+ JUDGMENT No. $22./ 61. —_— CATCHWORDS TRADE PRACTICES = Lease by hotel owner to brewer of chain of hotels - Application for interlocutory injunction - Application made after extensive litigation in Supreme Court between same parties on other aspects of the agreement - Alleged monopolisation - Alleged exclusionary dealing - Agreement allegedly having effect of substantially lessening competition - Whether there 1S a serious question to be tried on any of these claims - Application for interlocutory injunction refused. Trade Practices Act 1974 ss.4D, 45, 46. NSW G.494 of 1987 CARLTON AND UNITED BREWERIES (NSW) PTY LIMITED v_ BOND BREWING NEW SOUTH WALES LIMITED & ORS Wilcox J Sydney 19 October 1987 eA) ~ 2 NOV 1987 FEDERAL COURT OF AUSTRALIA PRINCIPAL REGISTRY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY No. NSW G.494 of 1987 ~~ errr GENERAL DIVISION BETWEEN: CARLTON AND UNITED BREWERIES (NSW) PTY LIMITED Applicant AND: BOND BREWING NEW SOUTH WALES LIMITED First Respondent TOOTH & CO LIMITED Second Respondent BOND BREWING QUEENSLAND LIMITED Third Respondent CORAM: WILCOX J PLACE: SYDNEY DATE: 19 OCTOBER 1987 MINUTES OF ORDER THE COURT ORDERS THAT: l. The application to extend the interlocutory injunction be refused. 2. The Application in the principal proceeding and the notice of motion to dismiss or stay the principal proceeding filed on behalf of the second respondent be stood over to the directions list on Friday 23 October 1987. 3. The applicant pay the costs of today of each of the respondents. 4. Liberty be granted to apply on 48 hours' notice in relation to the undertaking as to damages, or in respect of any other interlocutory matter. Note: Settlement and entry of orders 1s dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY No. NSW G.494 of 1987 wwe GENERAL DIVISION BETWEEN: CARLTON AND UNITED BREWERIES (NSW) PTY LIMITED Applicant AND: BOND BREWING NEW SOUTH WALES LIMITED First Respondent TOOTH & CO LIMITED Second Respondent BOND BREWING QUEENSLAND LIMITED Third Respondent CORAM: WILCOX J PLACE: SYDNEY DATE: 19 OCTOBER 1987 EXTEMPORE REASONS FOR JUDGMENT Proceedings in this Court were commenced last Friday afternoon when leave was granted by Beaumont J to file an Application returnable today. His Honour granted an interlocutory injunction restraining the three respondents from giving effect to an agreement which was made between them on 6 May 1985. The injunction was granted on Friday, as I understand the position, 1n order to allow the opportunity of debate today as to whether there should be a further continuation of the interlocutory injunction. The reason for the considerable delay between the date of the agreement and the application to this Court last Friday is that, 1n the meantime, there have been proceedings in the Supreme Court of New South Wales between the same parties in which various issues were litigated. Those 1ssues did not include any issue arising under the Trade Practices Act 1974. I emphasize the word "litigated" because, in the Defence and the Reply, reliance was placed upon the Trade Practices Act. However, in the event, those particular parts of the pleadings were not pressed. Consequently there has been no determination of the possible application of any of the provisions of the Trade Practices Act to the agreement. The plaintiffs in the Supreme Court, that is Carlton and United Breweries Limited and its subsidiary Carlton and United Brewer1les (NSW) Pty Limited, were successful at first instance. But, on appeal, the decision was reversed and the proceedings were dismissed. An application for special leave to appeal to the High Court of Australia was heard and refused last Friday. The timing of that application no doubt explains the application in this Court on Friday last, because in the meantime orders had been made in the Supreme Court restraining the implementation of the agreement. The applicant in tHe present proceeding, Carlton and United Breweries (NSW) Pty Limited apprehends that, unless restrained by this Court, the respondents will now proceed to implement their agreement. I do not think that 1t is necessary to set out in great detail the history of the matter. Historically, there have been two major brewers 1n New South Wales, namely Tooheys Limited and Tooth & Co Limited. Tooheys 1s now called Bond Brewing New South Wales Limited but I shall continue to refer to it by the name it bore at relevant times. For many years each of these brewers exercised control, by various means, over a chain of licensed hotels. There was a system of tied houses until about 1979; when, as a result of a ruling by the Trade Practices Commission, that system was abandoned. Nonetheless, each of the companies continued to own hotels. In 1983 the position was that Tooth still owned the freehold of some 266 hotels in New South Wales. At that time, 1t entered into agreement to sell its brewery business to Carlton and United Breweries Limited. The method adopted was the sale by Tooth of its brewer subsidiary, Tooths Breweries Pty Limited; which company then changed its name to Carlton and United Breweries (NSW) Pty Limited. As mentioned, this company is the present applicant. Since 1983, the applicant has carried on a brewing business in New South Wales supplying liquors -~ especially beer -~ to hotels and to other retail outlets. After the 1983 agreement Tooth continued to own the 266 hotels held at that date. It was a term of the 1983 agreement that Tooth would not sell these hotels for a period of at least five years, and that, even after that time, it would give the opportunity of first refusal to Carlton. However, on 6 May 1985, the subject agreement was executed, whereby Tooth agreed to give to Tooheys head leases over most of the 266 hotels. Tooth also agreed to give Tooheys monthly tenancies over some 12 managed hotels. The