CATCHWORDS TRADE PRACTICES ~- Trade Practices Act 1974 s.50 - action by Trade Practices Commission seeking injunctions to prevent merger - relevance of respondent's conduct in market 20 to 30 years ago. Whether rival corporation can sue for declaration under s.50 - relevance of Trade Practices Commission's action for injunctions to corporation's action for declaratory relief. PRACTICE AND PROCEDURE - pleading making allegations of respondent's conduct in market 20 to 30 years ago - whether tending to cause prejudice, embarrassment or delay in proceeding - Order 11 rule 16(b) Federal Court Rules - applicant's raght to plead as it sees fit - Court will not intervene unless material alleged clearly has little probative value - exercise of Court's discretion. Request for joint hearing of application commenced by Trade Practices Commission and part of application commenced by corporation - balance of convenience - whether joant hearing prejudicial to respondent to both actions - factors relevant to exercise of discretion. Trade Practices Act 1974 ss.46,'50, 80(1A), 163A. Federal Court Rules Order 11 rule 16 (b) S.C.I. OPERATIONS PTY. LTD. v AUSTRALIAN PAPER MANUFACTURERS LTD. and Anor. No. VG 82 of 1983 TRADE PRACTICES COMMISSION v A.P.M. INVESTMENTS PTY. LIMITED and FIBRE CONTAINERS LTD. and Ors. No. VG 84 of 1983 WOODWARD J. MELBOURNE 4 AUGUST 1983 Any, IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION BETWEEN: BETWEEN: No. VG 82 of 1983 S.C.I. OPERATIONS PTY. LTD. Applicant and AUSTRALIAN PAPER MANUFACTURERS LTD. Respondents AND ANOR. No. VG 84 of 1983 TRADE PRACTICES COMMISSION Applicant and A.P.M. INVESTMENTS PTY. LIMITED First Respondent and FIBRE CONTAINERS LTD. Second Respondent AND ORS. ORDERS JUDGE MAKING ORDERS: Woodward J. DATE OF FIRST ORDER: 26 July 1983 WHERE MADE: Melbourne THE COURT ORDERS THAT: 1. Leave be granted to the Trade Practices Commission to amend its statement of claim as sought. 2. The application of APM Investments Pty. Ltd. to strike out paragraph 14 of the statement of claim be dismissed. 3. The costs of both these applications be costs in the cause. DATE OF SECOND ORDER: 28 July 1983 WHERE MADE: Melbourne THE COURT ORDERS THAT: 1. There be no joint hearing of Application No. VG 84 of 1983 and part of Application No. VG 82 of 1983. 2. Application No. VG 82 of 1983 be stayed until after judgment has been given in Application No. VG 84 of 1983. 3. The directions hearing in VG 82 of 1983 be adjourned until 14 days after the date of judgment in VG 84 of 1983. 4. Liberty to apply for further directions in VG 82 of 1983 be reserved. 5. The costs of all parties concerning this application for a joint hearing be costs in the respective causes. DATE OF REASONS FOR JUDGMENT: 4 August 1983 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION No. VG 82 of 1983 BETWEEN: S.C.I. OPERATIONS PTY. LTD. Applicant and AUSTRALIAN PAPER MANUFACTURERS LTD. Respondents AND ANOR. No. VG 84 of 1983 BETWEEN: TRADE PRACTICES COMMISSION Applicant - and A.P.M. INVESTMENTS PTY. LIMITED First Respondent and FIBRE CONTAINERS LTD. Second Respondent AND ORS. CORAM: WOODWARD J. DATE: 4 AUGUST 1983 WOODWARD J. REASONS FOR JUDGMENT These directions hearings concern two related matters. VG 84 of 1983 is an application by the Trade Practices Commission ('TPC') for injunctions to prevent the first respondent ('APM') from acquiring any shares in the capital or assets of the second respondent ('Pibre Containers'). Other respondents are shareholders in Fibre Containers. The application is made pursuant to s.50 of the Trade Practices Act 1974 ('the Act'). VG 82 of 1983 is an application by S.C.I. Operations Pty. Ltd. (''SCI') .for declarations that s.50 of the Trade Practices Act operates to prohibit the acquisition by the respondents ('APM') of all the issued shares in Fibre Containers and that such an acquisition would be a contravention of s.50 of the Act. That application also seeks a declaration that the pricing policy adopted by APM constitutes a contravention of s.46 of the Act. In connexion with this claim damages are also sought. Joint directions hearings were held in these matters on several occasions until a decision could be made by the trial judge as to whether that part of VG 82 relating to s.50 of the Act should be heard together with VG 84. In the event I have decided that these matters should not be tried at the same time, and my reasons are set out below. I had earlier given leave to the respective applicants in both matters to amend their statements of claim in circumstances which also call for a considered statement of reasons. I shall deal with that question first. It was argued in relation to the TPC's application. Leave to amend statement of claim The central matter which the TPC must prove, if it is to succeed, is that APM is, or by taking over Fibre Containers would be, in a position to control or dominate the relevant markets in which those companies operate. In pleading the material facts on which it will rely to establish that proposition, the TPC has set out the present shares of the market enjoyed by the respective participants in it. It has also, in para 14, made allegations concerning the history of APM's distribution agreements, pricing policies and acquisitions, claiming