WUT For GENEAAL JUDGMENT No. 34927 SS. CATCHWORDS PRACTICE AND PROCEDURE —- Application to strike out statement of claim — need to allege material facts —- agreement entered between parties - price discrimination such as to cause a_ substantial lessening of competition - exclusive dealing by the first respondent so as_ to have the effect of substantially lessening competition — monopolisation of the market. Trade Practices Act 1974 - ss 4D, 45, 45B, 46, 47 and 49 Federal Court Rules — Order 11 Rule 16 A.H. BEARD PTY LIMITED Applicant -v- DAMURE CORPORATION PTY. LIMITED First Respondent BRONSTAR PTY LIMITED (in liquidation) Second Respondent No. G. 157 of 1988 CORAM: Einfeld J in DATE: 14 July 1988 fix / Spits WN PLACE: Sydney IN THE FEDERAL COURT OF AUSTRALIA GENERAL DIVISION No. G 157 of 1988 NEW SOUTH WALES DISTRICT REGISTRY ween CORAM: DATE: PLACE: NOTE: Between: A.H. BEARD PTY LIMITED Applicant And: DAMURE CORPORATION PTY.LIMITED First Respondent And: BRONSTAR PTY LIMITED (in liquidation) Second Respondent Einfeld J. 14 July 1988 Sydney MINUTE OF ORDERS AND DIRECTIONS The motion to strike out the claim for relief in the statement of claim under sections 45, 47 and 49 is refused. The claims for relief in the statement of claim under sections 45B and 46 are struck out. Any amended application and statement of claim is to be filed and served by not later than 4 pm on Tuesday, 26 July 1988. Costs in this motion are to be costs in the cause. Settlement and entry of orders are dealt with in accordance with order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) ) GENERAL DIVISION ) No. G 157 of 1988 ) ) NEW SOUTH WALES DISTRICT REGISTRY Between: A.H. BEARD PTY LIMITED Applicant And: DAMURE CORPORATION PTY.LIMITED First Respondent i BRONSTAR PTY LIMITED (in liquidation) Second Respondent CORAM: Einfeld J. DATE: 14 July 1988 PLACE: Sydney REASONS FOR JUDGMENT Before this Court are three motions brought on behalf of the first respondent for 1. particulars; 2. the striking out of the statement of claim; 3. the striking out of a subpoena issued to it by the applicant. On 13 May 1988, I first heard the motion for particulars. At the conclusion of the hearing on that day, I proposed to counsel for the parties that in the light of what had transpired, they might care to consider a sensible accommodation on the particulars. When the matter returned to the list on 20 May, the first respondent raised for the first time a query about the whole statement of claim and postulated an application to strike it out as an abuse of process. The Matter was again before the Court on 27 May when I directed the filing of a motion to strike out and affidavits and, at the request of the applicant, fixed a return date for subpoenas. On 3 June, I was told that a subpoena issued to the first respondent was also to be made the subject of a motion to strike out as an abuse of process. Meanwhile, little progress had been made on the particulars question. On 9 June 1988, the parties agreed that it was appropriate to deal first with the motion to strike out the statement of claim. I was assured, as it turned out quite correctly, that this motion was an assault on the statement of claim in matters of principle, and did not depend on _ the sufficiency or insufficiency of the particulars already supplied or still in dispute. The motions for particulars and to strike out' the subpoena were adjourned to the date of delivery of this judgment. A motion to strike out a statement of claim is provided for in Order 11 Rule 16. This provides: "Where a pleading —- (a) discloses no reasonable cause of action or defence or other case appropriate to the nature of the pleading; (b) has a tendency to cause prejudice, embarrassment or delay 1n the proceeding; or (c) 1s otherwise an abuse of the process of the Court, the Court may at any stage of the proceeding order that the whole or any part of the pleading be struck out " In H 1976 Nominees v Galli [19791 30 ALR 181, the principal allegation was that: "The fiduciary . . and Apex, inter alios, did, in trade or commerce, engage in conduct that was misleading or deceptive or alternatively engage in conduct that was likely to and did mislead or deceive " At 186, Northrop J said: "It 1s clear that Galli is not a corporation within the Meaning of that word as defined ins 4 of the Act' The allegation i1n para 3 of the statement of claim that Galli 'as and was a person covered by and bound to abide by the provisions of' the Act 1s a conclusion drawn from facts which are not contained in the statement of claim The statement of claim does not contain a statement of the material facts on which that conclusion can be drawn: see O 4, cr 6and0O11, r2 In this respect the statement of claim does not disclose a reasonable cause of action against Gall1." At 188 his Honour cited Turner v Bulletin Newspaper Pty Ltd CLR 69 per Jacobs J