- * 1% " (G9 ore @ 7? &77 JUDGMENT NO. sonst Sonal snes COME COMMONWEALTH OF AUSTRALIA TRADE PRACTICES ACT, 1974 IN THE TRADE PRACTICES TRIBUNAL NSW 5 of 1987 RE: JOHN DEE (EXPORT) PTY. LIMITED & ORS. Applicants 14 JUL 1999 RE: Application for a_ Review FEDE: of a Determination made by the BRA COURT OF : : : AUSTRALIA - Trade Practices Commission ate October 19 CORRIGENDUM Amendment to the reasons for decision of the Trade Practices Tribunal delivered 14 April 1989: Page 86, para 2, line 1, replace: "18. Assessment of Claimed Benefit and Findings on Detriment, Bad Debts and Credit Control" with "18. Assessment of Claimed Benefit and Findings on Detriment: Bad Debts and Credit Control" Page 93, para 2, line 1, replace: "19. Likely Operation of the Proposed System of Accreditation" with "19, Assessment of Claimed Benefit and Findings on Detriment: Likely Operation of the Proposed System of Accreditation". Page 98, para. 3, line 1, replace: "20. Analysis of Effects" with "20 Assessment of Claimed Benefit and Findings on Detriment: Analysis of Effects". ~./2 Index, "18. "18. "19, "19, "20. "20 replace: Assessment of Claimed Benefit and Findings on Detriment, Bad Debts and Credit Control" with Assessment of Claimed Benefit and Findings on Detriment: Bad Debts and Credit Control" Likely Operation of the Proposed System of Accreditation" with Assessment of Claimed Benefit and Findings on Detriment: Likely Operation of the Proposed System of Accreditation". Analysis of Effects" with Assessment of Claimed Benefit and Findings on Detriment: Analysis of Effects". Associate to Mr. Justice Lockhart Stee N\8a 4 PY 7? JUDGMENT No. o.:t.ccesernsnel anne Ju COMMONWEALTH OF AUSTRALIA TRADE PRACTICES ACT, 1974 IN THE TRADE PRACTICES TRIBUNAL NSW 5 of 1987 RE: JOHN DEE (EXPORT) Pty. LIMITED & ORS. Applicants RE: Application for a Review of a Determination made by the Trade Practices Commission dated I October 1987 SUMMARY OF REASONS FOR DECISION This-is an application by John Dee (Export) Pty. Limited and other companies, which are meat processors in Queensland, for a review by the Tribunal of. a.determination of the Trade Practices Commission which granted authorization to the proposed Constitution and Accreditation Rules (except clause 6) of the Queensland Stock Agents!' Association ("QSAA"),, a body in the process of formation, and to the giving effect to exclusionary provisions contained therein. The Constitution provides for the making of Accreditation Rules which in turn provide for concessional trading terms upon which accredited buyers at auction sales of livestock in Queensland conducted by members of the Association may pay for their purchases. 2. The applicants for authorization before the Commission were the three pastoral Houses, Edlers, Dalgetys and Primac together with a group of 39 stock and station agents who said they intended to join QSAA. The Pastoral Houses and these private agents together account for over 90% of cattle marketed in Queensland through stock agents. The applicants for review of the Commission's determination are 21 meat processors who handle over. 90% of cattle siaughtered in Queensland abattoirs, The question before the Tribunal is whether the proposed Constitution and 'Accreditation Rules of QSAA would constitute a contract, arrangement or understanding to the effect that members of QSAA would deal collectively for the purpose of accrediting purchasers of livestock at auction for slaughter and thus constitute an exclusionary provision or have the effect of substantially lessening competition in breach of s. 45 of the Trade Practices Act 1974. What is asserted in support of authorization is that the proposed system of QSAA: will not be dominated by the Pastoral Houses; will be of equal benefit to the Pastoral Houses and independent agents alike; . will give rise to a better system of credit control with bonds and guarantees being provided for the benefit of all members, not just the Pastoral Houses; will reduce the del credere risk to agents; . will provide information to agents which is not presently available to independent agents, namely, information as to the financial stability of processors and other purchasers of livestock; . will offer greater ability to monitor payment patterns in accordance with concessional trading terms; . will not be inimical to competition or result in anti-competitive detriment. In the Tribunal's opinion it is hard to imagine an industry which shows less indication of any real or substantial credit risks than the sale of livestock. The history of the industry over many years proves this. The Tribunal is not satisfied that the proposed system of market intelligence would give rise to such improvements or that any real differences would occur in practise in warning agents about purchasers or prospective purchasers who may be credit risks. Any increase in the available credit information would be marginal. Past experience in the Eastern States shows that recommendations to members as to the risks involved in dealing with a particular purchaser or prospective purchaser are of limited practical use. 4. Even viewing the proposed system on the basis that the Accreditation Rules include the most recently drawn proposed rules, including Rule 6, it is likely that it would be in practice a compulsory system. It is unreal to think that the system would operate in practice as voluntary. The Tribunal is satisfied that the system would be one in which all, or almost all, members would accept recommendations from QSAA as binding them to comply with such recommendations. It is likely that the proposed system would operate in practice, not as a means to reduce credit risk to agents, but to accelerate payment by purchasers. We are not satisfied that the proposed accreditation system would give rise to any public benefit. On the contrary, in our view it is highly likely that it would give rise to considerable anti-competitive detriment. We consider that the proposed system would constitute an exercise of market power without redeeming public benefit to shorten credit terms, shift the risk-bearing function, impose undue credit costs upon processors, achieve privileged access to financial information and discriminate in the imposition of security requirements. The system would give rise to an inefficient allocation of risk-bearing: agents would not be appropriately motivated in their del credere function; and some potential newcomers to meat processing could be inappropriately deterred by bonding requirements. Whilst, in the short run at least, the attractiveness of the auction system could be increased for producers, this would not be the result of competition on the merits. The independence of the private agents could be undermined; and the Pastoral Houses encouraged to maintain a co-operative stance, one to another. The system would preclude competition in the terms of credit which, in the Tribunal's view, is just as valuable as any other form of competition. The Tribunal refuses to grant the authorization sought and sets aside the authorization granted by the Commission. The authorization granted by the Commission will therefore not come into force. 1S@)' JUDGMENT No x | 27 TP '8 soo0c0oT nga eeaaone, TRADE PRACTICES TRIBUNAL TRADE PRACTICES - Queensland Stock Agents - review of the Trade Practices Commission authorization of proposed Constitution and Accreditation Rules of trade association - whether the proposed conduct of such body would have the purpose or effect of substantially lessening competition - whether public benefit outweighs public detriment from the lessening of competition - jurisdiction of Tribunal under s. 88 - whether power of authorization extends to both the making and the giving effect to contracts, arrangements and understandings - whether s. 88(12) prohibits authorization of future conduct pursuant to contracts, arrangements or understandings which cannot themselves be authorized. Trade Practices Act 1974 (Cth): ss. 45(1A), 88, 90(6), 90(8), 101. JOHN DEE (EXPORT) PTY. LTD. & ORS. RE: APPLICATION FOR A REVIEW OF A DETERMINATION MADE BY THE TRADE PRACTICES COMMISSION Lockhart J. (President), Professor Brunt, Mr. Fitzgerald 14 April 1989 Sydney COMMONWEALTH OF AUSTRALIA TRADE PRACTICES ACT, 1974 IN THE TRADE PRACTICES TRIBUNAL NSW 5 of 1987 RE: JOHN DEE (EXPORT) Pty. LIMITED & ORS. Applicants RE: Application for a Review of a Determination made by the Trade Practices Commission ate October MINUTE OF ORDER TRIBUNAL: ivckhart J. (President), Professor M. Brunt, "Mr. A. Fitzgerald 14 April 1989 THE TRIBUNAL DETERMINES THAT: the determination of the Trade Practices Commission dated 1 October 1987 be set aside. COMMONWEALTH OF AUSTRALIA TRADE PRACTICES ACT, 1974 IN THE TRADE PRACTICES TRIBUNAL NSW 5 of 1987 RE: JOHN DEE (EXPORT) PTY. LIMITED & ORS. Applicants RE: Application for a Review of a Determination made by the Trade Practices Commission ate October INDEX Paragraph Heading Page No. 1. . Introduction - 1 2. The Parties 6 3 Submissions of the Pastoral Houses 8 4 Submissions of the Meat Processors il 5. Witnesses and Exhibits 13 6. The Constitution of QSAA 14 7. The Accreditation Rules 18 8. Conduct for Which Authorisation is Sought 25 9. Previous Applications for Authorisation 28 10. The Relevant Law 35 11. Methods of Marketing Cattle in Queensland 47 11.2 Auction sales versus paddock sales 48 11.3 CALM 53 12. Pastoral Houses and Independent Agents 57 13. 14. 15. 16. 17. 18. 19. 20. 21. Credit for Sale of Cattle by Auction and Del Credere Risk Selling Centres and Saleyards Meat Processors Identification of the Relevant Market Market Structure and Competitive Behaviour Assessment of Claimed Benefit and Findings on Detriment, Bad Debts and Credit Control Likely Operation of Proposed System of Accreditation Analysis of Effects Conclusion 6598 COMMONWEALTH OF AUSTRALIA TRADE PRACTICES ACT, 1974 IN THE TRADE PRACTICES TRIBUNAL NSW 5 of 1987 RE: JOHN DEE (EXPORT) PTY. LIMITED & ORS. Applicants RE: Application for a_ Review of a Determination made b the Trade Practices Commission dated 1 October 1987 REASONS FOR DECISION Lockhart J. (President), Professor Brunt and Mr. Fitzgerald - 1. Introduction 1.1 John Dee (Export) Pty. Limited ("John Dee") and other companies, which carry on business in Queensland as meat processors, applied to the Tribunal under s. 101 of the Trade Practices Act 1974 ("the Act") for a review of a determination of the Trade Practices Commission ("the Commission") made on 1 October 1987 in relation to two applications (A90450 and A90451) lodged by Elders IXL Limited ("Elders"), Dalgety Farmers Limited ("Dalgetys") and Primac Association Limited ("Primac") (to which we shall generally refer collectively as "the Pastoral Houses") with the Commission for authorization relating to the proposed Constitution and Accreditation Rules of a new body, the 2. Queensland Stock Agents' Association ("QSAA"). Application A90450 was in respect of an agreement that. may affect competition and application A90451 in respect of a possible exclusionary provision. QSAA is in process of formation by its three foundation members, Elders, Dalgetys and Primac, - who have together drawn up the proposed Constitution and Accreditation Rules. 1.2 The decision of the Commission is reported at (1987) ATPR (Com) 50-059. The Commission was satisfied that: . there was public benefit in the proposed Constitution and Accreditation Rules of QSAA except in relation to clause 6 of the Accreditation Rules; . those public benefits outweighed the detriment caused by any lessening of competition; and . there was such a benefit to the public in the exclusionary provisions embodied in the Constitution and Accreditation Rules (except for clause 6) that those provisions should be given effect to: (1987) (Com) ATPR 50-059 at 57,200. 1.3 on 1 October 1987 the Commission granted authorization to QSAA'S proposed Constitution and Accreditation Rules (except for clause 6 of the Accreditation Rules) in respect of applications A90450 and A90451 and to the giving effect to exclusionary provisions contained 3. therein. Paragraph 11.3 of the determination provided that, if no application for review of the determination was made to the Tribunal, it would come into force on 30 October 1987; and that, if an application for review was made to the Tribunal, the determination would come into force (a), if the . application was not withdrawn, on the day on which the Tribunal made a determination on the review; and (b), if the application for review was withdrawn, on the day on which the application was withdrawn. As the application for review of the determination was made to the Tribunal and has not been withdrawn, the Commission's determination has not come into force. It will do so only if and when the Tribunal makes a determination on the review in favour of authorization. 1.4 A brief statement of the background facts is necessary to enable the issues which arise in this application for review to be understood. 1.5 QSAA is being formed to operate in Queensland. Membership of the QSAA is open to any Australian licensed livestock agent, but the Association is designed to regulate the conduct of auctions by members within the State of Queensland. There are to be two classes of members: the foundation members and the private agents. The Constitution determines the qualifications for membership of the Association, the governance of the Association, and the obligations of members to each other. It also provides' for the making of Accreditation Rules. Broadly speaking, the i Accreditation Rules provide for what are termed "concessional trading terms" upon which accredited buyers at auction sales of livestock conducted by members of the Association may pay for their purchases. In the absence of accreditation the Accreditation Rules provide for the application of what are known as the Standard Conditions of Sale. 1.6 It has been the practice in Queensland for the Standard Conditions of Sale to be exhibited at all saleyards. Conditions 5, 6, 7, 8 and 11 have particular relevance to these applications and provide that the livestock agent or broker sells as a del credere agent; that the full purchase price is payable by the buyer to and recoverable by the broker alone; and that, in the absence of special terms, the full purchase price is "payable in cash on the fall of the hammer". 1.7 Originally, the Standard Conditions of Sale as a whole formed part of the applications for authorization to the Commission. But on 14 July 1987 the Conditions were withdrawn from the applications, the applicants having indicated that they were prepared to hold discussions with parties who perceived problems with them. The position is now that, while the Standard Conditions of Sale do not form part of the formal applications before us, the particular conditions listed above were relied on in aid of identification of the conduct for which authorization is sought. Accordingly, the conditions retain relevance for the applications and issues before us. 1.8 The Accreditaticn Rules are designed to regulate the credit terms that may be extended to purchasers at auction of livestock for slaughter within 30 days. These purchasers would be meat processors and butchers. In short, the Rules make provision for procedures whereby (a) buyers of livestock | at auction may be accredited to the QSAA; (b) a buyer's departure from standard payment terms (to be established at 12 days) may be monitored; and (c) information generally regarding credit-worthiness and current patterns of payment may be assembled. Accreditation may be granted subject to "Special Conditions" which may include the lodging of security to guarantee payment for purchases at auctions and a requirement that the applicant not exceed a prescribed level of total indebtedness. 1.9 The Pastoral Houses assert that the provision of guarantees or other securities from buyers will not be a general requirement for all who seek to trade on credit, but will be required only when there is a discernible credit risk. It is said that the amount of the guarantee would not exceed the estimated cost of two weeks' purchases of livestock. 1.10 Provision is made by Rule 6 (a controversial rule _ to which we shall refer later) to the effect that, if a member deals for credit with a buyer who is not an accredited person or with an accredited person in excess of the provisions of the concessional trading terms, he shall not be entitled to the benefit of guarantees or other security arrangements 6. furnished or provided pursuant to the Accreditation Rules in relation to the transaction or transactions the subject of the grant of credit. 1.11 The livestock industry in Queensland includes cattle, - sheep and pigs, whether "fats" ready for slaughter, "stores" or breeders, The stock sold by auction is mainly fat cattle, store cattle or store sheep. So far as auction for slaughter is concerned, the great bulk and value of stock is in fat cattle. The evidence that was placed before us on the functioning of the livestock industry focused, correctly in our view, largely upon the cattle industry. 1.12 The Queensland cattle industry is an important one. The current cattle population is approximately 9 million head, having fallen from 11 million over the preceding 10 years. There is significant export. Over the period 1983 to 1987 Queensland meat processors slaughtered, on average, 35% of all cattle slaughtered in Australia, attaining 36% in 1987. 2. The Parties 2.1 The applicants for authorization before the Commission were the Pastoral Houses. Elders, Dalgetys and Primac are the only three large Pastoral Houses operating in Queensland. A group of 39 stock and station agents who said that they intended to join QSAA, the Cattlemens' Union and the United Graziers' Association of Queensland lodged 7. submissions in support of the application by the Pastoral Houses, although they were not themselves parties to the application. The independent agents supporting the applications amount to roughly half the numbers of private agents. These private agents and the Pastoral Houses. together account for over 90% of cattle marketed in Queensland through stock agents (whether by auction or direct sales). The respondents in the current proceedings are Elders, Dalgetys and Primac, who again receive the support, upon a similar basis, of the group of independent agents and of the United Graziers' Association. 