effect of this agreement was to interpose Tooheys between the owner of the freehold, Tooth, and the persons who actually had the responsibility for running the hotel on a day to day basis, the various licensees. There 1s evidence to indicate that the control of the right of a particular licensee to continue in occupation of a hotel is a powerful advantage to a brewer. Indeed the evidence shows that a purpose of Tooheys -- 1t would appear, the predominant purpose -- in coming to the agreement of 6 May 1985 was to be able to use, what have been called in the litigation, "the tools of influence", so as to increase its market share of the beer sold in those hotels. An estimate has been given that, 1f Tooheys were successful in taking 1ts share of beer sales in the subject hotels to the share it had in hotels already controlled by it, 1t would increase its share of the total wholesale beer market in New South Wales by one per cent. This increase would be at the expense of Carlton. The question has been raised by the respondents whether this present proceeding should be dismissed or stayed as being an abuse of the process of the Court. The argument 1s that the matters now sought to be raised could and should have been litigated much earlier and in the same proceeding as the other issues determined in the Supreme Court. It 1s true that the present issues could not have been raised by the present applicant in the Supreme Court proceeding, that is to say in its case in chief. But, as I presently see the matter, the applicant could have come to this Court in May 1985 and, in the one proceeding, litigated the questions now raised, under the Trade Practices Act, as well as the issues which were in fact litigated in the Supreme Court. It appears to me that those issues arise out of a common substratum of fact with the 1ssues under the Trade Practices Act. It 1s true that the latter issues are more extensive in their range, but the questions raised in the Supreme Court seem all to arise from evidence which, in any event, would have to be adduced in any proceeding relating to the Tooth/Tooheys agreement under Part IV of the Trade Practices Act. Upon the basis of this reasoning, a notice of motion has been filed on behalf of the second respondent seeking the dismissal or stay of the present principal proceeding. However, I have been informed by counsel that, if I take the view that there ought not to be a continuation of the interlocutory injunction, the second respondent does not desire to press that motion, at least at this stage. In view of that intimation, and as I have in fact come to that view, I refrain from forming any final opinion as to whether or not the proceeding does constitute an abuse of process, or whether 1t should be dismissed or stayed. It seems to me to be Better to stand that question over until another day, when it can be determined if necessary. My view that an interlocutory injunction should not be granted does not depend upon the history of the matter, or upon the circumstances that I have just narrated. I am not satisfied that there is a serious question to be tried in relation to any of the three heads under which the applicant puts its claim. The first ground relied upon by the applicant was that the agreement between Tooth and Tooheys constituted monopolization within the meaning of s.46 of the Trade Practices Act. Reference was made to the form of s.46 as 1t was at the time of the making of the agreement, but it was also said that the present form was relevant because the agreement had not yet been implemented and there was a threat to implement at this stage. The new form came into force on 1 July 1986. Section 46(1), as 1t stood at the time of the agreement, provided as follows: "(1) A corporation that 1s in a position substantially to control a market for goods or services shall not take advantage of the power in relation to that market that it has by virtue of being in that position for the purpose of-- (a) eliminating or substantially damaging a person, being a competitor in that market or in any other market of the corporation or of a body corporate related to the corporation; (b) preventing the entry of a person into that market or into any other market; or (c) deterring or preventing a person from engaging in competitive conduct in that ® market or in any other market." Sub-section (3), as it then stood, explained what was meant in the section in reference to a corporation being in a position "substantially to control a market for goods or services". I am content, for the purposes of this decision, to assume that 1t 18 correct to say that, as at 6 May 1985, each of the parties to the agreement -- that 1s to say, each of Tooth and Tooheys -- were in a position substantially to control the market for leases of hotels. The evidence is that each of them had a substantial number of hotels under their control and that there were no other substantial hotel owners un New South Wales. I am also content to assume, if 1t be relevant, that Tooheys was, at that time, 1n a position substantially to control the market for wholesale beer. I also assume that, at the time of the agreement, Tooheys had the purpose of substantially damaging Carlton and of preventing that company from engaging in competitive conduct; in either case whether the relevant market 1s treated as being the hotel lease market or the New South Wales wholesale beer market. I say that I make those assumptions, not because I have reached any view about these matters, but because there seems to me to be evidence to support conclusions to that effect. However, there was a third ingredient in s.46(1), as it stood in 1985; and, indeed, as 1t still stands. That third ingredient was that the conduct alleged to constitute a breach of the section must be conduct in which the corporation