at 97: "Where the form of pleading 1s defective the Court can certainly strike 1t out entirely and 1s not bound to reframe 1t for the plaintiff's benefit." Northrop J concludes: "In all the circumstances, 1t 1s appropriate that the Court orders that the statement of claim be struck out and that the applicant have leave to file and serve a further statement of claim. " The question was also considered in Rubenstein v Truth [1973] 131 & Sportsman Limited [19601 VR 473. In that case, Adam J referred to Phillips [18781 4 QBD 127 at 139 where Cotton LJ said: Phillips v "Tt 1s absolutely essential that the pleading, not to be embarrassing to the defendants, should state those facts which will put the defendants on their guard and tell them what they have to meet when the case comes on for trial." Adam J goes on to say at page 476: "Where, as in the present case, there has been a clear infringement of the rule as to stating all material facts and not merely a fallure to give sufficient particulars of facts which have been pleaded (a distinction made clear by Scott LJ 1n Bruce v Odhams Press Ltd, [1936] 1 KB 697, at 712-13; [1936] 1 All ER 287), the preferable course, I consider, in the interests of proper pleading is to strike out the offending pleading, with liberty to amend, rather than to order particulars." To determine whether sufficient material facts have been pleaded, it is necessary briefly to outline the claims made by the applicant in this action. The basic relevant facts are apparently undisputed. The first respondent manufactured waterbeds and their components and accessories (the goods). The second respondent at the relevant time operated six named retail stores in Brisbane suburbs and southern Queensland which sold waterbeds. Under a written agreement (the agreement) the first respondent agreed to and did supply the goods to the second respondent, at certain prices, between 14 November 1986 and 9 December 1987. The second respondent agreed to allocate 60% of its floor space to the goods in each of the named stores and agreed not to buy these products from other suppliers. It also agreed only to sell these products through the particular stores named. The _ second respondent agreed to pay the first respondent's prices for the goods supplied. The applicant guaranteed the second respondent's obligations under the agreement. When the second respondent went into liquidation, I am advised that the applicant was called upon to pay the second respondent's debt to the first respondent. I was further informed that proceedings in the Supreme Court of New South Wales to recover this debt have been adjourned to permit this action to proceed. These proceedings seek to have the agreement declared null and void. The applicant alleges that in the period of the agreement, the first respondent sold items similar to the goods to a competitor of the second respondent at considerably lower prices than they were sold to the second respondent. It further alleges that the sale prices to the second respondent were continually increased such that the goods' could have been purchased by the second respondent for much less from other suppliers. The consequence was that the second respondent' traded unprofitably, could not pay its debts (including $203,124.89 owed to the first respondent) and was forced into liquidation. The applicant also alleges that competition in the goods in the relevant geographical area was lessened and that the second respondent was the victim of price discrimination. The question for determination here is whether the material facts to sustain these allegations have been pleaded. In the order in which the various claims are made in the application, the applicant alleges that, by the agreement, the first respondent contravened: 1. section 49 of the Trade Practices Act (the Act) in that during the period of the agreement, it repeatedly increased the "wholesale price list" insofar as it related to the second respondent whilst at the same time selling to a rival chain of shops equivalent goods at much cheaper prices. As a result of this systematic and recurring price discrimination, it 1s alleged that retail competition in the Southern Qucensland INMarket for the goods has been substantially lessened; 2. section 47 of the Act in that it made the said agreement conditional on the second respondent's: (a) allocating 60% of the total floor area of each of its stores exclusively to the goods; (b) not acquiring the goods, except from the first respondent; (c) not selling the goods in Queensland except through specified stores. As a result, it is alleged that retail competition in the Southern Queensland market for the goods has been substantially decreased; 3. section 46 of the Act in that it has engaged in monopolisation of the market to the benefit of the rival chain of shops; 4. section 45B of the Act in that it required