitive lines of beer by Mr Dixon to his customers. As with the Ettamogah episode, the purposes of Mr Meagher and Woolworths included, relevantly, the purpose of preventing the supply of takeaway packaged liquor (other than such of a kind described in clause 1) to all future customers of Mr Dixon. The commercial aim of Woolworths in this respect was to protect the existing business of Woolworths in the local area from losing custom to Mr Dixon (even if the fear was less than acute). The purpose therefore can also, and separately, be expressed to be preventing the supply of takeaway packaged liquor (other than that described in clause 1) to future customers of Mr Dixon who might otherwise buy such liquor from the Woolworths’ stores in the area.
824 I conclude that the purpose of the provisions of the Global Beer Deed, in particular clause 1, was to prevent or restrict or limit the supply of takeaway packaged liquor to the above particular classes of persons. I conclude that Woolworths thereby contravened s 45(2)(a)(i) and (b)(i) in that respect.
s 45(2)(a)(ii) and (b)(ii) – substantially lessening competition
825 I have earlier dealt with the submission of Woolworths that its purpose is irrelevant to the question of market definition.
826 Woolworths submitted that the Commission must establish that Woolworths had the purpose of harming the competitive process or state of competition in the relevant markets alleged by it so as to substantially lessen competition in those markets; that it was insufficient to demonstrate that Woolworths had the purpose of harming any of the licence applicants in question; and that it was insufficient to establish that Woolworths had the purpose of protecting its own business.
827 At one level these propositions can be readily accepted. However, the notion of purpose in the context of s 45(2)(a)(ii) and (b)(ii) must be understood in the real world. People are unlikely ever to direct themselves to a consideration of market definition, the choice of a market, the notion of the competitive process (as opposed to competitors), the elements of the operation of the competitive process and the substantial (in the sense discussed below) lessening, preventing or hindering of competition. No cross-examination was directed to Mr Smith or Mr Meagher in these terms, that is, using this terminology. I have little doubt that they did not converse or think in these terms. What they did was to formulate their approach, purposes and, no doubt, discourse in everyday terms, in which terms they were cross-examined. What is necessary is to understand what the purposes of Mr Smith and Mr Meagher were and to assess whether in the language and the content of the Act those purposes included as a substantial purpose (for s 4F) a purpose of substantially lessening, preventing or hindering competition, competition being, of course, the competitive process.
828 Debate took place on the meaning of the word “substantially”. Great care needs to be taken in debate about the content of such words. In s 46 “substantial” means “a considerable or large degree of such power”, when qualifying market power: Eastern Express Ltd v General Newspapers (1992) 35 FCR 43 at 63; and Universal Music at -. In relation to the word “substantial” in s 4F(a)(ii) and (b)(ii) Heerey J said the following in Monroe Topple at :
Did the proscribed purpose, if it existed, loom large among the objects the corporation sought to achieve?”
829 The content of the word “substantially” in s 45(2)(a)(ii) and (b)(ii) has been discussed in a number of cases, to some of which I referred at - above. It is clear that “substantially” is used in the sense of meaningful or relevant to the competitive process, and that it is necessary that the purpose be to achieve an effect of that kind. The discussion in Rural Press (HC) at  footnote 67 may indicate that there is a layer of meaning of “considerable” to be added to the notion of being meaningful or relevant to the competitive process. However, it is difficult to understand what purpose of the Act would be advanced by a conclusion that the purpose or effect of a provision was to lessen, prevent or hinder the competitive process, in a way which was meaningful and relevant to the competitive process, but was not sufficiently “considerable” to warrant relief. Once one recognises that the purpose must be to do something meaningful or relevant to the competitive process, adjectives, adverbs or like phrases connoting quantity, such as “considerable”, “more than nominal”, “more than insignificant”, can be seen to be subsumed in the evaluative and functional analysis in deciding whether a purpose or conduct was of a character deserving of the intervention of the Court, in the light of the purposes of the Act, as being meaningful or relevant to the competitive process. I am not able, with respect, to express the matter more clearly than French J did in Stirling Harbour Services Pty Ltd v Bunbury Port Authority (2000) ATPR 41-752 at:
The concept of “substantially lessening” competition is evaluative. There is only limited assistance to be derived from replacing the words with other phrases. The term is not defined in the Act and has not received extensive judicial exposition – Eastern Express Pty Ltd v General Newspapers Pty Ltd (1991) ATPR 41-128 at 52,905 (Wilcox J); Radio 2UE Sydney Pty Ltd v Stereo FM Pty Ltd (1982) 44 ALR 557 at 564 (Lockhart J); Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees’ Union (1979) 42 FLR 331 at 348, the latter on the meaning of “substantial” in the collocation “substantial loss or damage” under the old s 45D. In my opinion the phrase sets a standard for judicial intervention in respect of the classes of anti competitive conduct to which it applies. It requires, before that intervention can be invoked, that there be a purpose, effect or likely effect of the impugned conduct on competition which is substantial in the sense of meaningful or relevant to the competitive process. There is, of course, a certain circularity in these attempts at exposition. It could be said that a substantial lessening of competition describes a purpose or outcome of conduct which is deserving of the intervention of the Court in the protection of the competitive process according to law. So to say, is to identify the functional character of the statutory standard.