2.2 The applicants for review of the Commission's determination are 21 meat processors who handle over 90% of cattle slcucghtered in Queensland abbatoirs ("the Meat Processors"). Indeed, the only meat processor of any size not opposing the applications was Beef City, a wholly-owned subsidiary of Elders. During the course of the hearing Elders took over one of those processors, Australia Meat Holdings Pty. Limited ("AMH"), which thereupon withdrew its support for this application for review. Since AMH is the largest meat processor in Queensland, accounting for some 30% of abbatoir throughput prior to its contested takeover of Thomas Borthwick and Sons (Australia) Ltd. (see Trade Practices Commission v Australia Meat Holdings Pty. Ltd. & Ors. (1988) ATPR 40-876, Trade Practice Commission v Australia Meat Holdings Pty. Ltd. (No.2) (1988) ATPR 40-893, Australia Meat Holdings Pty. Ltd. v Trade Practices Commission, unreported judgment of Full Court of the Federal Court, 3 March 1989), that action was significant. | | | | 3. Submissions of the Pastoral Houses 3.1 The Pastoral Houses argued that authorization should be granted for various reasons which we shall summarise: . agents trading in Queensland accept the del credere risks for livestock sold at auction. There is a special problem in extending credit for purchase of stock to be slaughtered in that the stock, by definition, is a perishable commodity which cannot therefore serve as security for the debt; the risk of default relates to the entire value of the transaction; but agents are remunerated by a _ small percéntage commission. Hence, the sum 'at risk is disproportionately high in relation to the gross commission received; in fact, 20 or more times the gross commission; . the existing system of credit control in Queensland is inadequate; . adequate credit controls will ensure a decrease in the risk of default either by the processor or the agent and will thus increase the value of the del credere guarantee to the producer; a substantial default by a processor could cause a chain of agents to collapse, and the effects of such a collapse might extend beyond the processor and the agent to the primary producer who might not receive payment for cattle sold; it is essential that there is an adequate degree of information available to agents on the financial standing of buyers and their total indebtedness to all agents in Queensland as a whole; the proposed credit control would be fair and accurate; a centralized system is better placed to monitor a processor's credit position continuously and to administer guarantees and call them up when necessary; the proposed accreditation system is cost efficient, and allows economies of scale and the development of a high level of expertise in credit appraisal; smaller agents would be better served by a centralized credit control system because of the pooling of credit information and access to economies of scale; a failure of a processor can produce uneven effects because the Pastoral Houses have the ability to absorb larger losses; 10. because of their relatively small size and lack of Market power, agents other than Pastoral Houses are not in a position to obtain useful credit information about livestock buyers, nor to obtain satisfactory guarantees; there is a need for a strong body to represent all agents in Queensland; agents are faced with rapid economic, technological and legal changes in which they conduct their businesses together with rising costs; and they perceive that they will need to upgrade their educational qualifications and skills in the future; the changes are bringing with them challenges that must be mét and problems that must be solved on an industry basis. It is claimed that QSAA will be able to play a radical role in assisting agents to adapt to change and improving their efficiency; the proposed system allows the extension of credit to processors and butchers more cheaply than alternative sources, such as bank overdraft facilities; the concentration of demand for slaughter cattle into a relatively small number of hands. justifies the development of a strong representative body in response; 11. . the proposed system would encourage competition. It would strengthen the existing auction system as a competitive alternative to direct selling. The auction system is of particular value to small and medium-sized producers. It is also valuable as a source of market. intelligence. 4. Submissions of the Meat Processors 4.1 The Meat Processors argued that authorization should not be granted. The grounds on which they rely are, in summary, that: . there is no need for any centralised system of credit control. Agents hear quickly of events that adversely affect the creditworthiness or financial standing of a particular buyer; . bad debts in this industry are negligible, especially in the case of meat processors; . the proposed credit control would be neither fair nor accurate. The proposed centralized credit control system would not result in credit information of any worth to agents; . accreditation discriminates against meat processors in favour of other buyers of livestock at auction; 12. commission rates charged by agents for sale.by physical auction are already too high. If the proposed credit control systems are introduced, and, if the del credere risk is then reduced, there would not be any passing on. of the benefit of that reduction by agents to producers in the form of a lower commission rate; the proposed system is not a credit control system designed to reduce bad debts to agents; but is a cashflow management system designed to ensure, by collective means, faster payment by buyers to agents and thereby enhance profits of stock agents; even if the proposed accreditation system were voluntary in form, being expressed in terms that leave an agent who is a member of QSAA free to deal with a non-accredited buyer or with an accredited buyer who has exceeded the concessional trading terms, in practice the system would work as a compulsory system requiring all agents who are members of QSAA to conform with the recommendations of QSAA as to the buyers who might be traded on concessional trading terms. It was submitted that the scheme holds itself out as a voluntary scheme in the sense that it provides members with recommendations which are not binding, but that the scheme is in fact a compulsory scheme; 13. . the best guide as to how the proposed system would work in practice is how the same or substantially the same scheme works in Victoria and New South Wales at present where it is in effect mandatory, and, how the previous association of the Pastoral Houses in Queensland has © operated to impose substantially uniform terms; . in practice the system would constitute a collusive mechanism which is intended to and would produce a high degree of uniformity in relation to credit extended to buyers whatever their financial position may be; the system could be used to facilitate collusion and to inhibit independent competition generally by private agents; . the system could be used as a device for securing information regarding individual meat processors that would give a bargaining or competitive advantage to those brokers who secure access to it. 5. Witnesses and Exhibits 5.1 The hearing of this matter occupied 18 days. Statements from 34 witnesses were provided by the parties, 23 of whom were called to give oral evidencé. In some cases statements of witnesses were admitted by consent without the necessity of calling the witnesses themselves. A list of the witnesses and their occupations is annexed to these reasons 14. as Annexure A. The witnesses were officers of Elders, Dalgety and Primac, independent agents, officers of meat processors and producers. Other witnesses were the senior officer of CALM and one witness who gave evidence about insurance arrangements. Only one expert economist gave . evidence and he was called by the Meat Processors. The evidence tendered was extensive and voluminous. 5.2 We see no purpose in discussing the evidence of each witness and stating our impression, witness by witness, as to his or her credibility or reliability. Our findings of fact are based on the assessments which we have formed of the witnesses and we have viewed their evidence in the light of the relevant surrounding circumstances, contemporaneous documents and the probabilities. 6. The Constitution of QSAA 6.1 Membership of QSAA is open to any Australian licensed stock and station agent (clause 5(ai)(a)). The foundation members are Elders, Dalgetys and Primac (clause 5(i) and Schedule A). Appeal against a refusal of admission for Membership lies to a special general meeting of members or the next annual general meeting (clause 5(ii)(b)). Each — financial member has one vote for each place of business with respect to which an annual subscription has been paid, which May be exercised either in person or by proxy; and a quorum of 20 is needed for general meetings of members (clause 10(iv)(a), (d) and (f)). 15. 6.2 The governing body is the Council of QSAA. Queensland is divided into zones, each of which elects two members to the Council from members carrying on business in the zone. At least one member elected from each zone must be . a private agent (that is, a member of QSAA other than from a Pastoral House) unless no private agent is prepared to stand for election for that zone (clause 6). There is a mechanism established by clause 7 to ensure that at least 50% of councillors are private agents and that there is an odd number of councillors. The councillors elect from members of the Council the president and two vice presidents, at least two of whom must be private agents (clause 7(v)). Questions arising at meetings of the Council are to be decided by Simple majority and each councillor has one vote (clause 7(ix)(c)). 6.3 The Executive Committee of the Council consists of the president, the two vice presidents, the Chairman of the Accreditation Committee and the secretary (clause 8(i)). The secretary is appointed by the Council (clause 15(i)). Each member of the Executive Committee has one vote and a quorum of three is necessary (clause 8(v) and (vi)). The Council is deemed to have delegated all its powers and discretions to the Executive Committee except where the Council otherwise directs and except for the making of accreditation rules (clause 9(iii)). The Executive Committee may delegate Powers, duties and functions to the Accreditation Committee (clause 8{vii) and 8A(ii)). | 16. 6.4 The Accreditation Committee consists of seven members, one member being appointed by each foundation member with the remaining four members, all of whom must be private agents, to be appointed by the Council (clause 8A(i)). Each | member of the Accreditation Committee has one vote and the quorum is three. The Accreditation Committee elects its own Chairman (clause 8A(iii), (iv), (v)) who becomes a member of the Executive Committee. 6.5 There is an Accreditation Appeals Committee consisting of the Secretary and three councillors. appointed by the Council of whom at least two shall be private agents (clause 8B(i)). No member of the Accreditation Committee is eligible to be a member of the Accreditation Appeals Committee (clause 8B(ii)). Each member of "the Appeals Committee is to have one vote and there is a quorum of three (clause 8B(iv) and (v)). 6.6 A member is liable to expulsion by the Council on the happening of certain events set out in clause 12. Clause 12(ii) provides for the automatic expulsion from the Association of a member who refuses to accept or obey any decision or adjudication of the Council in respect of an allegation or dispute submitted to it. A majority of three-quarters of members of the Council is required for expulsion except in the case of automatic expulsion pursuant to clause 12(ii) (clause 12(iv)). Appeals against expulsion lie to a special general meeting of members or to the next 18, entitled to large numbers of members. Also, if the private agents do not seek as a body to exercise their voting power at Council meetings, the foundation members may secure Majority votes at certain meetings of the Council, although in that event domination by foundation members is restricted or prevented by reason of minimum representation provisions at Council level and majority representation provision at the Accreditation Committee level with respect to private agents. 6.10 Although QSAA is structured to ensure that the constitutional majority of power ultimately rests with private agents, we are not persuaded that in practice the running of the affairs of QSAA including its Accreditation Committee could not be controlled by the Pastoral Houses. We do not say that the Pastoral Houses would in fact control QSAA. We confine ourselves to saying that, in the light of experience and market realities, they could exercise actual control. 7. The Accreditation Rules 7.1 The Council of QSAA is required to make accreditation rules (clause 9(ii)) of the Constitution). The Accreditation Rules are expressed to apply in respect of the purchase at auction of livestock for slaughter within 30 days of purchase (definition of purchase in rule 2 and see rule 3). 7.2 There are 42 accreditation rules. We propose to refer to some of them. 19. 7.3 Certain proposed amendments to the Rules and additional Rules were brought to our attention in the course of argument and we shall refer to the more important of them as we proceed. 7.4 Rule 2 contains definitions for the purposes of the Accreditation Rules and it defines, so far as _ presently relevant: . an "accredited person" as meaning a person to whom accreditation has been granted and whose accreditation is not suspended; . "accreditation" as meaning accreditation granted pursuant to the rules for settlement of accounts upon Concessional Trading Terms as defined; . "Accreditation Appeals Committee" as meaning the Accreditation Appeals Committee appointed by the Council pursuant to the Constitution of QSAA; . "auction" as meaning the sale of livestock at an auction conducted in Queensland by a member of QSAA; . "concessional trading terms" as meaning the terms of payment on credit set out in Schedule 1 to the Accreditation Rules; 20. . "purchase" as reaning the purchase of livestock for slaughter within 30 days of such purchase; . "standard conditions of sale" means the standard terms of sale at auction. 7.5 Schedule 1, referred to in the above definition of "concessional trading terms" states "the concessional trading terms applicable to purchasers by accredited persons at auction": "All purchases made in Queensland shall be paid for within ten (10) days from the date of sale". In the course of the proceedings the Pastoral Houses intimated that they would amend the term to 12 days in accordance with the current practice of each Pastoral House. 7.6 We quote the following rules, which are those contained in the Accreditation Rules under the heading "Terms of Trading at Auctions". "3. Subject to these Rules' the Standard Conditions of Sale ... shall apply to every purchase at Auction. 4. Notwithstanding any provision in the Standard Conditions of Sale, a member may apply the Concessional Trading Terms to any purchase at Auction by an Accredited Person. 5. The Concessional Trading Terms shall not apply to any purchase at Auction by a person who is not an Accredited Person." 6. If a Member knowingly grants credit for purchase or represents or acts in such a manner that other members have reason to believe that he has granted credit or will otherwise accept liability for the purchase at Auction - 21. - to any Person who is not an Accredited Person or, ~ to an Accredited Person in excess of the provisions ofthe Concessional Trading Terms, then: (a) the Member shall be personally liable for the settlement of accounts with other members arising from each transaction in respect of which any such credit is granted or other members have been given such reason to believe has been granted or in respect of which other members have been given reason to _ believe the Member will otherwise accept liability; (b) the Member shall forward forthwith to the Secretary a current statement of the Member's financial affairs, full particulars of the credit granted or the liability accepted, and such further information in relation thereto as the Secretary may reasonably require." = 7.7 Rule 6 is the most important of the Accreditation Rules for the purposes of these proceedings and was highly controversial throughout the proceedings before the Tribunal. It has assumed different forms during the course of this matter: first, before the Commission and later before the Tribunal. The form which it took before the Commission when it granted authorization to the Accreditation Rules (other than clause 6), is quite different from that which the Pastoral Houses ultimately told the Tribunal in final address was. the form that was to be its final form and that reads as follows: "6(a) A Member may, notwithstanding any other provisions of these Rules including Rules 3, 4 and 5 hereof, deal for credit on such terms and conditions as the Member in his absolute discretion thinks fit with: 22. (i) any Person who is not an _ Accredited Person; or _ (ii) an Accredited Person in excess of the provisions of the Concessional Trading Terms PROVIDED HOWEVER THAT if such Member deals with such person, he shall not be entitled to the benefit of any guarantee or other security arrangement furnished or provided pursuant to these Rules in relation to the transaction or transactions the subject of such grant of credit. (b) It is hereby expressly declared that a Member dealing with any Person who is not an Accredited Person or dealing with an Accredited Person in excess of the provisions of the Concessional Trading Terms is not acting in breach of these Accreditation Rules." 7.8 Rules 7 to 16A provide for the grant of accreditation. In considering accreditation the Executive Committee is required by rule 10 to have regard to the following matters: "(a) the financial standing of the Applicant, including - (i) the availability of liquid funds to the Applicant compared to his likely trading commitments; (ii) the assets and liabilities of the Applicant (including contingent liabilities) compared to the likely requirements of his business; (iii) the nature and extent of any mortgages, liens, charges and other claims over the assets of the Applicant. (b) The financial and business history of the Applicant, including any previous bankruptcy or insolvency. (c) Whether the Applicant is of good character and reputation." 23. 7.9 If in the exercise of its discretion the Executive Committee grants an application it may subject the applicant to the imposition of special conditions (rule 14). The special conditions may include a requirement that the - applicant lodge with QSAA a security to guarantee payment for purchases at auction in such form and of such value as' the Executive Committee considers appropriate having regard to certain specified matters; and a requirement that the applicant undertake to QSAA that he will not at any time exceed such level of total indebtedness to members as may he prescribed by the Executive Committee in its determination (rule 15). Provision is made in rules 19 to 26 for appeals against determinations of the Executive Committee, 7.10 The Executive Committee is empowered to monitor the compliance by Accredited Persons with Concessional Trading Terms, and is expressly empowered. to request information from Members for this purpose (rule 27). 7.11 Rules 28 to 30 provide for the suspension or amendment of accreditation and Rules 31 and 32 for appeals against suspension or amendment. 7.12 Rule 33 provides for the notification of members of the accreditation status of purchasers; and rule 34 provides that if an application is refused or accreditation suspended, the notification: 24. "shall be accompanied by a recommendation that Members should apply the Standard Conditions of Sale to any purchase at Auction by the Person who is the subject of the notification." 7.13 Rules 35 to 37 provide for a_ right of arbitration | where a person is dissatisfied with a decision of the Accreditation Appeals Committee with respect to an appeal against suspension or amendment of accreditation. 7.14 There is also a proposed rule 40A to be read together with the proposed rule 6: "40A. At the time of notification of any refusal or suspension pursuant to Rule'33, members' shall be advised that the consequence to a member who grants concessional trading terms or other terms of credit to a non~accredited .~person, notwithstanding the recommendation communicated by the notification, is that such member shall not be entitled to the benefit of any guarantee or other security arrangement furnished or provided pursuant to the Accreditation Rules in relation to the transaction or transactions the subject of such grant of credit." 