that such conduct of APM demonstrated its dominant position in the relevant markets. ' - APM has filed a notice of motion asking that what I might call this historical paragraph of the statement of claim, or alternatively parts of the particulars given under it, should be struck out as having a "tendency to cause prejudice, embarrassment or delay in the proceeding" (Federal Court Rules Order 11 rule 16(b)). In the course of argument about this matter the TPC has sought leave to amend its statement of claim. As amended the relevant paragraphs would read - "4A. Between approximately 1953 and the date of the Application herein, A.P.M. engaged in conduct: (a) in the paperboard market; (b) ain the fibre container market; as a result of which APM: (i) strengthened its existing power and acquired further power in each of the said markets; further or alternatively, (ii) demonstrated the nature and extent of its power by the exercise thereof in each of the said markets. PARTICULARS {Lengthy amended particulars of distribution agreements, pricing policies and acquisitions then follow]. 14B. No changes of circumstances (if any) between 1953 and the date of the Application herein: (a) in the paperboard market; (b) ain the fibre container market; have to any material degree deprived A.P.M. of the market power which it held in 1953, but which instead has been strengthened, acquired or demonstrated as aforesaid. 15. The nature and extent of the market power possessed by A.P.M. at the date of the Application herein: (a) by reason of the matters referred to in paragraphs 8-13 hereof and the particulars thereto; alternatively, (b) by reason of the conduct referred to in paragraphs 8-14B hereof and the particulars thereto; is such that A.P.M. is in a position to control or dominate the paperboard market. In pursuing their opposition to such a pleading, in spite of the changes from earlier form which these paragraphs represent, counsel for APM have conceded that some consideration of the recent past is necessary in order properly to understand and assess the present position. They have also conceded that the conduct of their client in the market can provide material relevant to the issues before the Court. They maintain, however, that such conduct can only be relevant if the markets were, at the time of the conduct, for all material purposes, the same as at the present time. They say that the relevance of the historical material must be demonstrated in the pleading by an assertion that the relevant markets were substantially the same at the two periods of time, at least so far as size of market, identity of participants and market shares are concerned. I think that to accept this submission would be to limit unduly the right of the applicant to state its own case. So long as it alleges that the conduct of APM at some past time can be linked to its present alleged position of market dominance, either as a demonstration of that dominance or as a partial explanation of it, it should be permitted to plead that link and prove it if it can. It should only be depraved of that right if it appears on the face of the pleading that it is raising matters which will have little probative value if they are established and which will add substantially to the length of the hearing and its cost to the parties. It is with these thoughts in mind that I approach the question as to the appropriate period over which the relevant markets should be studied in order to determine questions of Gominance. Other things being equal, more recent events will clearly have a greater significance than events of ten, twenty or thirty years ago. And if a market is relatively volatile, the relevant period would probably be shorter than in the case of a stable market. In the present case the TPC has chosen, for some purposes, to allege facts going back to the 1950s. APM is, in general, not prepared to concede the relevance of events that occurred before about 1976. It is very difficult for the Court to decide, before the case has been opened or any evidence called, which facts will prove to be material and which will prove to be too remote to be of significance. Some of the earliest matters alleged in particulars as they were originally drawn have been omitted from the redrafted statement of claim. I confess to having some doubts about the probative value of two of the allegations remaining in the claim. One relates to events in 1958 and 1959 surrounding the entry of SCI into the paperboard market. The other relates to the acquisition in 1955 by APM, and the dismantling, of a paperboard mill. But so long as it is alleged by the TPC that the relevant markets have remained substantially unchanged since the events alleged, or at least have not changed in such a way as to make those events irrelevant, it seems to me that the Court should allow the TPC to plead its case as it sees fit. The allegation concerning the stability of the markets over the relevant period was left to be implied in the statement of claim as originally drawn. I believe that para 14B, as set out above, now sufficiently alleges the relevance of occurrences in the alleged markets in the 1950s and 1960s to the issues which the Court will have to decide. With that amendment, I