830 The evidence of Mr Smith and Mr Meagher enables conclusions about their purposes to be drawn about all the episodes. Both men were very experienced in the industry. Both understood that an unrestricted off-licence was a scarce article and a potent item providing the foundation for the entry of potentially significant competition in the local area in which it was deployed.
831 A substantial purpose of the objections and of the provisions was to prevent the licence being or becoming the platform or vehicle for a market entrant without restriction on its licence. This purpose was distinct from dealing with such aspects of any competitive threats of the applicants in question here, in the businesses that they wanted to pursue. It was a purpose to ensure, as far as was possible by the provisions, that the licence to be granted could not in the future be available as a scarce and potent item to be used by an entrant to the business of selling takeaway liquor in the local area where Woolworths had, or would shortly have, a liquor outlet.
832 This purpose flows easily from their evidence and from appreciating that they were intelligent men, experienced in the operation and working of the liquor industry and of the Licensing Court. It is unnecessary for a decision in this case to draw conclusions in this respect about the purpose of Liquorland. I have not heard evidence from its employees. To the extent that it is necessary, however, I do conclude that the evidence before me is sufficient to allow me to draw the conclusions that I have about the purposes of the relevant provisions for s 45(2)(a)(ii) and (b)(ii), principally from the purposes of Woolworths.
833 Once one accepts that the market was, as I have found, a local one, this purpose can be seen plainly to be relevant to the competitive process in that market. It was directed to denying any new potential entrant to the local market this vehicle (being a “potent item”) for entry to the market. This did not deny the potential new entrant the ability to enter the market by applying for its own licence. However, the purpose was to make sure, as far as was possible, that this licence could not be used for facilitating any unrestricted market entry, now, or in the future.
834 The fact that this purpose may have been legitimately pursued simply by enforcing rights given by State law in a State court is not to the point. Nor is it to the point that Woolworths may have won these cases or that some restrictions may have been placed on the licence by the Licensing Court. The purposes of the deeds and their provisions included a purpose, as a substantial purpose, as I have described. That purpose was directed to the competitive process in a meaningful way.
835 Therefore, I conclude that the provisions of each of the Ettamogah Deed, the Jin Ro Deed, the Palms Village Deed and the Global Beer Deed had the purpose of substantially lessening competition and that Woolworths thereby contravened s 45(2)(a)(ii) and (b)(ii) in those respects.
836 In the cross-examination of Dr Walker a direct and sustained attack was made on her credit. It is unnecessary to descend into the detail of this attack. I considered carefully the terms of the cross-examination at the time that it was undertaken and have carefully considered the transcript and her reports. I was and am clear in my mind that Dr Walker did not, as was suggested, set out in a selective and intellectually dishonest way to place before the Court the results of biased advocacy. There were some aspects of her evidence that were less than compelling, as can be seen from my reasons. However the same can be said of some aspects of Dr Smiths’ evidence. That is not said by way of personal or professional criticism of either. Far from it. I found the views of both and the discourse each provided in writing and orally helpful, indeed, essential, in making the evaluative judgments required of me. As the length of these reasons help to demonstrate, the task of condensing a view for the assistance of the Court in a case such as this to a manageable size is not easy.