7.15 Rules 3, 4 and 34 refer to the Standard Conditions of Sale. As we said earlier (above para. 1.7) these conditions, while not part of the applications before us, do retain relevance as an aid to identification of the conduct for which authorization is sought. The Conditions to which the Pastoral Houses would wish their rules to refer are 5, 6, 7, 8 and 11: 8.1 ll. 25. The broker by its auctioneer is selling as a del credere agent and the full purchase price for the stock hereby sold shall be payable by the buyer to and recoverable by the broker alone and, except where terms are given by and at the discretion of the broker, shall be payable in cash on the fall of the hammer. Subject to the provisions of Clause 13 hereof, all stock shall be at the risk and expense of the purchaser upon the fall of the hammer. No property or right in the said stock shall pass to the purchaser or to any other person, firm or corporation until payment in full of the purchase money and until all or any cheques or other negotiable instruments given in connection with the said payment shall have been paid and satisfied and until then the purchaser shall hold any stock delivered to him as bailee for the vendor. Subject to any concessional trading terms granted to the purchaser, at any time prior to payment the vendor or the selling agent in his own name may recover possession.of the ~ stock and for that purpose enter in or upon any lands occupied by the purchaser as often as may be necessary or alternatively or in addition sue for the recovery of possession of the stock. In the event of default or failure by the purchaser to pay the purchase money or any part thereof at the time and in the manner hereinbefore provided, such unpaid purchase money shall bear interest at the current rate charged by the vendor's agent on overdue accounts, during such period of default, but this clause shall be without prejudice to any other rights of the vendor in the event of such default or failure." Conduct for which Authorization is Sought The question before the Tribunal is whether the proposed Constitution and Accreditation Rules of QSAA would, 26. upon adoption and implementation, constitute a contract, arrangement or understanding to the effect that members of QSAA would deal collectively for the purpose of accrediting purchasers of livestock at auction for slaughter and thus constitute an exclusionary provision or have the effect of . substantially lessening competition in breach of s. 45 of the Act (sub-s. 88(1)). 8.2 The particular clauses of the Constitution and Accreditation Rules of QSAA which may arguably be said to contain stipulations for an agreement of the kind mentioned are as follows:- (i) The Constitution . Clause 5(ii)(a) which opens eligibility for membership to all Australian licensed stock and station agents; . Clause 9(ii) which authorizes the Council to make accreditation rules; . Clause 12(i)(b) which relates to expulsion of a member for breach of the rules or by-laws of the Assocation; (ii) The Accreditation Rules Rules 3, 4 and 5 which relate to the terms of trading; 27. . Rule 6 which relates to the sanctions fer breach of recommended trading terms; Rules 7 to 16 which relate to the grant or refusal of . accreditation; . Rule 27 which relates to the requesting of credit information from members; . Rules 28 to 30 which relate to suspension or amendment of accreditation; . Rules 33 and 34 which relate to notifications to members of the accreditation status of purchasers and consequential recommendations as to trading terms. 8.3 A question arises as to the status of the proposed new rules, in particular of rule 6 and the related rule 40A. It was said that the proposed new rule 6 represented a fundamental alteration to the nature of the arrangement for which authorization was sought and that the Tribunal has no power to grant authorization to the new rule or, if it does, it should not do so. Rule 6 in this new form was never submitted to the Commission and was not advanced before the Tribunal until] -final address by counsel for the Pastoral Houses. It was submitted that, if it was within the Tribunal''s power to grant authorization in relation to an arrangenent embodying the proposed new rule 6, it would be a 28. breach of the rules of natural justice to grant such an authorization and would in all the circumstances be a breach of the scheme of the Act. 8.4 This argument was developed in some depth before us. but we see no necessity to decide the question. The course which we propose to take is to assume that the subject of the application for review before the Tribunal includes the Accreditation Rules in the form that they took when authorization was granted by the Commission and when application for review was made to the Tribunal. As we understand it, there had been no change to the form of the Accreditation Rules during that period. However, as the Tribunal has power to impose conditions upon the grant of authorization, it will bear in mind that one condition which could be "imposed is that amendments to the Accreditation Rules be made, including an amendment to rule 6 in the form or along the lines suggested by the Pastoral Houses which we have recited above. We adopt a similar approach to the other proposed alterations to the rules including the proposed new rule 40A. 9. Previous Applications for Authorization 9.1 Previous applications have been made by or on behalf of bodies representing stock and station agents in Victoria, New South Wales and Queensland. Brief reference to them is desirable. 29. 9.2 Victoria. Applications were lodged on 7 September 1982 by Elders on behalf of the Victorian Stock Agents' Association ("VSAA"). VSAA was formed in 1954 from "The Associated Stock and Station Agents of Melbourne", an organisation which represented the interests and views of stock agents in Victoria. VSAA had 99 principal members, the largest of whom were pastoral companies with branches throughout Victoria; but the majority of members were smaller organisations and individuals. The members comprised about 98% of the livestock agents practising in Victoria. It was said that 92% of all fat stock in Victoria was sold through the auction system. Authorization was sought from the Commission in substance for the Constitution of VSAA and proposed amendments including membership rules, the proposed Accreditation Rules, and the proposed conduct of members of VSAA givirig effect to the Constitution, Accreditation Rules and Schedules. 9.3 The final determination of the Commission was made on 20 May 1983 and is reported in [1983] ATPR (Com) 50-059. The Commission found that the requirements of sub-s. 90(7) and para. 90(8)(b) of the Act were satisfied and it granted authorization to VSAA's Constitution and proposed amendments thereto, the proposed Accreditation Rules and Schedules and the proposed conduct of members of VSAA in giving effect to those documents. 9.4 The Constitution and Accreditation Rules of VSAA are substantially similar to those proposed for QSAA leaving aside the proposed Rule 6 and the related amendments. 30. 9.5 New South Wales. An application was lodged on 29 November 1983 by the Stock and Station Agents Association of New South Wales ("SSAA") seeking authorization in substance for changes to the Constitution of SSAA which were designed . to merge the organisation and functions of SSAA with those of the NSW Livestock Agents' Bureau and for the Accreditation Rules of SSAA. The Bureau was operated exclusively for the Pastoral Houses. The Commission's final determination was made on 11 September 1984 and is reported in [1984] ATPR (Com) 50-078. The Commission noted that the proposed New South Wales system was "broadly the same as the VSAA system, in both a structural sense, and in the basic objectives of the systems and the methods employed to achieve them, In both cases, the objective (which.in the Victorian case the Commission accepted as a benefit to the public) is to establish an effective and consistent system of credit control that is fair to all parties" (para. 2 at op. 55,453). 9.6 The Constitution and Accreditation Rules of SSAA and VSAA were substantially the same. The Commission granted authorization to the arrangements provided for in the changes to the Constitution of SSAA and in the Accreditation Rules. 9.7 Queensland, Two applications, in substantially similar terms to each other and to the Victorian and N.S.W. applications, have been made in Queensland. Both were granted interim authorization in similar terms in January 1975, and final authorization in similar terms on5 June 31. 1981, subject to the deletion of certain credit control provisions referred to as "Schedule G" (rules 5 and 6). One application was made by Dalgetys on behalf of itself and other members of 22 country livestock associations: see Queensland Country Livestock Associations (1981) ATPR (Com.) . 50-008. Membership of these associations almost entirely comprised the branches of the five Pastoral Houses in existence at this time; however in each of Dalby and the Warwick districts there were in addition four private agents. The second application was made by the Australian Mercantile Land and Finance Co. Ltd. on behalf of itself and the other four Pastoral House members of The Queensland Livestock, Property and Produce Brokers' Association ("QLPPBA"): see Queensland Livestock, Property and Produce Brokers Association (1981) ATPR (Com) 50-009. 9.8 These authorizations were understood by witnesses for the Pastoral Houses to be still in force and to govern, in particular, the conduct of QLPPBA. It is apparent that there has been in recent years some rationalisation in trade association organisation in this field of activity in Queensland, with the QLPPBA currently being the only significant body. 9.9 QLPPBA has borne its present name (The Queensland Livestock Property and Produce Brokers Association) since 1 July 1970. It was originally the Stock and Station Agents and Auctioneers Association, dating back to the 1890's. Although qualification for membership of QLPPBA is not 32. limited to pastoral houses, throughout its history pastoral houses have played a very significant role in its affairs. QLPPBA established a eredit bureau to control credit facilities and it contained rules designed to ensure that what was referred to as "Schedule G" was adhered to by. members. The members of QLPPBA are currentiy the three Pastoral Houses. 9.10 Schedule G is broadly akin to certain of the Accreditation Rules including Rule 6. Rule 2 stipulated 12 days as the period allowed for settlement under Concessional Trading Terms subject to certain qualifications. Rule 4 required participants in Schedule G to report the names of all buyers who had not paid for their purchases on the due date. Rule 5 provided that buyers who were the subject of reports pursuant to rule 4 would be notified that they were debarred from purchasing at country sales conducted by selling agents who operated under Schedule G until payment was received by the selling agent concerned; and for the notification to participants in Schedule G of the identity of defaulting buyers. Rule 6 obliged participants in Schedule G not to sell livestock to any buyers whose payments were overdue on their own books, or to a buyer whose name had been reported to them as having overdue outstanding payments. 9.11 The Commission found that there was a public benefit in QLPPBA''s Constitution, Rules and Regulations insofar as they provide the necessary machinery for the administration and implementation of conditions for saleyard activities, 33. facilitating the efficient operation of livestock sales and thereby achieving cost savings for sellers operating in the market. However, in refusing authorization of the credit control provisions embodied in rules 5 and 6 of Schedule G the Commission said: "6.8 The provisions preventing buyers who have overdue debts outstanding from buying at further auctions and preventing members and other selling agents from selling to such buyers may have anti-competitive detriments. The associations in their submission state that the credit control provisions are necessary for members to continue to act as del credere agents. The Commission recognises that there is a need for strict credit controls to ensure accounts are paid, when agents guarantee payment to sellers particularly where perhaps large amounts are involved. And there can be no objection to a credit information bureau which purely disseminates credit information to members, including information concerning buyers on the credit list who have not paid their accounts by the due date. However, agents should then be free to decide unilaterally whether or not they will sell to such buyers at future auctions, either for cash or on further credit. A collective agreement by agents not to sell to such buyers, and to bar them from further auctions until their debt is paid, amounts to collective boycott, and is anti-competitive." (Queensland Country Livestock Associations, para. 6.8 at p. 55, 265; Queensland Livestock, Property and Produce Brokers' Association, para. 6.8 at p. 55,270) 9.12 The significance of rules 5 and 6 of Schedule G needs © to be recounted. In essence, a buyer who defaulted was denied concessional trading terms until he put his accounts into order and had to pay cash for purchases in the meantime. The cash payment procedure at auction, whilst not impossible, 34. in practice, makes it very difficult for a buyer to trade. The decision to deny concessional trading terms was that. of QLPPBA and it was in fact binding on all members. It constituted a collective boycott on the granting of credit to offending purchasers. It is not clear what sanctions, if. any, were imposed upon members who failed to abide by decisions of QLPPBA, It should be noted that during the subsistence of Schedule G a major meat processor, namely, Andersons, failed financially. It also should be recognised, as noted above, that the participants in Schedule G were in the main the Pastoral Houses. 9.13 It was submitted on behalf of the Pastoral Houses that the operation of rules 5 and 6 of Schedule G was in substance discontinued after June 1981. Whilst QLPPBA has operated 4 credit bureau, collecting information on purchases and payments of meat processors and butchers, it was. said that, members of QLPPBA have since June 1981 regarded themselves as free to decide unilaterally whether or not to sell to defaulting buyers at auctions either for cash or on concessional trading terms. 9.14 It was submitted by the Meat Processors that Schedule G, including Rules 5 and 6, have in fact continued to operate — in Queensland as between members of QLPPBA notwithstanding that the Commission's authorization of June 1981 excluded the mandatory credit control procedures of rules 5 and 6. It was argued that members of QLPPBA have, since June 1981, as well as before that time, made decisions to require bonds and 35. securities from particular buyers and have on occasions made arrangements as to how particular buyers are to be treated by all members. The ordinary modus operandi of QLPPBA was. said to be that members inform each other as to their intentions in relation to how a particular buyer is to be traded and. reach a common view on that question. QLPPBA has operated in relation to these matters, so it was submitted, in all respects substantially the same after June 1981 as it did before then. There is correspondence and other documentation in existence to support the conclusion that the decision, since June 1981, as to how a particular buyer was to be traded, was a matter for each individual member of QLPPBA to decide for himself; but the Meat Processors submitted that 'this material was merely window dressing to mask the reality that Schedule G had continued in operation. 9.15 It is not necessary that we reach a conclusion on this question. The Tribunal prefers to express no concluded view on it except to say that on the material before us we are not persuaded that the operation and application of Rules 5 and 6, which are the critical rules of Schedule G, have in fact been discontinued by the Pastoral Houses each of which is a member of QLPPBA. 10. The Relevant Law 10.1 The applications to the Commission were made under s. 88 of the Act for authorization of a proposed contract, arrangement or understanding that would be, or might be, an 36. exclusionary provision or would have the purpose, or would have or might have the effect, of substantially lessening competition within the meaning of section 45. The relevant tests for authorization are contained in sub-s. 90(6) and 90(8) of the Act. 10.2 Sub-section 90(6) requires that the Tribunal be satisfied in all the circumstances that the provision of the proposed contract, arrangement or understanding would result, or be likely to result, in a benefit to the public and that that benefit would outweigh the detriment to the public constituted by any lessening of competition that would result, or be likely to result. 10.3 Whilst sub-s. 90(8) exhibits some variation in language, it is and has' been the Tribunal's view that the practical application of this language gives rise to a_ test that is essentially the same as that required by sub-s. 90(6), necessitating the establishment of likely benefit to the public, and a weighing against that benefit of any likely detriment to the public from lessening of competition: Re Media Council of Australia (No. 2) (1987) ATPR 40-774 at p 48,419 10.4 The principles governing the application of this authorization test have been extensively discussed in previous determinations of the Tribunal: Re Queensland Co-operative Milling Association Ltd. and Defiance Holdings Ltd. (1976) ATPR 40-012; Re G. and _ M. Stephens Cartage 37. Contractors Pty. Ltd. (1977) ATPR 40-042, In Re Tooth and Co. Ltd; In Re Tooheys Ltd. (1979) ATPR 40-113. 10.5 We are content to state the guiding principles in summary form: First, it is for the parties seeking authorization to satisfy the Tribunal that benefit to the public is likely and that there will be sufficient public benefit to outweigh any likely anti-competitive detriment; Second, since the likely benefits and detriments to be considered are those that would result from the proposed conduct, the Tribunal is required to consider the likely shape of che future both with and without the conduct in question; and Third, that task will generally entail an understanding of the functioning of relevant markets with and without the conduct for which authorization is sought. 