the giving of covenants as to the use of floorspace, exclusive supply and as to permitted retail outlets, which have resulted in competition of the Southern Queensland market for the goods being substantially lessened; In the believe sustain 5. Section section 45 of the Act in that the agreement is a contract or arrangement which restricts dealings and lessens competition by imposing the conditions set out in 2 above in relation to section 47. course of argument, counsel for the applicant conceded, as I properly and correctly, that the statement of claim could not claims 3 and 4. That leaves for consideration claims 1, 2 and 49 - Price Discrimination The relevant part of this section for present purposes i1s_ subsection (1)(a). This provides: "(1) A corporation shall not, in trade or conmerce, discriminate between purchasers of goods of iike grade and quality in relation to -— (a) the prices charged for the goods; 1f the discrimination is of such magnitude or 1s of such a recurring or systematic character that it has or 1s i1kely to have the effect of substantially lessening competition in a market for goods, being a market in which the corporation supplies, or those persons supply, goods." The facts material to the operation of the relevant part of the section for this particular case means that the statement of claim must allege that the price discrimination alleged: (a) (b) (c) 1s of such magnitude that it has or is likely to have (da) the effect of substantially lessening competition {e) in a market for goods (£) in which the first respondent supplies goods; OR (g) is of such recurring character or (h) of such systematic character that (i) it has or (jj) 1s likely to have (k) the effect set out in (d)—(f£) above. Both parties argued that the section 1s in effect divisible into two parts — one relating to the size or frequency of the discrimination, and one examining the effect of the discrimination on the competition in the marketplace. As to (a) to (c) and (g) to (j) (size or frequency of discrimination), the applicant relies on the statement of claim's reference to the nature ef the applicant's business (paragraph 3), to the fact that the applicant has six stores (paragraph 4), and to the allocation of 60% of its floor space in each of the stores to the goods (paragraph 7(a)). As to (d), (e), (f£) and (k) (substantial lessening of competition), the applicant points to the allegations in paragraph 8 that the goods were sold to other retailers in the area for much cheaper prices' than to the second respondent. Paragraph 8 does not allege, and it does not seem to be the fact, that the first respondent was prevented by the agreement from selling to whomever it wished whatever quantity of the goods it chose at whatever price it could negotiate. Hence, on the one hand, this 1s_ conduct outside the agreement and not proscribed by its terms. On the other hand, the paragraph asserts facts that support the relevant applications for relief. Reference is also made to paragraph 11(a), where it 1s alleged that the second respondent could not trade profitably. Some aid may also be available from paragraph 9 which alleges that the first respondent's pricing policies with the second respondent were such that the second respondent could have purchased equivalent goods from other suppliers at lesser cost. I do not think the objective size of the second respondent's operations is relevant in that way. The question for this case 1s whether the price discrimination i158 alleged to be of such or sufficient dimensions as to cause a substantial lessening of competition in the market for goods supplied by the first respondent. I think the statement of claim passes this test. The facts alleged amount to an assertion that' the goods were supplied in sufficient quantities and subject to such price discrimination against the second respondent as_ to lessen the competitiveness of the second respondent with other stores in the same market as itself. The ascertainment of the alleged size of the discrimination and the extent of the lessening is for particulars. Whether the allegations thus made pass or qualify for the statutory tests are questions of fact to be determined on the evidence in _ the case. Section 47 — Exclusive Dealings Subsection (1) outlaws exclusive dealing. It then proceeds to define different types of the offence. Relevant to this case 1s _ subsection (2)(d) which provides: "(2) A corporation engages in the practice of exclusive dealing 1f the corporation - (a) supplies, or offers to supply, goods or _ services; on the condition that the person to whom the corporation supplies, or offers or proposes to supply, the goods or services or, 1f that person is a body corporate, a body corporate related to that body corporate — (da) will not, or will not except to a limted extent, acquire goods or services, or goods or services of a