837 In this context, it is appropriate to say something of the place and role of expert witnesses in cases such as this. In giving reasons for rulings on some of the expert evidence ( FCA 630) I identified some aspects of the presentation of expert evidence in competition cases. If I may repeat, by way of paraphrase, part of what I there said in the context of ruling on evidence in the following.
838 In cases such as this dealing with a social science, the views of Professor Brunt expressed, if I may respectfully say so, with her customary clarity in chapter 8 of the helpful compendium of her work Economic Essays on Australian and New Zealand Competition Law, illuminate one aspect of the helpful, indeed essential, role for expert evidence in this field. In that chapter, Professor Brunt quoted Keynes at page 358, where that learned economist said:
The Theory of Economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor draw correct conclusions.
839 The “economic” questions here involved the assessment of the purposes of humans working in a commercial environment and the appropriate economic framework in which to discuss them.
840 With the taxonomy of expert evidence of fact, assumptions, reasoning process and opinions as an accepted (indeed necessary) framework, one then comes to the role of the economist in a case such as this. Because it is a social science, and because it is a way of approaching matters and a way of thinking about matters, there is a role, for the economist to assist the court by expressing, in his or her own words, what the human underlying facts reveal to him or her as an economist and what it reflects to him or her about underlying economic theory and its application.
841 For instance, if in this case there had been tendered a mass of industry data about consumer behaviour, about catchment areas for shops and about activities of shopkeepers, and senior counsel for the Commission closed his case and addressed me on that question, I could well understand and expect one submission from the respondent to be that there was a startling and illuminating absence of evidence in this case - the lack of assistance that I was given from an economist putting together, sorting and ordering, within the confines of economic theory, the human behaviour reflected by that raw data. It might be said that a Jones v Dunkel inference or conclusion could be drawn if the Commission could not find an economist to assist me with the interpretation, from an economic standpoint, of that raw data. That, I think, throws up the problem in some of the objections to admissibility that were made, in some respects in relation to the form of the evidence, and in some respects in relation to the problem about the attacks on the witnesses, in particular, Dr Walker, in cross-examination.
842 The recognition of the place of expert economic assistance in the manner described by Professor Brunt means that often the point of the expert opinion is to give a form or construct to the facts. It may appear to be an argument put by the witness. So it is. The discourse is not connected with the ascertainment of an identifiable truth in which task the Court is to be helped by the views of the expert in a specialised field. It is not, for example, the process of ascertaining the nature of a chemical reaction or the existence of conditions suitable for combustion. The view or argument as to the proper way to analyse facts in the world from the perspective of a social science is essentially argumentative. That does not mean intellectual rigour, honesty and a willingness to engage in discourse are not required. But it does mean that it may be an empty or meaningless statement to say that an expert should be criticised in this field for “putting an argument” as opposed to “giving an opinion”. In this respect, regard should be had to the comments of French J in Sampi v State of Western Australia  FCA 777 at - where his Honour said in dealing with the anthropological evidence in native title cases:
Aspects of the reports offered what might properly be called argumentative or taxonomical conclusions or inferences relevant to the claimed determination of native title. To call them such is not necessarily to denigrate them. The judgment of the Court in determining the application is in part evaluative. The Federal Court Rules recognise that there are aspects of so called expert testimony which are argumentative and can be treated as submission. Order 10 r 1(2)(j) provides:
‘Without prejudice to the generality of sub-rule (1) or (1A) the Court may –
(j) in proceedings in which a party seeks to rely on the opinion of a person involving a subject in which the person has specialist qualifications, direct that all or part of such opinion be received by way of submission in such manner and form as the Court may think fit, whether or not the opinion would be admissible as evidence.’