10.6 Various arguments were put to the Tribunal, some going to its jurisdiction and others to matters of discretion, based upon the proper construction of s. 88 of the Act. The relevant parts of s. 88 provide: "88(1) Subject to this Part, the Commission may, upon application by or on behalf of a corporation, grant an authorization to the corporation - (a) to make a contract or arrangement, or arrive at an understanding, where a 38. provision of the proposed contract, arrangement or understanding would be, or might be, an exclusionary provision or would have the purpose, or would have or might have the effect, of substantially lessening competition within the meaning of section 45; or (b) to give effect to a provision of a contract, arrangement or understanding where the provision is, or may be, an exclusionary provision or has the purpose, or has or may have the effect, of substantially lessening competition within the meaning of section 45, and while such an authorization remains in force - (c) in the case of an authorization to make a contract or arrangement or to arrive at an understanding - sub-section 45(2) does not prevent the corporation from making the contract or arrangement or arriving at the understanding in accordance with the authorization and giving effect in accordance with the authorization to any provision of the contract or arrangement so made or of the understanding so arrived at; (d) in the case of an authorization to give 7 effect to a provision of a contract - (i) the provision is not unenforceable by reason of sub-section 45(1); and (ii) sub-section 45(2) does not prevent the corporation from giving effect to the provision in accordance with the authorization; or (e) in the case of an authorization to give effect to a provision of an arrangement or understanding - sub-section 45(2) does not prevent the corporation from giving effect to the provision in accordance with the authorization. ' (2) Subject to sub-sections (3) and (4), sub-section {1) does not permit the granting of an authorization in relation to ~ (a) the making of a contract or arrangement, or the arriving at an understanding, that would contain a provision having the purpose, or having or being likely to have the effect, of fixing, controlling or Maintaining, or providing for the fixing, controlling or maintaining of, the price 39. for, or a discount, allowance, rebate or credit in relation to, goods supplied or acguired or to he supplied or acquired by the proposed parties to the proposed contract, arrangement or understanding, or by any of them, or by any bodies corporate that are related to any of them, in competition with each other, to or from other persons who are neither proposed parties to the proposed contract, arrangement or understanding nor bodies corporate related to such proposed parties; or (b) the giving effect to such a provision of a contract, arrangement or understanding. (2A) The reference in pragraph (2)(a) to the supply or acquisition of goods by persons in competition with each other includes a_ reference to the supply or acquisition of goods by persons who, but for a 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 each other in relation to the supply or acquisition of the goods. - eee (12) The Commission does not have power to grant an authorization to a corporation to make a contract or arrangement, to arrive at an understanding. or to require the giving of, or to give, a covenant if the contract or arrangement has been made, the understanding has been arrived at or the covenant has been given before the Commission makes a determination in respect of the application." : 10.7 The Meat Processors argued that the Tribunal did not have jurisdiction to hear the application for review. It was said that the subject matter of the review is the determination of the Commission which in essence authorized the. Pastoral Houses to make the arrangements embodied in the proposed Constitution and Accreditation Rules (except clause 6 of the Accreditation Rules). Those documents contained allaegedly exclusionary provisions which would or might have the purpose or the effect of substantially lessening 40. competition within the meaning of s. 45 of the Act. It was submitted that the proposed arrangements are in substance the same as those which have been in force for many years in Queensland and that those arrangements necessarily involve giving effect to the Schedule G restrictions. It was argued. that one must look at the substance, not the form, of the application for authorization to the Commission and of review to the Tribunal, and that, when looked at this way, the substance of the previous and present conduct of the Pastoral Houses in Queensland is the same as the substance of . the conduct the subject of application for authorization and review. That conduct in Queensland was already the result, so it was submitted, of an arrangement or understanding between the Pastoral Houses. It was then argued that sub~s. 88(12) of the Act operated to deprive the Tribunal of power to grant 'the requisite authorization because the relevant contract, arrangement or understanding had been made or arrived at before the Commission made its determination and before the Tribunal would make its determination of the review. 10.8 In the alternative, it was argued on behalf of the Meat Processors that, if the Tribunal concluded that the relevant contract or arrangement had been made, or the | understanding arrived at, before the Tribunal made its determination s.88(12) may operate to prohibit the authroisation. Such a conclusion it is argued would mean that the Tribunal would not be able to treat the application for review as one for authorization to the giving effect to 41. exclusionary provisions, or those provisions which may have the effect of substantially lessening competition, because the sub-s. 88(12) prohibition extends to the giving effect to such provisions in addition to the making of the relevant contract, arrangement or understanding. 10.9 It was argued on behalf of the Meat Processors, again in the alternative, that the Tribuna) has no power to authorize the giving effect to such provisions on the ground that the subject matter of the application for authorization to the Commission, and hence of this application for review by the Tribunal, was the making of the relevant contract or arrangement or the arriving at the relevant understanding, not the giving effect to the relevant provisions. Hence, for the Tribunal to purport to authorize the giving effect to those provisions would be beyond the Tribunal's power. 10.10 An argument was put on behalf of the Meat Processors that the Tribunal was prohbiited pursuant to s.88(2) from granting the authorization sought, whether in relation to the making of a contract or arrangement or the arriving at an understanding or the giving effect thereto. Section 88(2) was argued to apply because the relevant provision of the contract, arrangement or understanding was one which had _ the Purpose, or would be likely to have the effect, of fixing, controlling, Maintaining or providing for the fixing, controlling or maintaining of an allowance or credit in relation to goods supplied or acquired, or to be supplied or acquired, by the proposed parties to the proposed contract, New' 42. arrangement or understanding or the giving effect to such a provision of a contract, arrangement or understanding within the meaning of sub-s. 88(2) which in terms forbids the grant of authorization in those circumstances. 10.41 The conclusions of law that follow are those of the President: see s. 42 of the Act which entrusts to the President decisions on questions of law arising on a_ review. In so far as some conclusions are stated which are not solely on questions of law they are the conclusions of all three members of the Tribunal 10.12 The power of the Commission, and hence that of the Tribunal, to grant authorizations which is conferred by s. 88 is with respect to two separate matters: first, the power to grant authorization to the making of a contract, arrangement or the arriving at an understanding where a provision thereof would or might be an exclusionary provision or would have the purpose or would have or might have the effect of substantially lessening competition within the meaning of s. 45; and, second, the power to grant authorization to the giving effect to such a provision. This is plain as a matter of the language and syntax of the various sub-sections of s. 88: see, for example, sub-s. (1) in all five of its paragraphs and sub-s. (2). Also, it is obvious that, if the Commission and the Tribunal are to have effective powers over the range of contracts, arrangements and understandings which contain exclusionary provisions or which would have the purpose oc effect of substantially lessening competition, the 43. right of corporations to seek authorization and the power of the Commission and the Tribunal to grant it would rationally not be confined to the mere making of contracts or arrangements or arriving at understandings, but extend to giving effect to those provisions whether before or after the contracts, arrangements or understandings have been made or arrived at. 10.13 Sub-section 88(1) is cast in language which empowers the Commission (and therefore the Tribunal on review of a decision of the Commission) to grant authorizations to corporations to make contracts or arrangements or arrive at understandings or to give effect to relevant provisions upon application by or on behalf of corporations. It is not expressed in terms which define the ambit of applications of corporations for authorization. This point "is of some importance because it supports the conclusion that, even if a corporation has applied to the Commission for the grant of authorization to make a contract or arrangement or arrive at an understanding and has not included within the frame of the application a request for authorization to give effect to a provision of a contract, arrangement or understanding, there is no bar to the Commission's grant of an authorization either to make the contract, arrangement or arrive at the understanding or to give effect to the provision or both, as the case may be, if the circumstances of the case warrant this in the opinion of the Commission. Indeed, the contrary conclusion would impede the proper working of the Act and act against the interests of the commercial community and the 44, public generally. Plainly it is the intent of the legislature, as discerned from Division 1 of Part VII of the Act, to deal with the substance of commercial conduct that might otherwise contravene the Act. 10.14 The language of other relevant provisions of the Act, including s. 89, which deals with procedures for applications for authorization and s. 90, which relates to the Commission's determination of applications for authorization, also supports this conclusion. Hence, even if in the present case the application to the Commission and later by way of review to the Tribunal sought authorization for the Pastoral Houses to make the relevant contract or arrangement or arrive at the relevant understanding and didnot include in terms an application to give effect to the relevant provision, the Commission (hence the Tribunal) would nevertheless be authorized by the Act to grant authorization either to the making of the relevant contract, arrangement or arriving at the relevant understanding or giving effect to the relevent provision or both, as the Commission Or Tribunal deems appropriate in all the circumstances. 10.15 The applications for authorization which were lodged with the Commission by the Pastoral Houses (nos. A90450 and A90451) have been perused by the Tribunal. Those applications seek in terms authorization for making the relevant contract or arrangement or arriving at the relevant understanding or for giving effect thereto. That this was the Commission's perception of the applications is plain from 45. paragraph 11.2 of is cetermination, (1987) ATPR 50-059 at 57,200, which reads: "11.2 In respect of application numbers A90450 and a90451 the Commission therefore grants authorization to the Association's proposed Constitution and Accreditation Rules (except for cl. 6 of the Accreditation Rules) and to the giving effect of exclusionary provisions contained therein." os There is no substance in the argument of the Meat Processors on this point. 10.16 In turning to the construction and effect of sub-s. 88(12) of the Act, the first point to notice is that the language of the provision is confined to paragraph (a) not paragraph (b) of sub-s. 88(1), though with an additional provision relating to covenants upon which nothing turns for present purposes. There is no warrant for reading into sub-s. 88(12) some implied restraint upon the Commission's power with respect to the subject matter of para. 88(1)(b). Further, there is sound reason why the legislature has confined the operation of sub-s. 88(12) to the subject matter of para. 88(1){a). The legislature was concerned that, if the Commission's power to grant authorization could be exercised with respect to the making of an agreement or arrangement or the arriving at an understanding so as to have retroactive effect, it would render nugatory the consequences of previous or existing breaches of provisions of Part IV of the Act which may have occurred after the making of the relevant agreements or arrangements or the arriving at the 46. relevant understanding. Sub-section (12) does not therefore prevent authorization being given to a corporation's future conduct which takes place pursuant to a contract or arrangement or understanding the making of which may itself be outside the jurisdiction of the Commission to authorize. 10.17 The Tribunal noted above that it was not necessary to reach a conclusion as to whether since June 1981 members of QLPPBA have in fact decided for themselves how individual buyers should be traded, or whether joint decision-making equivalent to that which had previously taken place under Schedule G has been continued. Whatever the answer to that question, the Tribunal rejects the submission of the Meat Processors that the relevant contract 'or arrangement or understanding or conduct pursuant thereto is the same as that which may currently be in force in Queensland pursuant to arrangements analogous to those defined in Rules 5 and 6 of Schedule G. We accept for this purpose that there may be close correspondence between the conduct presently in force in Queensland and the proposed conduct that would be likely to ensue if authorization were granted in the present case. Although the Pastoral Houses are both the applicants for authorization in the present case and the members of QLPPBA, there are differences between the proposed Constitution and Accreditation Rules and the comparable documents presently in force under the QLPPBA, including provisions within the QSAA proposals for appeal and arbitration. 47. 10.18 Also, the proposed system would involve not only the Pastoral Houses, but as many independent stock and station agents in Queensland as applied for membership and were accepted as members. It is fundamental to the proposed system of QSAA that private agents be brought into the scheme with the Pastoral Houses to ensure a different working of the system under the auspices of the proposed Constitution and Accreditation Rules. Thus the subject matter of the application for authorization is not an existing contract, arrangement or understanding which applies in Queensland or the giving effect thereto, but the prospective arrangement and conduct, notwithstanding the existence of many similarities in substance between the conduct said to have taken place in the recent past and the conduct for which authorizatior is sought. 10.19 There remains the submission of the Meat Processors with respect to the construction of sub-s. 88(2), which was quoted above. Sub-section 88(2) must be read in relation to sub-s. 45A(1) of the Act which declares in essence that price fixing agreements are illegal per se. That sub-section provides: "45A (1) Without limiting the generality of section 45, a provision of a contract, arrangement or understanding, or of a proposed contract, arrangement or understanding, shall be deemed for the purposes of that section to have the purpose, or to have or be likely to have the effect, of substantially lessening competition if the provision has the purpose, or has or is likely to have the effect, as the case may be, of fixing, controlling or maintaining, or providing for the fixing, controlling, or maintaining of, the price for, or a discount, allowance, rebate or credit in 47. "relation to, goods or services supplied or acquired or to be supplied or acquired by the parties to the contract, arrangement or understanding or the proposed parties to the proposed contract, arrangement or understanding, or by any of them, or by any bodies corporate that are related to any of them, in competition with each other." 10.20 Whether sub-s. 88(2), in referring to an allowance or credit, encompasses credit in the sense of a period of time within which payment may be made by a purchaser or is used in the sense of a deduction from the sale price of goods is a question of some importance. In view of the conclusion which the Tribunal has reached in this matter, namely that authorization should be refused, it is not necessary for this question to be considered further in this matter. It would have been necessary to determine this question had the Tribunal reached the point where it would have otherwise been disposed to grant authorization. 11. Methods of Marketing Cattle in Queensland 11.1 The methods of marketing cattle in Queensland are by: (a) physical auction sales conducted by agents; (b) "paddock sales" (or "private sales") i.e. sales not at auction, with or without the intervention of an agent. Where paddock sales are made without an agent we refer to them as "direct sales". (c) anew system of electronic auction by description known as CALM; 48. (d) an electronic auction by video known as video sales which is presently limited to specialist herds or specimens and which we will not further consider. 11.2 Auction sales versus paddock sales. Physical auction sales and paddock sales account for most of the sales of livestock in Queensland. Agents are necessarily involved at auction sales. Paddock sales account for 40-45% of all sales of livestock for slaughter in Queensland and 70% of sales in the northern region of Queensland. The proportion of slaughter cattle sold at auction in recent years is between 52% and 58%. In turn, sales of livestock for slaughter account for 60-70% of all cattle sold through saleyards in Queensland. 11.3 The CALM system is in its infancy, having been in operation for less than two years. In its first year of operation (1987-88) it handled only 111,000 head for the whole of Australia in 169 sales, and 25,500 for Queensland. (The figure for sheep and lambs for Australia was 517,000). This may be compared with the number of cattle sold by physical auction in Queensland which is in the vicinity of 2,000,000 head. 11.4 In our opinion there has probably been a decline in auction sales as a vehicle for purchase of cattle for slaughter over recent years. There has certainly been a rationalization of saleyards. It is difficult to determine 49. in any accurate quantitative manner the extent of the decline in auction sales over the years. Such a decline seems to be a likely trend for the future having regard to the overall downward trend in turnover, to aggressive moves by meat processors to increase direct purchasing, and to the | introduction of CALM. There is a distinct preference in Northern Queensland for direct sales. 11.5 It is difficult to define any direct correlation between saleyard turnover performance and the cattle population of a local district. It appears that vendors may Move cattle substantial distances to go to their preferred saleyards. In Dalby, for example, 60% of the cattle which go through its yards come from outside the region. There is considerable movement of store cattle and breeders both around Quéensland and beyond. However, the movement of fat cattle is mainly from west to east, most abbatoirs being located on or near the coast, The cattle yards at auction process a large number of cattle and transactions in a very short time. 11.6 At present, sale of livestock at auction involves mostly live weight selling where the cattle are weighed at auction and a percentage yield on each beast is calculated. Before live weight selling was introduced cattle were sold per head and buyers would bid for a beast according to its estimated weight and quality. 