Curbing misuse of market powerSection 46 of the Trade Practices Act lives Law Reporter

The call for reform of section 46 of the Trade Practices Act (the TPA) by outgoing ACCC chairman Allan Fels, and others, is clearly misplaced as is illustrated by the Full Federal Court decision in Safeway (ACCC v Australian Safeway Stores Pty Ltd (2003) FCAFC 149, delivered on 30 June 2003). 

We need to proceed very cautiously to amending our laws just because we are given a decision from the courts that is not “a popular one”.

Curbing misuse of market powerSection 46 of the Trade Practices Act lives

The call for reform of section 46 of the Trade Practices Act (the TPA) by outgoing ACCC chairman Allan Fels, and others, is clearly misplaced as is illustrated by the Full Federal Court decision in Safeway (ACCC v Australian Safeway Stores Pty Ltd (2003) FCAFC 149, delivered on 30 June 2003). We need to proceed very cautiously to amending our laws just because we are given a decision from the courts that is not "a popular one".

Following the Boral case (Law Reporter, June 2002) there was consternation that section 46 of the TPA was a "dead duck". Indeed, the Opposition parties in the Senate have now referred the question of section 46 to a further Senate enquiry despite the recommendations in the Dawson Report that the section was "alive and well".

The Safeway decision, although only a majority decision in the Full Federal Court, nevertheless clearly indicates that section 46 does have some mileage in it. One of the important aspects of the majority decision is that Heerey J, who was part of the majority, was the judge at first instance in both the Melway case and the Boral case both upheld by the High Court and in respect of which section 46 claims were lost. Although Justice Heerey had found that there was no breach of section 46 in either Melway and Boral, he held that there was such a breach in Safeway.

Australian Safeway Stores acquired bread from three wholesale bread bakers (plant bakeries), including Tip Top Bakeries. In 1994, Safeway adopted and implemented a bread policy (the policy) which it claimed was aimed at ensuring Safeway was competitive with independent stores on the price of bread. The policy involved, in effect, refusing to sell a plant baker's product if the plant baker had supplied its product to an independent retailer at a discounted price.

The ACCC brought an action against Safeway in which it alleged that the purpose of the policy was to punish plant bakers who supplied bread to independent stores at discounted prices. The ACCC relied on nine incidents in which Safeway deleted a plant baker's product from its shelves after it became aware that it had sold its product to an independent retailer at a discounted price.

The ACCC also alleged that Safeway and Tip Top entered into a price fixing arrangement to fix or control the retail price of bread sold by Tip Top at its Preston Market stall. Tip Top had, in earlier proceedings, admitted contraventions of the TPA in relation to its pricing and was ordered to pay pecuniary penalties.

At first instance, Goldberg J dismissed the claim. The ACCC appealed his findings in relation to the misuse of market power, price fixing and exclusive dealing allegations. No appeal was taken by the ACCC in relation to Goldberg J's findings on resale price maintenance.

Misuse of market power

The majority of the Full Federal Court agreed with Goldberg J that Safeway had a substantial degree of power in the wholesale market for the acquisition of bread in Victoria. However, the majority of the Full Court held that Goldberg J had erred in not finding that Safeway had taken advantage of its market power for a proscribed purpose, namely, the purpose of deterring or preventing the plant bakers and the independent bakers from engaging in competitive conduct (ie selling bread to independent retailers at a discounted price).

The majority went further than Goldberg J in relation to the question whether Safeway had a "substantial degree of market power". They observed that barriers to entry were not limited to the cost of setting up a retail store in competition with a Safeway store, but also included the ability of Safeway to negotiate terms of trade, prices, discounts and rebates as a result of the overall purchases it was prepared to make on a statewide basis.

The majority also held that Tip Top's conduct in raising its prices in response to Safeway's conduct was a strong indicator that Safeway had a substantial degree of market power, notwithstanding that other plant bakers did not succumb to the pressure. The fact that in a competitive market the plant bakers would not have been constrained in the manner in which they were was suggestive of Safeway's market power.

Justice Emmett, in the minority on this issue, held that Safeway did not have a substantial degree of market power as its ability to influence the price at which Tip Top supplied bread did not demonstrate its ability to influence the wholesale market; it was merely an instance of influencing a single participant in that market.

The majority of the Full Court concluded that Safeway had "taken advantage" of its market power, on the basis that "a firm without market power would not have pursued such a policy because to do so would have produced harm for itself without any countervailing benefit". They agreed with Goldberg J that the purpose of the policy was a proscribed one, namely, to punish plant bakers for supplying cheap bread to an independent retailer and to deter them from doing so again.

The majority of the Full Court focused on the objective purpose of the impugned conduct and commented that too much emphasis had been placed, at trial, in ascertaining the subjective intention of the individual responsible for formulating Safeway's policy.

Price fixing agreement between Safeway and Tip Top

The Full Court unanimously held that Goldberg J erred in concluding that no agreement had been made between Safeway and Tip Top relating to the price to be charged for bread at the Preston Market and the conditions on which Safeway would acquire goods from Tip Top. At trial, Goldberg J found that there was insufficient evidence to infer a "meeting of the minds" between Safeway and Tip Top and that the Safeway store manager did not have the actual or apparent authority to enter into a price fixing agreement on behalf of Safeway.

On appeal, the parties agreed that the store manager had no actual authority to meet with the Tip Top sales manager at the Preston Market and discuss the price at which bread was sold.

The Full Court held that it could be inferred from the facts of the case that the store manager had acted on the instructions of someone within Safeway. Further, they held that Goldberg J erred in refusing to draw an inference that Jones, the Safeway category manager, had instructed the store manager to meet with and reach an agreement with Tip Top.

Jones was the person responsible in Safeway for bread pricing issue and was the person to whom the store manager reported the results of his meeting with Tip Top. Although the Full Court agreed that it was possible that someone other than Jones instructed the store manager, the facts established "to a standard of reasonable satisfaction" that it was indeed Jones. This issue is to be further considered by the court in assessing penalties.

Based on its findings that the store manager had been instructed by Jones to meet and discuss prices with Tip Top, the Full Court unanimously found that an agreement had been entered into by Tip Top and Safeway. Accordingly, the Full Court held that the parties had entered into an arrangement which had the purpose, or was likely to have the effect of fixing, controlling or maintaining the price for bread supplied by Tip Top.

Other issues

The Full Federal Court dismissed the appeal brought by the ACCC on the issue of exclusive dealing. It is unnecessary to discuss this aspect of the case.

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The purpose of this database is to provide a full-text record of all articles that have appeared in the CDJ since February 1997. It is aimed to assist in the research and reference process. The database has a full-text index and will enable articles to be easily retrieved.It should be noted that information contained in this database is in pre-publication format only - IT IS NOT THE FINAL PRINTED VERSION OF THE CDJ - therefore there might be slight discrepancies between the contents of this database and the printed CDJ.