substantially controlling the market takes advantage of its power in relation to that market. I am unable to see that, in entering the agreement on 6 May 1985, either Tooth or Tooheys took advantage of its power in relation to the market. The evidence 1s that Tooth sought to obtain benefits from Tooheys in respect of the hotels which 1t still owned but which it no longer supplied with beer. From Tooth's point of view the arrangement was simply an advantageous commercial dealing. Tooth was apparently interested in obtaining control of a company involved in the wine trade, which Tooheys then controlled. Tooth sold something for which it had little continuing use, the right to control hotels which it no longer supplied with liguor, in return for an asset which 1t wished to exploit, a cash payment and a promise to pay future rentals. Looked at from Tooheys' point of view, the position was that this company desired to obtain control of the Tooth hotels. But its means of doing so was to provide cash benefits now, and in the future, and to transfer to Tooth the wine distribution company. I do not see Tooheys' position as being any different from that of any other company, having no existing involvement in the hotel market in New South Wales, but being perhaps a manufacturer of beer elsewhere in Australia or even overseas, which might decide to come into the New South Wales hotel market and to purchase leases of hotels in order that it might better influence licensees to sell its beer. It seems to me that, in the present case,'a critical element in s.46 1s lacking. As this element is common to the form of the section, as it stood both before and after the recent amendments, there can be little prospect of success by the applicant, in reliance on that section, in this litigation. Two alternative arguments, each founded upon s.45 of the Trade Practices Act, are put by the applicant. In the first place, the applicant says that there was an exclusionary provision in the subject agreement, and consequently a breach of s.45(2)(a)(1) of the Act. Secondly, the applicant claims a breach of s.45(2)(a)(11). [I refer to each of those provisions in reference to the making of the agreement, but I should add that the applicant puts the same arguments under s.45(2)(b) in relation to giving effect to the agreement.] Insofar as the first argument 1s concerned it 15 necessary to consider s.4D of the Trade Practices Act, which section defines an exclusionary provision. Section 4D relevantly provides: "4D.(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 two or more of whom are competitive with each other; and (b) the provision has the purpose of preventing, restricting or limiting-- (1) the supply of goods or services to, or the acquisition of goods or services from, particular persons or classes of persons; or 10. (i1) 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 1s related to the body corporate." It 18 said that paragraph (a) of this definition 1s satisfied because, at the relevant time, there was competition between Tooth and Tooheys in regard to the supply of hotel premises. That submission 1S contested on behalf of the respondents who say that it is not a correct use of language to speak of competition in the supply of leases when all that occurs is that two different corporations own hotels which they lease from time to time to various people. However, I do not think I need stay to consider that question because, as 1t seems to me, the evidence does not justify the view that the agreement, or any provision of the agreement, had the purpose of preventing, restricting or limiting the supply of goods or services to, or the acquisition of goods or services from, particular persons or classes of persons. The purpose referred to in para.(b) of the definition is a purpose common to the parties. I have no doubt that it waS a purpose of Tooheys to reduce the supply of beer by Carlton to operators of the hotels with which the agreement was concerned, but there is no evidence to indicate that this was a purpose shared by Tooth. It was conceded in the Supreme Court by Mr Spalvins, the chief executive of Tooth, that, at ll. the time of the agreement, he was aware that Tooheys wished to acquire the leases in order to improve its market share; but to say that a party 1s aware of the purpose of another party is a very different thing from saying that the former shared the latter's purpose. So far as the evidence indicates, there is no reason to suppose that Mr Spalvins, or Tooth, was actuated by any purpose other than that of obtaining the best bargain which was commercially attainable. It is said on behalf of the applicants that there is enough evidence to cause the Court to intervene to allow the issue of Tooth's purpose to be explored. In some circumstances, where an agreement had but lately been executed and a person who was concerned about that agreement had had very little chance of evaluating the position, that submission may have substance. Even in the absence of satisfactory evidence, the Court might be persuaded to hold the position for sufficient time to allow the question to be investigated. But 1t is difficult to give much weight to this submission in a case where a proceeding 1s brought almost two and a half years after the agreement was made, and after all of the people who were concerned with it have been involved in lengthy litigation regarding the agreement in another court. In this connection, I bear in mind that Mr Spalvins himself gave evidence in the Supreme Court about the making of the agreement on behalf of Tooth. I do not think that, in the light of that history, 1t would be right to intervene to 'give effect to a hope by the applicant that it might eventually be able to prove something more than it presently can in regard to purpose. 