50. 11.7 Sale over the hook is the kind of direct sale most favoured by meat processors and producers. The price of the beast is calculated after it has been slaughtered and passed down the production line to the scales at the abattoir where its value is assessed either at a flat rate or according to. weight and grade. In the latter case different prices are paid according to the quality of the carcass. 11.8 In a direct sale the producer is responsible for the freight costs involved in delivering the livestock to the abattoir for slaughter. The producer also bears the risk of any bruising, weight loss or other loss of condition which may occur during transport. A defect in the public auction system is the bruising and loss of weight which occurs both during transport from producers' properties to the auction saleyard; whilst the cattle are in pens at the saleyards themselves; whilst they are awaiting transport to the premises of purchasers; and during transit to those premises. 11.9 Agents on occasion compete with meat processors at auction sales. This happens when agents buy cattle on behalf of their clients (for example, on behalf of feed lot operators) or buy cattle for themselves or for their processor subsidiaries or so as to sell live cattle overseas. The categories of purchasers at auction sales are the meat processors, operating domestic and export abbatoirs (specialized or mixed); local butchers; producers purchasing store cattle for fattening; breeders; and dealers who purchase stores, fats and breeders for resale as an arbitrage - between market centres or over short periods. 51. 11.10 Some major processors run feed lots and are buyers of store cattle for feed lot purposes. Depending on seasonal conditions, the condition and numbers of cattle, etc., fat cattle and store cattle buyers may compete with each other. Of the slaughter cattle buyers AMH, a consortium of four previously independent operators, operates a string of abattoirs throughout Queensland and is by far the strongest in all areas. As mentioned earlier (para. 2.2), AMH recently came under the control and ownership of Elders. The other processors range in size from large to medium, but none approach the size of AMH. 1i.1i One advantage of the auction system is that it brings together in the one place at the one time all potential buyers for the particular product being offered, by contrast with direct sale where potential buyers are played off one against the other by the seller (sometimes referred to as a telephone auction). Another characteristic advantage is that the agent can assemble small numbers of cattle from small producers into homogeneous lots for auction. A third advantage for a meat processor purchasing from a_ saleyard close to the abbatoir is that he can inspect the condition of the cattle from distant sources of supply. 11.12 It remains that many producers prefer to sell fat Cattle by direct sale rather than at auction because they Perceive direct selling as having some or all of the following advantages: 52. (a) extra handling at auction bruises the cattle and causes loss of condition; (b) agents do not have to be employed in direct sales; (c) direct sales do not require the payment of commission and other additional costs incurred at auction (for example, saleyard dues) which the producer may believe are not justified having regard to the extra service rendered or the price obtained. One witness put the extra costs incurred at auction as in the region of $30 per head; (da) transport costs are frequently less where there is direct sale; (e) selling direct to one processor does not disadvantage the seller as to price, since there are livestock price-reporting sources and prices offered by different processors at any one time tend to be consistent; (£) proceeds from direct sales appear to be paid fairly promptly, for example, within 14 days. 11.13 There are, broadly speaking, two classes of producers, namely, large producers and small, although there are, of course, gradations of size of producers. Some producers are subsidiaries of diversified organisations. Some producers are very large and are usually well informed 53. and aware of market considerations necessary to enable them to obtain an optimum price for their livestock. If such producers are financed clients of a pastoral house, they will invariably deal through that house. If they are not, they largely deal with processors direct for the sale of their . cattle. 11.14 Small producers are typically less well informed, and tend to sell at auction through an agent to whom they exhibit loyalty. There is not much tendency for small producers to switch between agents or between auctions and direct sales. The evidence leads to the conclusion that there is no great potential for this switching to occur in practice. The explanation lies partly in loyalty of producers to agents and the financial ties between them, and partly in the conservative nature of the industry. 11.15 CALM. CALM is an acronym for Computer Aided Livestock Marketing and describes the activities of a committee of the Meat and Livestock Corporation formed under s. 16 of the Australian Meat and Livestock Corporation Act 1977 (Cth). Its function is to sell livestock by description by means of electronic auction based on computer. It handles on a national basis all types of livestock sold both as slaughter and store stock. The CALM system has been in operation for approximately two years in Australia and is still less than fully developed. It has yet to become seif funding, in the sense of independent of its present source of funds which is constituted in the main by a proportion of the 54, slaughter levy received by the Meat and Livestock Corporation from producers and slaughterers. There is a preponderance of producers and slaughterers on the board of CALM. 11.16 Livestock are sold through CALM either by owners of livestock themselves or by agents introducing the client's cattle to CALM. The livestock to be sold through CALM are listed in a catalogue which may be inspected before sale. Interested purchasers may bid in a variety of combinations during the electronic sale conducted by CALM. The purchasers have their own computers which are programmed to view the progressive figures displayed in the course of the electronic sale. The purchasers of livestock through CALM include meat processors and producers. As the system is based on the sale by description of livestock, it follows that the cataloguing of cattle or other livestock by description of their salient features involves the use of a standard descriptive language so that a buyer perusing the catalogue can ascertain whether the goods offered are suitable for his needs. 11.17 The bidders at a sale are users who are registered with CALM either as cash bidders or as credit bidders. If they are registered as credit bidders CALM's conditions of payment apply, which allow purchasers to take livestock into possession before payment. The possession of the livestock remains with the vendor until delivery by the vendor to the purchaser. The CALM system produces the relevant documentation, being in the main invoices and sale notes associated with a sale, and circulates them after the sale to 55. the interested parties. CALM also acts as a clearing house for payment. As part of its services CALM offers a del credere function when it is acting as agent and no other agent is involved in the transaction. CALM also offers an insurance cover for other agents in respect of their del. credere obligations on the payment of a premium calculated on turnover of the agent in relation to the auction. 11.18 The CALM system is especially suited to straight lines of cattle in some quantity. The system eliminates the damage to stock that can occur in the saleyards. It is a very cost-efficient system for suitable stock. It has enabled the securing of an insurance cover for the del credere risk at a very favourable rate related to the CALM volume of business overall. CALM's future role, however, will be t6 a considerable degree dependent upon the attitudes of the stock agents to it. To some extent the agency function is competitive to CALM, but in other respects can operate in complementary fashion to it. As regards" the latter, the agents have the network of branches; they may be trained as assessors for the system; and they have the advantage of offering financial services. In fact 91% of the cattle auctioned by CALM in the first year were offered through agents. 11.19 The Chief Executive of CALM Services gave evidence before us. He perceives CALM as possessing the capacity to capture 15% of the Queensland cattle market by 1991. In his evidence he projected this limited penetration of CALM in 56. Queensland due to a number of factors including the agency function and the traditional means of sale by auction. The major portion of that market growth, at least in North Queensland, is expected among producers who presently sell direct to the purchaser. The direct sellers are by far the. bigger producers in Queensland and they tend to be better informed about market information. They do not hesitate to deal direct with CALM. A problem of CALM in competing with direct selling is to persuade producers that the CALM commission rate of approximately 2.5% - there is a_ sliding scale from 2 to 3.5% - is justified. Many direct sellers are not attracted to the services of CALM because they do not consider that the commission rate of 2.5% would bring them any commensurate rewards. This illustrates the well defined line between direct selling and physical auction systems. Direct sellers appear to be even less attracted to the physical auction system with its high levels of product trauma and higher commission rates. This explains why producers who sell direct are likely to continue to do so. 11.20 In the Tribunal's view the trend is towards direct rather than physical auction systems; but it will take many years before traditional adherence of smaller producers to the physical auction selling system is lessened. It is somewhat speculative as to whether CALM will make substantial inroads into either the physical auction or the direct selling methods of sale of cattle, but certainly the agents' physical auction system is under pressure from this modern system. 57. 12. The Pastoral Houses and Independent Agents 12.1 The agents operating in Queensland consist of the Pastoral Houses and independent agents. The three largest - agents are the Pastoral Houses whose functions integrate wool broking, livestock agency, finance and merchandise operations. The Pastoral Houses also act as principal in some transactions; for example, in the case of Dalgetys, live meat export. The independent agents are more specialized, with an agency core which involves in most cases both livestock and real estate. Generally, independent agents are small operations employing not more than five people. The agents employ permanent and casual staff to perform tasks associated with the auctions and the provision of other services. 12.2 Of the two classes of agents (pastoral houses and independent agents) each class has certain generally defined characteristics which are distinct from the other, but there is some degree of overlap between the functions of independent agents and those of pastoral houses. 12.3 There are approximately 70 livestock agents in Queensland in addition to the Pastoral Houses. Some agents deal in merchandise or insurance or machinery, others do not. Some act as principal in financing clients, others do not. Others act as intermediaries to facilitate their clients raising firance with other financial institutions. Some 58. agents have operated for generations, usually as family firms; some are of recent origin; some result from amalgamations of more than one agency; others are joint ventures between local independent agents and a pastoral house, for example Dalgetys in Emerald. 12.4 The Pastoral Houses are large, long established organisations with some 164 branches throughout Queensland and with extensive capital resources. The branch network of the Pastoral Houses is very extensive and covers almost the whole of Queensland. Some branches are maintained in areas which private agents would regard as not viable. The Pastoral Houses actively finance their producer clients who remain loyal to them and who generally do not switch between pastoral houses or from pastoral houses to private agents. A large percentage of the producer clients of the pastoral houses are financed clients, who invariably sell their cattle through the Pastoral House as agent. In the case of Elders that percentage was in the region of 40-50%. Even when a sale is negotiated direct with a processor by a producer who is a client of a pastoral house if the client is financed by it, he will typically treat the pastoral house as if it had negotiated the sale and pay it the appropriate commission. There is, of course, a strong expectation of both a pastoral house and its financed producer clients that a pastoral house inevitably acts as agent for the sale of a financed producer's livestock. 59. 12.5 This factor Naturally gives the pastoral house a strong hold over a large section of the market. It supports the conclusion that the ability of processors to switch from purchasing at auction sales to paddock sales is somewhat limited because producers who are financed clients invariably | sell their livestock through the financing pastoral houses and therefore almost invariably at auction. However the deregulation of financial services in Australia has brought with it the development of new financial houses and new financial services, and this may undermine some of the long-standing financial ties in the future. 12.6 Agents operate at each regional saleyard centre. The agents do not all operate at each yard that is available. The agents operating at a particular saleyard compete amongst themselves and the levels of commission charged in the particular centres may reflect some variation, in consequence of the degree of rivalry between the agents at that centre. This rivalry has a flow over effect to a limited extent upon contiguous centres but not on long distant centres. 12.7 Independent agents operate generally in one regional centre where they rely upon their local identity to attract custom. They usually offer lower rates of commission than the Pastoral Houses and their own costs structures are generally much lower. Many independent agents are former employees of the Pastoral Houses who have set up their own independent businesses. Independent agents generally do not have access to finance in sufficient volume to enable them 60. effectively to compete for the larger clients who require large borrowings. They do, however, compete for smaller financed clients in various ways: sometimes by arranging overdrafts themselves and sometimes by introducing a_ client to an outside financier. 12.8 In recent years there has been a considerable rationalisation of pastoral houses and over the last twenty years the number operating in Queensland has reduced from eight to three, namely, Elders, Dalgetys and Primac. Other large pastoral houses; for example, Wesfarmers, exist outside Queensland. Between them the three Pastoral Houses dominate the agency functions throughout Queensland. Private agents may account for as little as 11-12% of the total market share (there is some difficulty in estimating their participation in paddock sales.) They account for some 23% of cattle sold at auction. The barriers to entry of a private agent are limited, but the barriers to entry of a pastoral house are so high as to make it unlikely that a new pastoral house will be established. 12.9 The Pastoral Houses have different origins and size. Primac is a listed company having started as a co-operative. It operates in Queensland and in northern New South Wales. Dalgetys is the result of mergers by established Pastoral House operations but without major industry diversification. It deals in export of live cattle, but has no production or Slaughter capability. Elders is a conglomerate with vertical integration by equity holdings, and subsidiaries within the 61. Elders group of companies which conduct feed lotting and meat processing operations. 12.10 Of the three Pastoral Houses Elders is the largest. Elders is also the most extensively vertically integrated of. the companies operating as pastoral houses. Its subsidiaries operate major export and domestic abattoirs and feedlots. Until recently it held 25% of the meat processor AMH which has a very substantial influence over the Queensland abattoir industry and which dominates. that industry in north Queensland. Recently Elders took its shareholding in AMH to 100%, thus giving Elders substantial strength in agency, processing and rural financing functions in north Queensland, as well as. reinforcing its considerable coverage over such functions in the rest of Queensland. Elders has influence over vast numbers of cattle by reason of its prominence as a financier which enables it to marshal the large sums of money required by such large-scale pastoral operations as Sherwin Pastoral and Coutts Bros. 12.11 The three Pastoral Houses are members of various saleyard associations which have existed for many years. Ownership of some local saleyards is vested in those associations. Of some 74 operational yards, 21 are owned by the Pastoral Houses, either jointly or singly. Private agents usually do not operate from these yards. 12.12 It is necessary in Queensland to be a _ licensed auctioneer to conduct an auction of cattle and to be a 62. licensed real estate agent to sell real estate. Pastoral Houses must have a pastoral house corporation licence and the person in charge of each branch must hold a Pastoral House Manager's licence. Auctioneers employed by a Pastoral House must have a Pastoral House Auctioneer's licence. 12.13 Differences between Pastoral Houses and independent agents include the fact that the former are exempt from certain State legislation including credit legislation and legislation requiring agents to keep trust accounts in respect of the proceeds of sales on behalf of clients. Pastoral Houses are not required by Queensland law to keep trust accounts. Other licensed agents are so required, and trust accounts" kept by "such other agents must be audited annually and are subject to four unannounced audit checks made each year. ' 13. Credit for Sale of Cattle. by Auction and the Del Credere Risk 13.1 Under the del credere facility existing within the Queensland pastoral industry the agent traditionally accepts the credit risk which flows from auction sales, so that in the event of default by a buyer the agent is still obliged to pay the vendor of cattle. The agent in effect guarantees" payment by the buyer, All sales through auction are on del credere terms. The value of the del credere facility to the agent is that when he sells at auction the law permits him to receive a higher commission than upon paddock sales in which the del credere risk is generally not accepted. 63. 13.2 The extension of credit is central to the proposed conduct which is the subject of this review. It is of considerable importance to the agent. First the agent's client, the seller, may wish to be paid soon after sale and. before the concessional trading period has expired. Second, in the event of default in payment by the purchaser the agent is still obliged, in consequence of his acceptance of the del credere risk, to pay the client if he has not already done so. In both cases the agent is out of pocket. In the case of default the agent is out of pocket for the gross sale amount on which he is earning commission of 5% or less. In the event of late payment, rather than default, the period for which the agent is out of pocket may be short or long depending upon the degree of lateness of payment. 