particular kind = or description, directly or indirectly from a competitor of the corporation or from a competitor of a body corporate related to the corporation." Then subsection (10) takes effect: "(10) Sub-section (1) does not apply to the practice of exclusive dealing constituted by a corporation engaging 1n conduct of a kind referred to 1n sub- section (2) . unless (a) the engaging by the corporation in that conduct has the purpose, or has or 1s likely to have the effect, of substantially lessening competition." The first respondent concedes this was an exclusive dealing. Thus, to attract this section, the statement of claim must allege material facts to establish that the exclusive dealing by the fixst respondent had the purpose or effect (or is likely to have the effect) of substantially lessening competition. In other words, there must be a causal connection between the admitted exclusive dealing and a_e substantial lessening of competition. If 1t is to be alleged that the exclusive dealing had not merely the purpose or likely effect but the actual effect of substantially lessening competition, there would need to be facts alleging that competition had in fact been substantially lessened. There is in paragraph 11(d) of the statement of claim a direct assertion that the relevant retail competition has been substantially lessened "by reason of the matters alleged at paragraphs 5 to 11 inclusive." Paragraph 7(b) alleges that the first respondent by and under the agreement supplied goods to the second respondent on condition that the second respondent would not purchase the same goods from a competitor of the first respondent. Paragraph 9 asserts that the repeated price increases imposed on the second respondent meant that by virtue of the agreement the second respondent paid much more for the goods than the prices for which they would have been obtainable from other suppliers. Although not as clearly enunciated as is desirable, the combination of these assertions with those referred to under section 49 relating to the lessening of competition, seems to me to provide a relation of sufficient facts to support the applicant's assertion of an exclusive dealing which had the effect of substantially lessening competition in the way generally outlined under the section 49 claim. That the dealing also had that purpose or likely effect appears ineluctably to follow. Section 45 —- Exclusionary Provision Sub-section (2) provides: "(2) A corporation shall not - (a) make a contract or arrangement, or arrive at an understanding, 1f — {1) the proposed contract, arrangement or understanding contains an exclu- slonary provision; or (11) a provision of the proposed contract, arrangement or wunder- standing 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 — (1) 1s an exclusionary provision, or (11) has the purpose, or has or 1s likely to have the effect, of substantially lessening competition " Section 4D(1) defines "exclusionary provision", inter alia, as one contained in a contract between persons who are in competition. Section 4D(2) deems competitiveness to exist in certain circumstances. I do not understand there to be any suggestion that this case involves the existence of relevant competitiveness between the first respondent and the applicant, or even between the first and second respondents. The question here is thus whether the statement of claim alleges sufficient material facts to support the allegation that one or more provisions in the agreement had the purpose or likely or actual effect of substantially lessening competition. This 1s virtually the same point as dealt with under section 47 except that there appears to be the extra requirement here of a particular provision (or combination of provisions) in the agreement itself which is causally linked to the substantial lessening of competition. For the reasons given under section 47, the statement of claim appears to identify and meet this requirement, although once again the statement of claim ideally would require redrafting to make the matter clear. For all these reasons, I refuse the motion to strike out the claims for relief in the statement of claim under sections 45, 47 and 49. I strike out the claims for relief in the statement of claim under sections 45B and 46. I direct that any amended application and statement of claim be filed and served by not later than 4.00 pm on Friday, 29 July 1988. I order that the costs of this motion be costs in the cause. Pboubh thot ts - sd so TWELVE proezaee nee tote =v ocey of the ', 7 3 cf hs Honour a ht HMikelinan of Filla, Dated 14 TULy lage aS ee os Counsel and solicitors for the applicant Counsel and solicitors for the first respondent Date of hearing Date of judgment Mr. G.A. Moore instructed by Blake Dawson Waldron Solicitors Mr. A.J. Meagher instructed by the R.F. Holt and Allen Solicitors 9 June 1988 14 July 1988