do not believe that the pleading can be said to have a "tendency to cause prejudice, embarrassment or delay in the proceeding". I cannot say that the time which it will take to examine those occurrences will unduly delay the proceedings. The Court can intervene if it appears that time is being wasted in the presentation of such evidence. I note in passing that Mr. McComas, appearing for Fibre Containers, although concerned about anything which would add to the length of the hearing, did not seek to argue that the TPC's allegations relating to the 1950s and 1960s were irrelevant. ce Before leaving this matter, I should perhaps add that the difficulty of determining in advance what facts are likely to prove material is greater in this case than 1n most. There has been only one reported case in which the effect of s.50 of the Act has been fully considered. In TPC v Ansett Transport Industries (1978) 32 FLR 305 @ 321-8, Northrop J. considered the meaning of the expression 'control or dominate' and the matters which would be relevant in determining whether a particular company was in a position of dominance. His Honour recognized that different markets could require different approaches, but for the service industry with which he was concerned (namely car rentals) he identified relevant factors as including market shares, the capacity of the company in question to determine its own prices without being inhibited by the pricing policies of others and the ease with which new firms could enter the market. It could be that in the present case the parties might wish to argue that other factors are more relevant than these and others listed by his Honour. But taking these factors alone, it is clear that some historical perspective is necessary, since questions of price determination and ease of entry must be looked at over time. For these reasons there will be leave to amend the statement of claim as sought; (other minor amendments are not opposed). The application to strike out para 14 of the statement of claim is dismissed. Although it is true that a party seeking leave to amend pleadings will usually be required to bear the costs of such an application, APM has persisted in its application to strike out after the amendments were proposed and has been unsuccessful in the main thrust of its arguments. I think the most appropriate order in the circumstances is that the costs of all parties should be costs in the cause. - 10- Application for joint hearing At the first directions hearings in these matters, SCI applied for a joint hearing with the TPC's action (VG 84 of 1983) of that part of its own action (VG 82 of 1983) which sought declarations relating to s.50 of the Act. It was ruled at that time, and on a later occasion when the application was renewed, that the question was one which should be determined by the trial judge. After most other interlocutory matters had been dealt with, and the Chief Judge had arranged, pursuant to s.15(1) of the Federal Court of Australia Act 1976, that I should constitute the Court in these matters, I heard argument on this question of a joint hearing. The order sought by SCI-was in the following terms: Application VG 84 and application VG 82 (limited to the relief claimed in respect of Section 50) be tried at the same time and that the evidence in each application be evidence in the other. TPC may make an address opening its case and then adduce its evidence. SCI may examine but not (without leave) cross examine witnesses called by the TPC. Upon the completion of the evidence called by TPC, SCI may make an opening address and then adduce its evidence. SCI shall not (without leave) call any witness previously called by the TPC. Following the closure of the TPC and SCI cases, the Respondents' [APM's] position shall be governed by Order 32 Rule 4 [concerning the conduct of trials]. -ll- 6. In the event that the Respondents elect to call evidence, the TPC followed by SCI shall be entitled to cross examine. 7. SCI may address after the TPC. This application was supported by Fibre Containers, "not consented to" by the TPC and vigorously opposed by APM. In setting out my reasons for deciding against it, it is convenient to deal first with the position as it would have been had SCI claimed relief only in relation to s.50 of the Act, and then to consider the relevance of other pending claims by SCI against APM. Since my decision on this issue is based in part on the apparent policy of the Act, it is necessary to trace the history of two relevant sections of the Act. S.80 gives the Court ,power to grant injunctions to restrain contraventions of the Act. When first enacted in 1974 the right to seek an injunction was given generally to the Attorney-General, the TPC or any other person. Following amendments, the right is given to the Minister, the TPC or any other person - except in relation to threatened contraventions of s.50, as to which s.80(1A) expressly provides that a person other than the Minister or the TPC "is not entitled to make an application .... for an injunction". This last provision was introduced by the Trade Practices Amendment Act 1977, s.48. Its purpose, I assume, was to prevent companies or individuals involved in takeover battles using the Court's processes to gain tactical advantages in the form of delays. -12- On the other hand, an extensive right to seek declarations "in relation to the operation or effect of any provision of this Act" (other than certain specified divisions of the Act not relevant for present purposes) "or in relation to the validity of any act or thing done, proposed to be done or purporting to have been done under this Act," had been given by the insertion in the Act of s.163A, which was brought about by s.