13.3 As to the payment by agents to their clients of the proceeds of sale by auction, agents claim to generally pay when asked by their clients or at some early time after sale. Obviously agents seek to achieve at least "cash neutrality", keeping to a minimum the cost of the money necessary to fund earlier payments to clients consistent with honouring their obligations to their clients. The percentage of the interest cost to agents on outstanding moneys (where clients have been paid by the agent following an auction prior to payment by the purchaser) to the net profit of each particular agent's business varies. One agent who gave evidence to the Tribunal (Mr. Maguire) estimated his interest cost as 20% of his net profit on all agency activities. On the other hand, there 64. was evidence that it is possible to achieve a position in which the credit function actually contributes to an agent's working capital. 13.4 Many agents tend to pursue buyers who are slow to- make payment to the agent and many, but not all, agents' tend to delay payment to their clients, the sellers, as long as possible. Independent agents usually send their invoices to purchasers two to three days after the sale. Dalgetys and Primac send invoices within seven days; while Elders, which is the slowest of the Pastoral Houses in invoicing, sometimes takes two weeks to do so. As to payments to vendors, where financed clients are the vendors of cattle at auction, Elders credits the proceeds to the account of the clients from the day of sale whether funds are received from the purchaser or not. By contrast, Dalgetys credits the client's account with the sale proceeds 12 days after sale. The time taken by Pastoral Houses to pay their vendor clients varies from region to region. Certain clients of Pastoral Houses, if they are very large, have extra leverage, especially if they are not financially tied to the Pastoral Houses and can sell using another agent or another means of sale. In that case, it is mot unknown for the agent to give the client a percentage rebate on the total commission charged, the percentage rebated varying according to the strength of the client's buying position. 13.5 Normal terms of payment between meat processors and agents vary, but appear to be approximately 12 days from date 65. of sale. Normal terms are not cash at auction, which plainly is not a realistic option for the auction system in Queensland. There are various reasons why it would be impracticable for the payment of cash at auction to apply to processors, particularly the larger ones. One reason is that . live weight selling means that the actual price for the beast is not immediately documented. The sale is made by cents per kilogram and the cattle must be weighed before the actual monies owing can be ascertained. Another reason is that invoices must be checked as they are sometimes inaccurate as to quantity, weight or price per kilogram of cattle purchased. A further reason is that it is a condition of sale in Queensland, in both auction and direct sales, that the producer or his agent arranges for loading cattle on railway trucks for freighting to the purchaser and bears' the costs of 'such freight. It would be inappropriate and unreasonable for the purchaser to pay for cattle before they are trucked and the purchaser has fully discharged his obligations. 14. Selling Centres and Saleyards 14.1 A livestock selling centre is a set of saleyards used for the public auction of livestock including cattle, calves, sheep or pigs but excluding stud animals. Sometimes there is more than one saleyard in a selling centre. 14.2 The largest selling centres are heavily concentrated in south-east Queensland, although centres selling more than 66. 40,000 head per annum are also located at Rockhampton, Emerald, Townsville, Moura and Cloncurry. Of some 75 currently operational saleyards 66% are situated in southern Queensland, 25% in central Queensland and 9% in northern Queensland. 14.3 South-eastern Queensland contains 61% of the State's killing capacity, so that it dominates the field of abattoirs. Generally speaking, the location of saleyards is closely related to the locations of abattoirs, particularly in the larger selling centres. The majority of the larger saleyards are located in coastal regions so that many cattle must travel long distances to markets, particularly in northern Queensland. The trend is for western saleyard centres to lose their business to larger centres on or near the coast. That trend has been promoted by the Pastoral Houses. In recent years there has been a_ significant rationalization of saleyards, both a decline in numbers and an increase in the percentage of the business handled by the largest yards. 14.4 Toowoomba is the largest livestock sale centre in Queensland, but the saleyards there are owned by the Pastoral Houses which are the only agents permitted to sell there. Indeed, it is the invariable practice of the Pastoral Houses that where a yard is owned by them, either jointly or individually, no independent agent is permitted to sell there. The Pastoral Houses also operate extensively in saleyards owned by others. There are only 16 yards in which they are not represented. 67. 14.5 The Pastoral Houses tendered detailed statistics on ownership and operation of Queensland saleyards in 1987-88. Tables 1, 2 and 3 are drawn from these statistics. Table 1 relates the ownership of saleyards to their size. We note - that ownership of the largest yards is shared by the Pastoral Houses and various public boards. While independent agents operate almost as many yards as the Pastoral Houses, their yards are mostly very small. Table 2 displays some features of the largest 14 saleyards (handling over 40,000 head). These largest yards accounted for 71% all cattle sold at auction in that year. The number of operators in these large yards ranges from one (in the case of Primac and Elders owned yards) to 9, i.e. the three Pastoral Houses and six independent agents. Table 3 shows the market shares of the Pastoral Houses in relation to independents in the cattle auction business. Between them the three Pastoral Houses held 77% of the business; Elders is seen to lead the other two. TABLE 1 OWNERSHIP AND SIZE DISTRIBUTION OF CATTLE SALEYARDS QUEENSLAND, 1987-88 Ownership Annual Stock Throughput Small Medium Large All Yards 10,000 Over Over and 10,000 - 40,000 Under 40,000 Local Municipal Authority 15 8 2 25 Special Public Board 1 1 6 8 Pastoral House 10 5 6 21 Independent Agent 15 3 - 18 Show Society . 1 - - 1 Livestock & Meat Authority of Queensland (LMAQ) ~ - 1 i Totals 42 17 is 74 68. TABLE 2 OWNERS AND OPERATORS IN LARGE YARDS (over 40,000 head) Yard Toowoomba Roma Rockhampton Dalby Goondiwindi Emerald Warwick Townsville Murgon Ipswich Moura Cannon Hill (Brisbane } Oakey Cloncurry Total QUEENSLAND, 1987-88 Aggregate Stock Ownership No. of Operators Turnover Pastoral Independent Teta (Cattle) Houses Agents 319,581 Elders, Dalgety, Primac (separate 3 oO ° 3 yards ) 172,799 Public Board 3 3 6 161,496 Public Board 3 5 8 154,044 Public Board 3 5 8 93,731 Elders, Dalgety, Primac 3 0 3 93,483 Public Board 3 3 6 59,073 Local Municipality Authority 3 5 8 57,414 L.M.A.Q. 3 6 9 57,221 Local Municipality Authority 3 2 5 45,526 Primac 1 0 1 45,391 Elders 1 0 4 . 43,777 Metropolitan Regional Abbatoir _ 3 6 9 40,629 Primac 1 0 1 40,009 Local Municipal Authority 3 2 5 1,384,174 TABLE 3 Market Shares of Stock Agents in Queensland Cattle Auctions 1987 - 1988 '000 head & Elders 557.6 28.7 Primac 489.2 25.1 Dalgety 456.1 23.4 Independent Agents 444.2 22.8 1,947.1 100.0 69. 15. Meat Processors 15.1 Queensland meat processors are a powerful force in the Australian meat industry and buy the overwhelming - proportion of slaughter cattle in Queensland; one estimate was in the order of 88%. The minor purchasers include wholesale butchers, retail butchers and specialist meat processors. It is difficult to assess the percentage of cattle purchased by processors with reference to particular methods of sale; but it seems that a fair assessment is that meat processors buy approximately 40% to 45% of slaughtered cattle on a direct or private basis and the remaining 55% to 60% or thereabouts from public auction sales. Meat processors are also significant purchasers of store cattle at auction: approximately 10% of stores were said to be purchased by processors for fattening in feedlots. 15.2 More than 50% of all beef slaughtered by Queensland meat processors is exported, the remainder being sold on the domestic market. The particular distribution of sales between the domestic and export markets varies from processor to processor. For example, South Burnett Meat Works Co-Operative Association Limited ("South Burnett") slaughters approximately 80,000 head of cattle per year, the majority of which are then processed in a boning room on the site. About 50% of beef slaughtered by South Burnett is exported and the rest is sold on the domestic market. South Burnett purchases only about 30% of its livestock at auction sales, the remainder being bought by one or other form of direct sale. WV. 15.3 Slaughter facilities have declined slightly over the past four years so far as local works are concerned, but the number of licensed abattoirs has remained constant. There are approximately 226 firms which purchase livestock for slaughter in Queensland, the major ones being both meat exporters and slaughterers for local consumption. 15.4 If we put to one side the butchers and small specialist meat processors, there are currently four public abbatoirs and some 20 private operators. The 20 or so corporate organizations operate 39 licensed abbatoirs. The four public abbatoirs are located at Brisbane, Bundaberg, Ipswich and Toowoomba. Largest. by far of the private operators is A.M.H. Leaving aside its challenged and shortly to be dissolved acquisition of Borthwick, A.M.H. owns 9 plants of which 6 are currently in operation. Now that A.M.H. has been acquired by Elders, Beef City (a wholly-owned subsidiary of Elders) should be added to the group, so the position is that A.M.H.-Beef City owns 10 plants and operates 7. O£ the other large operators, Q.M.E. (Vesteys/Angliss) has two plants at Townsville and Rockhampton; Borthwick has two plants at Bowen and Mackay; Morex Meats has three plants at Grantham, Maryborough and Roma; and Teys Bros. have two plants at Biloela and Beenleigh. 15.5 The position of Borthwick needs to be explained. A.M.H. acquired Borthwick in January 1988. Following challenge by the Commission, the acquisition has been found Vi. to breach s. 50 of the Act, with the Full Court of the Federal Court in its judgment of 3 March 1989 affirming the orders of the trial Judge to this extent that A.M.H. "use its best endeavours to dispose of all the issued shares in Thomas Borthwick & Sons (Australasia) Limited to a suitable purchaser ..." or procure "the disposal by Thomas Borthwick «& Sons (Australasia) Limited of the two abbatoirs cwned by that company and situate respectively at Bowen and at Mackay to one or more suitable purchasers". 15.6 The Commission tendered to the Tribunal a table based on data provided by the Livestock and Meat Authority of Queensland ("LMAQ") tabulating the market shares of Queensland abbatoir operators for 1987. From it we draw the summary statistics presented in Table 4. TABLE 4 ABBATOIR MARKET SHARES QUEENSLAND 1987 Cattle Capacity Cattle Slaughter '000 g 000 3 head head ~ A.M.H. and Beef City 1272.0 713.3 Q.M.E. 300.0 248.0 Morex 276.0 221.6 Borthwick 219.9 195.2 Teys 215.7 160.6 Top 5 2283.6 67.6 1538.7 65.1 4 public abbatoirs 276.9 8.2 244.7 10.4 Remaining abbatoirs 818.2 24.2 579.3 24.5 3378.7 100.0 2362.7 100.0 72. 15.7 A meat processor who seeks to establish a Queensland operation must apply to LMAQ for a licence. The licence fee is nominal. The meat processor must lodge copies of specifications or plans for the proposed meatworks together | with a copy of an approval for the proposed site by the applicable local authority, and must lodge a submission detailing its proposal in general terms. Domestic abattoirs must satisfy the requirements of the Australian Code of Practice in respect of the construction and equipment of the abattoir. Export abattoirs must satisfy the requirements of the Commonwealth Construction and Equipment Guidelines for Export Meat. Applications are decided on merit. Since 1981 LMAQ has had a policy to restrict the expansion of slaughtering capacity in Queensland. But in 1987 that policy was relaxed. 15.8 The evidence on other barriers to entry for meat processors was limited. Nevertheless it is clear enough that the establishment of an abbatoir of viable size is by no means easy. For a medium-sized abbatoir, processing 50-75,000 head per year, the barriers to entry would include construction and establishment costs of at least $10m-$15m. This would be the minimum technical size for an abbatoir with some export business. The non-operational abbatoirs who might be thought to offer an opportunity for a new entrant are poorly located. However the public abbatoirs do offer a service kill facility. The barriers to entry of a_ small scale butcher are low, but the role played by them is not 73. significant in terms of the overall market for slaughter cattle. 16. Identification of the Relevant Market 16.1 In final submissions, counsel offered two quite different definitions of the relevant market: . the service of arranging and effecting sales of livestock over a wide geographic area, extending beyond Queensland; . the provision of agency services in the sale of livestock by auction in Queensland. 16.2 The t'ide formulation was that of the Pastoral Houses, the narrow that of the Meat Processors (adopting the definition proposed by their expert economist Dr. Williams). 16.3 In our opinion, the relevant market is most usefully described as the provision of marketing services for cattle in Queensland. As is often said, "the market" is an instrumental concept, designed to assist in the analysis of processes of competition and sources of market power. In this case, it is this specification of the market that best enables us to evaluate the claimed benefits and detriments associated with the applications before us. 16.4 The applications by the Pastoral Houses concern the extension of credit to purchasers of cattle for slaughter 74, from Queensland auction yards. The conduct the subject of the applications is in narrow compass: it is one aspect of the services supplied by stock and station agents in the sale of livestock. Yet the broad sweep of activity in which this conduct takes place is the transfer of cattle from producer. to processor within Queensland. We are of the opinion that there is no range of activity, narrower than this, that could serve aS an appropriate definition of the market. 16.5 Turning first to the product market, it is clear that the minimum we need to consider is the whole range of services supplied by stock and station agents: agents compete by supplying packages of related services in the sale both of store and fat cattle. It is also clear that the Pastoral Houses and the independents are, both in law and economic reality, "agents" of the producers: 'they act for the producers only so long as their package of services is sufficiently attractive to dissuade producers from acting for themselves, as with direct sales; or from seeking out alternative specialized suppliers' of elements of the agency package, such as finance (from specialized financial institutions) or the auction function (e.g. CALM), or risk-bearing (e.g. insurance). This suggests that we should include within the one market the substitute services for the agents' services in buying and selling cattle. 16.6 The Meat Processors submitted, however, that there is limited substitutability between selling at auction and direct sales. They cited the evidence, which we have 75. reviewed, that producers are unable to by-pass the auction system, simply by reason of the relative availability of stock. They pointed to the small producers' adherence to the system, for a variety of reasons, as we have discussed. Finally, Dr. Williams argued that "the fact that the Pastoral Houses have applied for authorization for the Accreditation Rules over the vigorous opposition of the processors is a clear indication that they do not regard the processors as free to desert the auction system for direct sales. If they did consider the processors to possess the ability to switch, the Pastoral Houses would have more to lose than gain by the present application and would not therefore be pursuing it". It is an argument based upon the Pastoral Houses' "rationality" and knowledge of the competition. 16.7 We think there is some force in these contentions, but only to a degree. In our view, the agency selling function at auction does possess market power. But we also find that there are sufficient constraints upon the agents' collective discretionary power to warrant the wider market definition. In a case like the present there is an element of judgment involved. Dr. Williams conceded that, even with the narrower market definition, we should still need to take into account substitution from direct sales. Moreover, ~ granted that there are areas of protected trade currently in existence, there are nevertheless pressures that arise from competition at the margin of substitution, and these pressures count in forming the business policies of the Pastoral Houses and processors. 76. 16.8 There is a further consideration. Interacting with the Pastoral Houses' traditional modes of business and long-standing clientele are forces making for change including: -~ . the electronics revolution, impinging upon. information services, transactions processing, accounting and management functions; . the deregulation of markets, and the development of new financial institutions and an increased export orientation; . the rationalization of physical establishments,. i.e. of the abbatoirs and the saleyards; . the changing enterprise structure within the cattle producing and marketing industries; and finally, . what is, for the Pastoral Houses, a very new world of business conduct regulated by a strong competition statute. 16.9 We ourselves have been unable to understand the Pastoral Houses business policies, and to analyse their effects, without examining them within the wider market setting. As to Dr. William's contention regarding the "rationality" of the Pastoral Houses in making their 77. applications, in the view we have formed (as will appear below) the Pastoral Houses' motives may well be somewhat mixed, designed to secure a number of advantages in an uncertain and changing world. 16.10 It is plain that, currently, the Pastoral Houses are overall subject to stronger competition from direct sales than they are from the independent agents. We have concluded that a clearer view of the relevant processes of competition at work is to be obtained by taking the Pastoral Houses as our central focus, seeking to identify the close substitutes for their services and thus the effective constraints upon their market power if they were to attempt to adopt a co-operative stance, one to another. 