12. The second submission which is put in reliance on s.45 does not depend upon purpose. The question depends upon the effect of the contract. Section 45(2) relevantly provides thats: "(2) A corporation shall not-- (a) make a contract or arrangement, or arrive at an understanding, 1f-- (1) «ee (ii) a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or (b) give effect to a provision of a contract, arrangement or understanding, whether the contract or arrangement was made, or the understanding was arrived at, before or after the commencement of this section, if that provision-- (i) ... (ii) has the purpose, or has or 1s likely to have the effect, of substantially lessening competition." Under s.45(2)(a)(11) and (b)(ii) it is enough that the relevant contract etc has, or would be likely to have, the effect of substantially lessening competition. It is not essential that a lessening of competition be also the purpose of a party. There 1s no evidence in this case of anything more than the written contract which was entered into on 6 May. There is no evidence of any understanding. The question, then, 1s whether 1t is correct to say that this 1s a contract or arrangement, containing a provision which has the effect of 13. substantially lessening competition. There is nothing in the contract, in terms, along those lines. But it is said on behalf of the applicant that the result of the agreement to lease the premises would be to allow Tooheys to take over effective control of the destinies of those hotels, and thus to exercise a power which would result in a substantial lessening of competition between Carlton and Tooheys. I am content to approach the matter on that basis, and to ask whether it is correct to say that the result would be a substantial lessening of competition. The relevant market has been identified on behalf of the applicants -- correctly, I think, for present purposes -- as being the wholesale beer market in New South Wales. As I have indicated, the estimate made on behalf of Tooheys was that, 1f all went well, the result would be to divert sales eguivalent to one per cent of the total New South Wales wholesale beer market from Carlton to Tooheys. I appreciate, I hope, the facts set out in the evidence read on behalf of the applicant and which show that, in the case of a capital-intensive industry such as the manufacture of beer, the important aspects are marginal production and marginal profit. I have no doubt that a one per cent share of this market is a prize well worth seeking and well worth defending. But it 18 another matter to say that a loss of one per cent of the market 18 likely to be so critical as to result in a' substantial lessening of competition. There 1s no evidence to 14. suggest that, if one per cent of the market was diverted from Carlton to Tooheys, this would limit Carlton's ability to compete on the New South Wales market. No evidence has been given, for example, to show that such a loss would cause the operations of the applicant in New South Wales to become uneconomic, causing it to abandon the New South Wales market, and therefore resulting in a lessening of competition in that market. Although I appreciate that this is a very early stage in the litigation, I think that the Court 1s justified in taking the view that, in this case, something more specific 1s necessary in order to justify even an interlocutory injunction under s.45(2)(a)(ii). I bear in mind that the relevant information is all in the hands of the applicant, and 1t 1s quite obvious that the applicant has had time to consider the case which it wishes to put under s.45. Although the proceeding was instituted only last Friday, there was a good deal of preparation of the Trade Practices claim, as 15s evidenced by the several lengthy affidavits which have been read. I cannot bring myself to doubt that, if the applicant had been able to make out a case that the loss of this one per cent share of the market would have a substantial effect upon its future operations in New South Wales, and upon uts ability to compete with Tooheys in New South Wales, it would have already put material to that effect before the Court. 15. Consequently, I am of the view that the applicant has failed to make out a serious question to be tried in respect of any of the three grounds upon which it relies. The order that I propose to make 1s to refuse the application to extend the interlocutory injunction. I will stand over the application to dismiss or stay the proceeding to the same time as that to which the principal proceeding 1s to be adjourned, which I suggest should be the directions list upon a convenient day, when the future course of the litigation can be considered. (Counsel addressed) I will stand over the Application, that 1s to say, the principal proceeding, and the notice of motion filed on behalf of the second respondent, to the directions list on Friday 23 October 1987. Are any other orders sought? (Counsel for the respondents sought orders for costs) I think that I should order that the applicant pay the costs of today of each of the respondents. And I grant liberty to apply on 48 hours' notice in relation to the undertaking as to damages, or in respect of any other interlocutory matter. I certify this and the fourteen (14) preceding pages to be a true copy of the Reasons for Judgment of his Honour Justice Wilcox. Associate: [Boers foe Date: 28 October 1987 Counsel for the Applicant: Solicitors for the Applicant: Counsel for the First and Third Respondents: Solicitors for the First and Third Respondents: Counsel for the Second Respondent: Solicitors for the Second Respondent: Date(s) of hearing: 16. Mr R A Finklestein QC with Mr D Shovin Corrs Pavey Whiting & Byrne Sir Maurice Byers QC with Mr P M Jacobson Freehill Hollingdale & Page Mr T E F Hughes OC with Mr J D Heydon Dawson Waldron 19 October 1987