The rule of court was developed in part to respond to concerns about the way in which rules of evidence might lead to the exclusion of helpful economic testimony in competition law cases. Economic experts typically offer opinions about questions such as market definition relevant to the application of particular provisions of the Trade Practices Act 1974 (Cth). Such opinion is by way of characterisation of primary evidence and is essentially argumentative in character albeit the characterisation is informed by relevant expertise. An anthropologist, as in the present case, may offer an opinion on whether a particular group of people constitute a distinct or discrete society of persons. The nature of the taxonomical exercise is conceptually similar to that undertaken by the economist.
There is potentially some tension between the recognition that expert testimony may have the character of submission and the Practice Direction relating to expert witnesses which contemplates acceptance by the expert of a duty to the court in providing opinion evidence and which rejects the proposition that the expert is simply a ‘hired gun’ for the party who calls him or her. That tension and associated difficulty in the way of accepting expert testimony as evidence can arise where the opinion offered becomes advocacy for a particular outcome.
843 For the above reasons, I conclude that the Commission is entitled to relief arising from contraventions of the Act by Woolworths of s 45(2)(a)(i) and (b)(i) in respect of the Ettamogah and Global Beer episodes and of s 45(2)(a)(ii) and (b)(ii) in respect of all four episodes. It is appropriate to require the Commission to formulate the orders it seeks to reflect my reasons. Prima facie, it would appear to me that the Commission is entitled to declarations of contravention. Whether injunctive relief is appropriate, in the light of the changes to the Liquor Act, may be debatable. The question of penalty also arises. The parties will need to give some attention to a regime for any further evidence (and whether that is appropriate) and a hearing on that issue. An appropriately framed order under Order 29 of the Federal Court Rules should be considered. The question of the timing of the penalty hearing should be addressed by the parties. Subject to argument, I would not be in favour of delaying that until the outcome of any appeal.
844 I will leave these orders to be addressed by the parties and the matter can be discussed on a later occasion. Some orders, do however, need to be made now. I will mark Exhibit AA4 and Administrative Exhibit A14 and make the rulings in relation to Administrative Exhibits A13 and A14 that I have indicated. Also, a significant body of evidence, mainly documentary evidence, was admitted subject to an order under s 50 of the Federal Court of Australia Act 1976 based on commercial confidentiality. I do not propose to vary those orders unless requested to do so. However, if any person, whether Woolworths or Liquorland, or anyone else, seeks to have any part of my reasons not made available to the public, that person will have to persuade me, with evidence, that the administration of justice requires that course, in circumstances where the relevant evidence remains the subject of a s 50 order. To preserve the positions, I will limit, until further order, the publication of some of my reasons on market definition. One paragraph  will be distilled from Woolworths and Liquorland material. I will make it confidential to both parties. It appears to be benign, but if I should further disaggregate it, I should be told by Woolworths and Liquorland.
845 Therefore, the orders that I will make today are as follows:
1. The parts of Administrative Exhibit A13 set out at  of the reasons herein be rejected.
2. The template sent to the Court by the Applicant under cover of letter of 1 August 2005, with the parts identified in  of the reasons herein as rejected, be admitted into evidence and marked Administrative Exhibit A14.
3. The folder entitled “Status of Exhibits AA1 and AA2” provided to the Court in May 2006 together with letter dated 25 May 2006 from the Australian Government Solicitor to Ms Kathryn Wilson together with its enclosure be marked Exhibit AA4.
4. Until further order, these reasons for judgment in an unredacted version not be published or made available to anyone other than the Applicant, and counsel and solicitors for the second respondent (“Woolworths”).
5. Subject to order 12 below and until further order,  to ,  to ,  and  to  of the reasons not be published or made available to anyone other than the Applicant and Woolworths.
6. Subject to order 12 below and until further order,  to , ,  to  and the fifth sentence of  of these reasons not be published or made available to anyone other than the Applicant, counsel and solicitors for Woolworths, and the first respondent (“Liquorland”).
7. Subject to order 12 below and until further order,  of these reasons not be published or made available to anyone other than the Applicant, Woolworths and Liquorland.