16.11 The geographic market is, broadly speaking, Queensland. However, a narrower specification of the geographic market is required. Since the market for the sale of cattle does not conform strictly to State boundaries, there are in fact three areas of interest: (a) northern Queensland and the eastern or Berkeley Tablelands section of the Northern Territory; (b) central Queensland; and (c) southern Queensland and part of northern NSW. The areas are characterised by strongly differentiated regional centres which bear many of the characteristics of sub-markets. For example, Northern Queensland is a good breeding region for females. Central Queensland is a good fattening area which provides large numbers of bullocks. As we have said, most of the movemert of fat cattle is from the west to the eastern 78. saleyards and abbatoirs. But the movement of stores and breeders is throughout Queensland and beyond. 16.12 When we refer to the geographic market being Queensland we include all these areas in that description. . It must also be borne in mind that there are national operators among producers, agents and purchasers including processors whose decisions on sale or purchase cross State boundaries. There are also variances between coastal operations and inland operations. The product of Northern Queensland operations is principally exported, mainly to the United States, although a small amount of domestic demand is also satisfied from that region. The large part of the domestic demand in North Queensland is satisfied by the product of beef processing operations in the southern parts of Queensland. This is indicative of the limited extent to which North Queensland beef is regarded as being suitable for domestic use. 16.13 A very important reason for considering the geographic scope of the market to be Queensland is simply that the Accreditation Rules and associated QSSA would operate throughout Queensland. Moreover the Auctioneers and Agents Act 1971 governing licensing, commission rates and trust accounts is a Queensland statute. Within the bounds of Queensland the principal participants in the industry have multiple plants and multiple branches - the processors, the Pastoral Houses, even the big producers who co-ordinate the activities of a number of properties within the State and beyond. 79. 16.14 Within the Queensland market we distinguish a series of significant sub-markets: these are the local saleyards - large centres such as Toowoomba and Rockhampton, and small centres such as Gin Gin and Charleville. To some extent . their catchments may overlap but only to some extent. While the Pastoral Houses and processors may formulate their buying and selling strategies on a Queensland-wide basis, they are implemented to a considerable extent in these local markets subject to their own competitive influences. 17. Market Structure and Competitive Behaviour 17.1 We preface our assessment of claimed benefits and anti-competitive detriments by highlighting the important elements of market structure and competitive behaviour. The elements of market structure can be presented in summary form, drawing together the previous detailed account:- 1. The Pastoral Houses account for approximately 77% of the cattle sold at auction in Queensland; they have a still higher share of total cattle sales handled by agents; they are protected by very high barriers to entry due to their characteristic style of business involving multiple branches and multiple services. See Table 5 below. 80. TABLE 5 JOHN DEE (EXPORTS) Summary of Market Shares of Cattle Sales at Queensland Auctions Elders Dalgety Primac Independent Total 1985/86 Raw 496,464 342,527 426,665 467,868 1,733,524 % share of total market 28.639 19.759 24.613 26.989 100 1986/87 Raw 575,655 432,959 506,728 473.362 1,988,704 % share of total market 28.946 22.771 25.480 23,803 100 1987/88 Raw $57,625 456,094 489,167 444,239 1,947,125 % share of 28.638 23.424 25.126 22.815 100 total market The Pastoral Houses have a history of co-operation in QLPPBA, an association whose origins date back to the - 1890's. That co-operation has included the establishment of a credit bureau for exchange of transactions and payments information; and, in addition, the joint enforcement of credit terms through Rules 5 and 6 of Schedule G. Authorization of Rules 5 and 6 was refused by the Commission in 1981 but the credit bureau remains. The top five meat processors, treating Borthwick as independent of AMH, account for approximately two-thirds of abbatoir slaughter. AMH with Beef City is by far the largest processor, processing some 30% of abbatoir turnover in seven plants. Barriers to entry to this activity are somewhat high. 81. Elders is the largest and strongest of the Pastoral Houses, a member of a world-wide conglomerate enterprise. Its recent acquisition of AMH has strengthened greatly its vertical links in the pastoral - industry. It now accounts for almost 30% of the cattle sold at auction in Queensland and 30% of meat processing in abbatoirs. There are approximately 70 quite small stock and station agents. The numbers of competing agencies in any one saleyards centre is never greater than eight (Rockhampton, Dalby, Warwick) or nine (Townsville, Cannon Hill). Where the Pastoral Houses own a yard, it is their practice to refuse the independent agents access to it. However, there are some important yards owned by Public Boards. The physical auction system must compete against paddock sales, especially direct sales, and the new electronic market system, CALM. The larger producers favour direct purchasing, but the smaller producers are very dependent upon the auction system. The firms in the market are subject to significant reg: ation. Queensland legislation, including the . Auctioneers and Agents Act 1971 and the Auctioneers and Agents Regulations 1986, requires agents, other than Pastoral Houses, to keep the proceeds of sales in trust accounts; and sets the maximum agent's commission for sale of cattle - 5% for auction sales, and $20 plus 2.5%. of such part of the gross proceeds as exceeds $400 for paddock sales. 10. The traditional agency function and mode of operation has been protected by the conservative attitudes and personal loyalties of its clientele. 17.2 In our view the Pastoral Houses, when, or if acting together would, enjoy significant market power. This finding is supported both by the evidence on market structure just summarised and the evidence on market conduct which we shall shortly note. 17.3 The bases of that market power are to be found in the Pastoral Houses' distinctive services, including:- . the financing of clients; . their ownership of some of the most important auction centres; . their combined share of sales made at auction and also of paddock sales made with the assistance of agents; . the high barriers to entry of a new pastoral house; . the Pastoral Houses' friendly association in the QLPPBA over many years; 83. . the Pastoral Houses' understanding of each other's competitive strategies and traditional prac*ices; . and in the ties of loyalty and finance that bind many clients to the Pastoral Houses. 17.4 But the Pastoral Houses' discretionary power is also subject to significant constraints: . first, their vulnerability, to some degree, to alternative marketing modes, enhanced by the technological and institutional forces making for change; . second, the countervailing strength of the meat processors seeking to exploit to the maximum the alterratives available to them, no doubt pressured in turn by the demands of the export trade; and finally, . the regulatory environment, especially the setting of maximum rates of commission. 17.5 We are conscious that the present contest in the Tribunal between the Pastoral Houses and the Meat Processors, as to whether the Accreditation Rules should be authorized, is one expression of their strategic battle for position in an area of the economy, indeed of the international economy, subject to pressures for change. 17.6 It is unnecessary to attempt any comprehensive account of current competitive behaviour. Rather, we isolate three patterns of market behaviour that are of assistance in evaluating the applications before us. Ba. 17.7 The first is the limited competition that exists in commission rates at auction. There is very little variation in the rates charged by the Pastoral Houses which are normally set at the maximum or close to it, namely, at 5% or | 4.5%. That in itself need not signify a lack of competition. But the evidence on rates has two further striking features. First, the independent agents often charge lower rates than the Pastoral Houses, ranging as low as 2.5% (or even 2% in one case). Second, the rates of the Pastoral Houses give way to strong competition with independent agents in a few of the large centres. It was generally agreed that Rockhampton is the most competitive centre, with five independent agents with approximately 48% of the business in 1987-88 competing strongly against the Pastoral Houses (see Table 2). Here the independent agents' commission rates range from 2.5-3.5%; Elders and Primac charge 3.5%; and Dalgetys uses a_ sliding scale (according to size of the beast). When the Dalgety's representative was asked why the firm used the distinctive sliding scale at Rockhampton he replied: "We put that in at Rockhampton some years ago; (a) we wanted to trial it and (b) Rockhampton is a very competitive centre for commission rates and direct sales and we thought it would be attractive there but we have not decided to extend it to any other centres." Warwick exhibits a similar pattern of competition. However it is also the case that the Pastoral Houses' rates are shaded at Toowoomba, the largest saleyards of all, in which they themselves are the sole operators. 85. 17.8 The second notable feature of market behaviour is the reliance by the Pastoral Houses upon traditional methods of keeping records and techniques of managerial control. There is very limited use of information generated by computers; . and much scanning of manual records, for example of payment patterns and cash flow. The Pastoral Houses still seem to rely upon general impressions and relationships kept "in my head". Such an old-fashioned and uninformed approach is not indicative of much competitive pressure. However, we were assured that the situation is changing. For example, Mr. Roberts, the General Manager of Elders Pastoral Queensland, was asked by the Tribunal why the Pastoral Houses were looking for special protection not available to other major areas of Australian business. He replied: ",.. there is alot of money involved, a huge amount of money changing hands. One processor getting into difficulties could cause hardship right throughout the industry, certainly to us, to a selling agent and to the producers." Q. "I accept there is a lot cf money and one of the things that has worried me not only with yourself but with other witnesses is that you are not up to date technologically in relation to feeding information that would be a more worthwhile management tool?" A. "Well, that updating has all but been completed in our organisation and I could suggest to you that we will be very very much up to date technologically in that respect i ane 17.9 The third feature of which we have been made aware is the close association that has been enjoyed by the Pastoral Houses in QLPPBA, and the opportunities afforded for 86. "arrangements and understandings" of the classic type as analyzed by Fisher J. in Trade Practices Commission v Nicholas Enterprises Pty. Ltd. & Ors. (1979) ATPR 40-126, with the three requirements of "communication", "expectation" and "obligation". Counsel for the Meat Processors submitted. that there has been "extensive and continuous collusion". The Pastoral Houses denied this, saying in particular, that since 1981) the enforcement of credit terms, in themselves uniform in character, has been a matter for individual decision. As we have said, we prefer to reach no concluded view on this question. We do note, however, the opportunites and temptations in the past that should be avoided, if possible, in the future. 18. Assessment of Claimed Benefit and Findings on Détriment, Bad Debts and Credit Control 18.1 The applications were predicated upon three distinctive features of the extension of credit by stock agents for the purchase of fat cattle at auction: (a) that the agent assumes the del credere risk; (b) that fat cattle are a perishable commodity; and (c) that the size of the debt is high in relation to the dollar value of the gross commission received. In effect, the Tribunal was invited to infer that this was a high risk industry for which, therefore, special credit procedures. would be appropriate. However the evidence is to the contrary. 87. 18.2 Bad debts among major processors are extremely rare. The evidence suggests that there is no relevant difference between the level of bad debts among major and minor operators, the level of risk to the agent being very low for both categories of purchaser. The industry is historically a. low risk one and there is no reason to fear a collapse when there have been so very few over many years. The large processors generally appear to pay quite promptly. 18.3 The bad debt problem posed for Dalgety by meat processors is miniscule: in 1988, for instance, a turnover in excess of $10m was accompanied by no bad debts whatsoever. Mr. Hughes, Assistant Manager, Queensland Dalgety Winchombe FGC, responded that "the risk is always there when you are dealing with a perishable commodity"; yet no analysis of the incidence of slow payments and of bad debts for fat cattle appears to have been undertaken. 18.4 There was evidence that Elders' bad debt incidence is .00003% in relation to turnover of fat cattle, an extremely low incidence of bad debts. Even relating the figure to gross commissions (say, of 5%), as was submitted was the proper comparison, the bad debt incidence is .0006, still an extremely low ratio. Indeed, it is difficult to imagine a_ lower bad debt level in any business. It also appears that Elders' credit problems with meat processors are virtually non-existent. On the other hand, the problem represented to Elders by defaults of store cattle buyers is vastly greater. So far as Flders is concerned, there is a much higher rate of 88. bad debts in rural merchandise accounts and rural finance accounts than in sales at auction to meat processors. Yet, Elders has never adopted the practice in Queensland of offering discounts for prompt payment of accounts to purchasers of livestock at auction, although it has done sO. in the past with merchandising accounts. 18.5 Bad and doubtful debts represent a very low percentage of the total income generated for Primac from sales to meat processors. It was conceded by Mr. Ingram, the Manager - Rural Finance of Primac, that Primac's credit control procedures in relation to farmers and other non-processor buyers were inadequate. Notwithstanding this, Primac does not find it necessary to extract securities for payment frem those classes of buyers. 18.6 Witness after witness had difficulty in recalling a default, other than Anderson's in the 1960s. 18.7 At store sales the credit risks are greater than at auction sales of fat cattle because such auctions are attended by more producers and small buyers and the auctioneer may not know all the buyers at such an auction. By contrast there are only some 20 meat processors (plus_ the wholesale and retail butchers) to monitor in Queensland as a whole. Mr. Knox, the independent agent from Dalby, said that he would have to watch about ten major meatworks. 89. 18.8 A striking feature of the evidence is the failure of the Pastoral Houses to investigate, let alone use, common techniques of risk management such as credit insurance, credit reporting services, cash discounts for prompt payments and even the analysis of specific categories of debt, in. particular, the isolation of figures relating to fat cattle. It was submitted to us that credit insurance would be unduly expensive, especially for an independent agent. While this may be true, it is relevant that CALM offers insurance to vendors at a charge of 0.75%, but very few agents take advantage of the service. Confidential figures indicate that CALM is in a position to make a profit on the price it pays for this cover, so doubtless a pastoral house could negotiate a similarly attractive rate as CALM pays to its insurance company. What this suggests is that such a low rate would not be worth while to a pastoral house, perhaps because it is a sufficiently large enterprise to self-insure, in effect, by averaging any risks. . 18.9 While the small independent agents might be expected to have a greater problem, the evidence is that this is mainly by reason of a smaller financial capacity te kerr any risks that might be there. Mr. Knox explained how he would make inquiries regarding an unknown purchaser ("fresh _ blood"), perhaps obtain credit references or a cheque in advance. If there were any doubt he would not let the cattle go until he felt confident of payment. In any event, he said, meat processors as a group are "good payers". Mr. Maguire, a very small private agent operating in the rich 90. area of Emerald, has been ten years in business and has never had a bad debt. 18.10 Mr. Savage, Stock and Station Agent, from Rockhampton gave evidence as follows, first in response to questions from. the Tribunal: "Why are you so keen on having this system introduced? You obviously are very keen. Why are you so keen on it? --- I recognise my vulnerability. It is a high turnover industry. Four times in the last two years my company has turned over $1 million in eight days, and that is dangerous. It is dangerous. eee I would comment, your Honour, that the industry has a low risk factor at present historically and by tradition, the element of risk has not been there. It is not an industry where there are a lot of failures. This court - we can only go back, what 20 years, the last Queensland meat works failure that, believe me, a lot of money and a lot of water has gone under the bridge since then. It is not an industry fraught with failures. It is not like selling used cars or something. It is - we are dealing with fairly substantial and honourable customers generally." Then in response to questions from counsel: ",.. it is not the large processors that are the problem, it is more of the wholesale butcher type processor. Some of them are a bit skinny ... eee "And the small butchers? -~- No, the small butcher is not a - he is the other end of the scale. A small butcher who is actually pushing the knife, who owns his own shop and such like, not many of them fail to pay for their cattle, because they know that with no - with no cattle, no meat, no customer, no money and they are pretty aware of that. gl. So it is reallv the category of cattle slaughterer who you would describe as wholesale butchers that you are really worried about? --- Yes. It is a low risk industry, let us get that over. Yes? --- But it is not a no risk industry and the risk is compounded by the fact that there are so many selling centres in Queensland and you do not know what is going on; you do not know what' the purchasers of that slow payer is and what his indebtedness is state-wide. ... So what you really want is that information? --- I want to be a member of a team and know what is going on. But that is not the whole reason I want to be a member of the team. This case so far, and our learned friend's questionings have all been at une aspect of the case. We as agents have no input at all, none at all in the industry, we have no say ...!" 