-15 of the Trade Practices Amendment Act 1976. This wide power for parties to seek declarations was not cut back a year later when the right to seek injunctions pursuant to s.50 was limited to the Minister and the TPC. As at present advised, I can see no reason why a party alleging a contravention of s.50, which is not alleged by the TPC, should have to wait until the merger in question-i&S completed, and then take the action it is clearly entitled to take under s.81 of the Act, seeking an order for divestiture of shares. It could well be in the interests of both parties for the opponent of the merger to indicate its intentions by suing initially for a declaration and adding a claim for divestiture if and when it became appropriate to do so. However I think it would be contrary to the spirit and scheme of the legislation if parties were able by indirect means to gain perceived advantages which they were prohibited from obtaining by direct means. - 13- Thus when the TPC has instituted proceedings for injunctions to prevent a merger, and has obtained interlocutory injunctions or undertakings to hold the position until Judgment has been delivered, I believe the Court should be slow to permit another interested party to participate in those proceedings - adding to their length and their cost - by the device of seeking a declaration in a claim which covers similar ground to that comprehended by the TPC action. So far as remedies are concerned, it is difficult to see that there would be any advantage to the third party in adding a declaration to an injunction; nor would the Court be likely to refuse an injunction but grant a declaration, particularly bearing in mind the discretionary nature of both remedies. It may be that some Special circumstance might arise in a particular merger case which would cause the Court to allow a party's claim simply for a declaration to be heard together with a TPC claim for an injunction, but I find it difficult to envisage what those circumstances might be. The fact that the party's application was filed a short time before the TPC application would not, in my view, be a sufficient reason to justify a joint hearing. If I am right about the principles involved, the sequence of issuing proceedings could not, of itself, be sufficient to produce a different result. Nor, in my opinion, does the fact that a person has given undertakings not to take advantage of the s.50 proceedings against a rival bidder to - 14 - improve his own chances of a successful takeover, give that person any entitlement to a voice in those proceedings. If those proceedings are successful, the third party may be advantaged, but that is no reason why he should be entitled to add to his rival's burdens in the trial of the action. The next question to be considered is whether the position is altered by the fact that the SCI application in this case seeks not only a declaration concerning alleged contraventions of s.50 of the Act, but also damages and other relief for alleged breaches of s.46, which deals with monopolization. SCI has not asked that this part of its application ; should be tried together with the TPC application. Whatever happens, there will be two distinct actions for hearing, with the TPC playing a major role in the first and no part in the second. But the second action is before the Court as presently constituted. It must eventually be resolved; and much if not all of the evidence relating to a claim of abuse of market power amounting to monopolistic conduct, would also be relevant to the TPC's claim of conduct demonstrating market dominance in a merger context. The TPC has indicated that evidence from SCI will play a significant part in the case it will present. -15- It would seem, at first sight, that it would save time and costs if the evidence on such matters adduced in the s.50 hearing could be used, without having to be repeated, in the s.46 hearing. This would, of course, only be possible {in the absence of consent) if the same judge tried both matters one after the other, and the parties to the second case were represented in the first - that is, if SCI had the opportunity to lead evidence and cross-examine witnesses in the s.50 hearing. This would require a joint hearing of the SCI and TPC applications or, possibly, the addition of SCI as a party to the TPC application. This latter course was mentioned in passing by counsel for SCI but was not pressed. Since there would be no advantages in taking this course rather than that of joint hearings I do not consider this t alternative further. After anxious consideration, I have reached the conclusion that the convenience of a joint hearing of overlapping evidence is not as clear as might at first appear, and the possible injustices to APM if this