8. Subject to order 12 below, as soon as practicable, and in any event on or before 7 July 2006, the Applicant provide to Liquorland a copy of these reasons for judgment (other than the paragraphs referred to in order 5 above) and these orders and inform Liquorland that if it wishes to prevent publication of any of the paragraphs referred to in orders 6 and 7 above or any part of those paragraphs it must make application, on notice to the Applicant supported by evidence; and that if such an application is to be made it must be notified to the Applicant, the Court and Woolworths no later than 21 July 2006, in which case a directions hearing will be held for the hearing of such application on 9 August 2006.
9. On or before 21 July 2006, Woolworths notify the Applicant and the Court whether it proposes to move the Court to prevent publication of any of paragraph of the reasons herein.
10. On or before 14 July 2006, the Applicant serve on Woolworths a draft of declarations and orders that it proposes.
11. On or before 28 July 2006, Woolworths provide to the Applicant its objections, and any reasons therefor, to any such proposed declarations and orders, and any suggested version reflecting the reasons.
12. On or before 3 July 2006, the Applicant and Woolworths bring to the attention of the Court any further paragraph that should, prima facie, be restricted. Such assessment is not to be made by giving Woolworths (other than through its counsel and solicitors) access to the paragraphs referred to in orders 6 and 7 above. Thus, until further order to allow the Applicant and Woolworths to have this opportunity to assess the question of confidentiality, no redacted version of the judgment shall be made available either to the public or to Liquorland.
13. The proceedings be stood over for any argument as to orders, the making of orders and directions to 9.30 am on 9 August 2006.
846 Thus, there will be, until further order, four versions of my reasons: a complete version limited to (at the moment) the Commission and counsel and solicitors for Woolworths; a redacted version for Woolworths with reference to Liquorland’s documents removed; a redacted version for Liquorland with references to Woolworths’ documents removed; and a redacted version for the general public with references to Woolworths’ and Liquorland’s documents removed.
847 If any party is of the view that I have overlooked a matter in my reasons, which, conformably with my reasons, should be addressed, it should raise that matter on or before 9 August 2006 with the other party and on 9 August 2006 with the Court. This is not, however, an invitation for reargument.
848 It remains only to express my considerable thanks and gratitude to the solicitors and counsel for both parties for their skilled and careful assistance. By reason of pressures of other commitments, the reasons for judgment have taken longer to finalise than I originally anticipated would be the case. The parties may take it, however, that to the extent I have made comments on witnesses, their reliability and truthfulness, those views were reached, after careful consideration, at and close to the time of hearing of the proceedings.
I certify that the preceding eight hundred and forty eight (848) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Allsop.
Dated: 30 June 2006
Counsel for the Applicant:
Mr D M Yates SC, Mr P Renehan and Mr D H Godwin
Solicitor for the Applicant:
Australian Government Solicitor
Counsel for the Second Respondent:
Mr R M Smith SC and Mr M A Jones
Solicitor for the Second Respondent:
Dates of Hearing:
22, 26, 27, 28 and 29 April, 9, 10, 11, 12, 13, 16, 17, 18, 19, 20, 23, 25, 26, 27, 30 and 31 May, 1, 2, 3, 14, 15, 16, 17, 20, 21, and 24 June, 19 and 20 July 2005
Last Submissions Received:
12 September 2005
Date of Judgment:
30 June 2006
(The “Ettamogah Deed”)
(“Mr Dimasi’s Map 3.1”)
(“Mr Dimasi’s Map 3.2”)
(“Mr Dimasi’s Map prepared in 2003”)
(“Mr Dimasi’s Map 3.3”)
(The “Jin Ro Deed”)
(“Mr Dimasi’s Map 2.1”)
(“Mr Dimasi’s Map 2.3”)
(“Mr Dimasi’s Map 2.4”)
(The “Palms Village Deed”)
(“Mr Dimasi’s Map 4.1”)
(“Mr Dimasi’s Map 4.3”)
(“Mr Dimasi’s Map 4.4”)
(“Mr Dimasi’s Map 4.7”)
(The “Global Beer Deed”)
(“Mr Dimasi’s Map 4.5”)