course were followed outweigh any advantages that a joint hearing might offer. On the subject of convenience, there can be no doubt that the presence of counsel representing SCI would add to the length of the s.50 hearing. They would wish to make opening and closing addresses, to be free to adduce evidence, to examine c - 16 - further all TPC witnesses (including those from SCI) and to cross-examine APM witnesses. Although the Court would try to ensure that there was no wasteful coverage of ground already covered by the TPC - either in leading evidence or in cross-examination - the views on such questions of counsel for the respective parties would not always coincide, and further time would be lost in the course of such procedural debates. Further, it 1s almost impossible to predict what effect a separate and earlier hearing of the TPC application would be likely to have on the SCI claim. Much would no doubt depend on the detailed findings in the TPC action and its result. The effect of those on the parties' attitudes to further litigation could only be a matter for unprofitable speculation at this stage. All that can be said is that a separate consideration of the TPC application will shorten the first hearing, and there can be no certainty that it will lengthen the second hearing. On the question of justice between the parties, as distinct from convenience, the only complaints which SCI could make if it were prevented from taking part in the TPC hearing are, first, that it is effectively being denied its day in court on the s.50 matter ~ which for all practical purposes would presumably be determined in the TPC proceedings - and, secondly, that APM would in -17- have an opportunity to cross-examine SCI witnesses who would not have the protection of their own counsel. Such evidence would then be available for use against them in cross-examination in the later proceedings. As to the first of these claims, I have already stated my view that the scheme of the Act does not contemplate a party in SCI's position having a day in court when the TPC takes action to prevent a merger. As to the second, I have already indicated to counsel for SCI that, if it is thought that SCI witnesses are not being adequately protected, counsel may seek leave to appear in the TPC matter for that limited purpose. On the other hand I find persuasive the argument of counsel for APM that their client could be prejudiced by having to defend an action under s.50 of~the Act while another part of the same action, based on overlapping material, is awaiting trial and has not been the subject of requests for further particulars or interrogation. In other words, they say, APM would be beginning its defence of an action in which SCI knew just how it intended to make out its case, but APM did not have the benefit of any such details. This position could be cured if the hearing of the TPC case were further delayed, but no party wishes that to happen. The situation is, APM alleges, made even worse by the recent issue of yet another related application, No. VG 126 of 1983 dated 19 July 1983, in which SCI seeks declarations, an injunction and damages by reason of APM's alleged exclusive dealing in ad - 18 - contravention of s.47 of the Act. It seems that, once again, there would be a considerable overlap of relevant evidence between that action (which is not before me) and the two actions presently being considered; the possibility of prejudice to APM would seem to be quite real. For all the reasons I have given, and particularly since it is not possible to deal with all the matters presently before the Court in one hearing (and yet another related application has recently been filed), I think I should exercise my discretion by refusing this application for a joint hearing with two different applicants involved. Before leaving this aspect of the case I should say that neither of the applicants gave any support to the suggestion put forward by counsel for APM that, if there was to be a joint hearing, it should be on the condition that there would be joint counsel briefed for the applicants (see Lewis v Daily Telegraph Ltd. (No. 2) 1964 1 QBD 601 and Goold v Porter 1974 VR 102). It is obviously inappropriate that the TPC, with its independent statutory responsibilities, should be represented by the same counsel as a party with strong commercial interests in the outcome of the proceedings. However the principle underlying the cases cited, that a respondent to litigation should not normally have to face two separate sets of applicants' representatives, is relevant and has played a part in my decision. - 19 - As I said at the conclusion of argument in this matter, I have reached a firm decision ~ though I was not without doubts in the course of argument - that I should refuse this application for a joint hearing and stay all aspects of VG 82 of 1983 until after judgment has been given in VG 84 of 1983. The directions hearing in VG 82 of 1983 will be adjourned until 14 days after the date of judgment in VG 84 of 1983, with liberty to apply in the meantime. I certify that this and the 18 preceding pages are a true copy of the Reasons for Judgment herein of the Coust Associaté to the Honourable Mr. JyStice A.E. Woodward Dated: 4 August 1983