18.11 In our opinion, the Pastoral Houses do not in fact perceive the primary function or purpose of the proposed system of accreditation of purchasers of livestock for slaughter as being the containment of credit risk. In our opinion the provision of bonds or guarantee. und the threat or even possibility that the processors would be placed on cash terms if they do not comply with concessional trading terms or provide security has little, if anything, to do with any present or prospective problem of bad, or doubtful, debts. 18.12 In our opinion, the Pastoral Houses wish to have bonds and other securities to secure quicker payment by - processors for cattle purchased for slaughter at auction. The ultimate aim of the Pastoral Houses in this is plainly to lessen the time which processors are allowed for payment. No doubt, this would be of benefit to them. However, in our opinion it has not been established - and indeed, there was 92. no attempt to establish ~ that there is any real case for granting authorization for this purpose. 18.13 In our opinion, the scheme as a whole would be of advantage to the Pastoral Houses in a number of ways (see. below, para. 20.1, 20.4, 20.14, 21.7). These advantages do not give rise to benefit to the public; on the contrary, they give rise to anti-competitive detriment. 18.14 In the Tribunal's view, the very low level of bad debts incurred by agents in the sale of livestock for slaughter at auction does not warrant an extensive accreditation or credit control procedure. Any business carries a certain amount of credit risk. Any prudent business person will not do business with slow payers, and will obtain bank references or trade references for any new customer. These courses of action are perfectly open to agents. There is, in our view, no justification and no need for requiring meat processors to put up security bonds or guarantees or provide financial statements where that requirement is sought to be enforced by the common action of agents through QSAA. 18.15 The obvious answer from the evidence is that if an agent does business with a buyer whom he is aware has a doubt ful credit record, he does so at his own risk. Some limited credit risk is a normal part of running any business. In addition, there is this special characteristic of this industry, that it is part of the stock agent's function to 93. take the del credere risk. For this, the Pastoral Houses are adequately rewarded. 19. Likely Operation of the Proposed System of Accreditation 19.1 Experience of the operation of Schedule G in Queensland before 1981 and experience thereafter (whether pursuant to Schedule G or not) leads us to conclude that the likely result of the operation of the proposed new system for which authorization is sought is that buyers will be virtually compelled to keep within concessional trading terms under threat of being "put on cash". This threat means that a buyer is unable to take delivery of his cattle until payment is made. Moreover, a member of QSAA is in practice likely t6 be bound to trade on cash a buyer whose accreditation has been withdrawn, notwithstanding his apparent freedom of choice under the terms of the latest version of proposed Rule 6. A member of QSAA who trades a non-accredited person on credit will be deprived of access to QSAA's guarantees or other securities. The proposed system is designed to encourage members to adhere to the concessional trading arrangements. It is therefore likely that a non-accredited person will not be traded by members of QSAA except for cash. 19.2 The evidence before us about present experiences in New South Wales and Victoria also points strongly to the conclusion that any recommendations by QSAA and its Council 94, and other bodies would almost invariably be adhered to by the Pastoral Houses and independent agents. 19.3 It is likely that in practice the Accreditation Committee would act for the purpose of ensuring that members of QSAA adopted the same approach to a livestock buyer who is not accredited. The reason is plain enough, namely, that for a system of the kind proposed to achieve success, there must be total or almost total compliance with such system. Without that degree of compliance, agents considering whether or not to comply would be worried that another agent would trade a particular buyer,. thereby obtaining a competitive advantage over agents who complied with the QSAA recommendation. Most agents would want to be in the position of being assured that nobody else will deal with the particulaz buyer before they make their own decisions. In New South Wales and victoria, members of the relevant industry bodies of agents presently operating are reminded from time to time that they should comply with recommendations of the Accreditation Committee and efforts are made to ensure compliance. It is plain that to work the proposed system must have at least a high level of persuasive authority amounting to effective compulsion of members of QSAA. 19.4 Although one of the arguments in favour of authorization is said to be that it would increase the flow of information to members of QSAA about the credit of buyers including processors, past experience in New South Wales and 95. Victoria does not support this proposition. The main item of communication to members is a recommendation as to whether or not to trade a buyer as accredited. Credit details are generally not given to members. We doubt if this position would change in practice if authorization were granted in. this case. 19.5 Indeed, the Livestock Agents Bureau was in operation in Queensland before the issue of granting authorization to the QLPPBA came before the Commission. It was then possible for agents, be they private or the Pastoral Houses, to hear quite quickly if the Bureau thought a particular buyer was a bad risk and agents could then make their own decisions about whether they took the bid. That 'process also conveyed minimal information as to the credit of particular buyers. ~, 19.6 By way of comparison, it is useful to refer to the system of credit control presently operating in New South Wales under the auspices of SSAA. Under that system random checks are made of the payment patterns of buyers selected. Also, particular checks are conducted when the random investigation reveals matters of particular concern. About 15 random checks take place each month, and about 25-30 checks of targeted processors. The random checks are conducted because the Accreditation Committee of SSAA does not trust "deemed" accreditations, being accreditations of buyers who had been accredited under previous systems of credit control. Random selections are made only of processors whose accreditations have not yet been scrutinised 96. by the Committee. Rut the Accreditation Committee of SSAA has never used or even considered using the kind of external credit information that may be available from a credit bureau. Information is sought from financial statements and no private credit agencies are used. In our view, the. evidence indicates that the credit intelligence which is in the possession of the Accreditation Committee of SSAA is such that very little worthwhile information is collected, let alone disseminated to agents who may enquire about the credit rating of a particular buyer or prospective buyer. 19.7 When it is remembered that the amount owing to agents upon purchases by processors, especially large processors, can reach extremely large figures within a period of two weeks of trading, we strongly doubt if the proposed system would in fact result in an effective credit checking of the processors concerned. To be effective, credit checks would have to be very frequently conducted, and information would have to be sought from varied sources having real knowledge of the affairs of the processor 'concerned, not merely from financial statements such as published accounts. This would necessarily require that the credit information system regularly obtained up to date information about the financial standing and ability of the particular processor, in particular about its liquidity. We strongly doubt if the system for which authorization is presently sought would be able to work in this way. Indeed, it would be likely to work much the same as it does in New South Wales at present under SSAA, which on the evidence before us appears to be neither 97. an effective credit checking system nor an effective credit reference system. 19.8 The experience in the various eastern States suggests plainly to us that if authorization were granted individual agents would not receive useful credit information of the kind required to enable them to make sensible judgements about how to deal with buyers of livestock. All they are likely to receive is some form of stipulation from the Accreditation Committee or other body of the QSAA to the effect that particular identified buyers are to be treated as cash buyers or that consideration should be given by members to so treating them. The scheme would provide few, if any, of the benefits of a credit information system. In the Tribunal's view, the proposed system would really be in the nature of a compulsory credit restriction system. 19.9 In the case of a possible bad risk, it is likely that this information would in fact only be received after the damage had already been done. An example of the failure of the previous systems of credit control adopted in the eastern States to deal sufficiently promptly with the risk of failure when that risk is in fact a real one is provided by the failure of Andersons in the 1960's. Andersons was a meat processor which engaged in the slaughtering and exporting of beef on a large scale. It suffered severe financial difficulty in 1967. Schedule G was operating at that time, but it did not prevent losses to the agents when Andersons went into receivership in 1967. It collapsed because it 98. continued to buy whilst credit was available. It is likely that credit would not in fact have been stopped through the availability of more credit information. There were strong rumours before Andersons collapsed about its financial stability, but agents continued to sell cattle to Andersons | at auction in large numbers. Andersons was paying over the perceived market price for cattle and the Pastoral Houses supported the company in its purchases by allowing it continued credit 19.10 It is also plain that "the bush telegraph" generally spreads the word very quickly if a meat processor is in default or has a liquidity problem. Most agents would not knowingly allow another agent to sell cattle to a meat processor whe is in default. There is little doubt that market intelligence between agents is quite reliable and they hear quickly enough about a purchaser whose financial standing is in doubt. If one of the Pastoral Houses or other agents put a purchaser, whether a processor or not, on cash terms, the word would spread through the industry quickly. To use the words of Mr. Roberts of Elders: "The industry has the best grapevine of any industry". Probably this intelligence spreads within a district rather than over a whole State. 20. Analysis of Effects 20.1 We have found that the proposed system of bonding and accreditation is largely directed to securing quicker payment 99. by processors for cattle purchased for slaughter at auction. It is thus appropriately described as a (temporal) credit restriction system. We have also found that it is likely that it would be in practice a compulsory system, one in which all, or almost all, members would accept recommendations from QSAA as binding them to comply with such recommendations. These are the two key features of the proposed system. We here examine the implications of these features for the generation of benefit and detriment to the public. 20.2 We have also found that the system is likely to generate little useful information or make any significant contribution to the containment of credit risk. Nevertheless we shall examine more closely what might be the implications for benefit and detriment to the public were the system to enjoy some limited success in this regard. 20.3 Upon this closer analysis we find the effects of the proposed system not to be appropriately described as benefits to the public; rather they constitute anti-competitive detriment, as the following demonstrates: 20.4 A collective system of credit restriction is, in essence, a concealed price rise. The Pastoral Houses' | working capital position would be enhanced, that of meat processors diminished. The Pastoral Houses' receipts, unlike those of the private agents, are not required to be segregated in trust accounts. Thus a shortening of credit wv"? terms would improve the Pastoral Houses' cash flow. While there is little competition as to rates between the Pastoral Houses, their rates are subject to price control, i.e. they are held to a maximum of 5%. Thus, the restriction on credit could be expected to have a similar impact upon profitability to a price rise. 20.5 The independence of agents who join QSSA might well be undermined. Certainly we predict this happening in the collective enforcement of uniform credit terms. We think, however, that the effect upon the private agent's capacity for independent decision-making and competitive pressure upon the Pastoral Houses might be more generally inhibited. As we have seen, it is the private agents that presently offer competition as to rates. It is desirable, too, that in the future thé private agents not be shackled in their capacity for independent assessment and response to the dynamic forces operating about their industry. 20.6 It was submitted that there is public benefit in the creation of an industry-wide trade association to secure the more effective representation of the interests of livestock agents in Queensland. Perhaps s0. But there is no connection between the establishment of this elaborate bonding and accreditation system and the establishment of a useful trade association. Moreover, if there be any merit in the creation of a specialised credit bureau to monitor credit information relating to purchases of cattle, such a bureau would be better operated by independent professional people, 101. in possession of anpropriate technical expertise and the capacity to guarantee confidentiality. 20.7 It was submitted by counsel for the Meat Processors that in essential respects the new system would operate to. reinstate the old, so far as the Pastoral Houses are concerned. One of the reasons, indeed, given by the Pastoral Houses for proposing the new system was, as expressed in the affidavit of one of the exeuctives, that there is "uncertainty as to the legality of the existing bonding system". Granted that the new system has some significant differences from the old, namely, in its coverage of the independent agents, its wider information network, its appeal system and its nominal "voluntary" character; it is still the case that it shackles the Pastoral Houses' own independent capacity for competition, whatever that be - both now and in the future. One example of how that might operate is the inhibitions placed upon each Pastoral Houses' capacity to develop an independent strategy in response to forces making for change. Another would be the removal of some of the incentives to efficiency in the conduct of their widespread netowrk. To give one pertinent example, the evidence establishes that it is common for the Pastoral Houses to be slow in despatching invoices to purchasers. Elders in particular has a reputation in the industry for the slow delivery of invoices. The average time taken by the Pastoral Houses to despatch invoices to purchasers appears to be about 7 or 8 days after sale, but delays of up to 14 days are not uncommon This particular system would tend to encourage the i0c, making of commercially unjustifiable demands upon buyers and would at the same time insulate agents from normal consequences of any inefficiency in their systems in relation to the rendering of invoices and requiring of payment for goods sold at auction. 20.8 More generally, we have written above of the opportunities and temptations for collusion associated with the existence of the credit bureau of QLPPBA. The authorization of this system would enhance such opportunities and temptations. 20.9 It was submitted to the Tribunal by counsel for the Pastoral Houses that there is a "public benefit in maintaining a strong adversary system to direct dealing in the auction system so that producers and in particular small to medium sized producers have effective choices as to the means by which they deal with meat processors. The physical auction system is the most robust competitor presently available to direct selling, as well as constituting the dominant market indicator. For the auction system to remain viable and vigorous, there must obviously be confidence in the system". 20.10 In a broadly competitive market setting, the strengthening of the physical auction system vis a vis direct selling, and other marketing modes, might well be thought to benefit the public. Producers and processors, alike, would freely choose between alternative marketing modes. However that is not the case here. We have found that the Pastoral Houses, when acting jointly, do possess significant market 1V5. power; and that this would be enhanced by many independent agents' uniform adherence, in practice, to the recommendations of the Accreditation Committee and Executive. Further, the Accreditation Rules would be imposed by collective means upon reluctant meat processors unable or unwilling to avoid substantial use of the physical auction system. There is no sense in which it might be said that the accreditation system would foster effective competition. 20.11 Meat processors are strong buyers. But to strengthen the position of the Pastoral Houses by authorization of the accreditation system is little more than to permit them to exercise their market power to change uniform and restricted credit terms, and to shift the costs of risk-bearing to the processors. 20.12 We have concluded that the system is unlikely to diminish the incidence of del credere risk through improved information. Rather, the system would shift the cost of that risk to meat processors as a group, compelling most of them to furnish securities and guarantees. Calculations were placed before us of the implications for working capital costs of the processors. We accept that there would be Significant costs. In our opinion they are unnecesary, in that the risks are not great and there are alternative | techniques of risk management available, such as the exercise of care and prudence on the part of stock agents. In our view they are inappropriately located, in that they would be borne by financially sound and unsound processors alike, and 104. serve no function in stimulating the exercise of due care and prudence. They could deter the entry of new meat processors to the industry. 20.13 It was argued that the meat processor is better able- to bear the risks of default than is the producer or small agent. But the producer delegates to the agent the functions of credit-management and risk-bearing. That is what the del credere function means. This is the justification, in part, for the agent's commission. It is the agent who is in the position to seek out the relevant information regarding credit-worthiness, on behalf of the producer, and to manage the credit function with due care. Economic efficiency will be served if it is the agent that bears the credit risk as well as the rewards, for he will then be appropriately motivated in his task. 20.14 The Pastoral Houses would not have a majority on the Accreditation Committee but they would always be represented on it. To the extent that the Accreditation Committee would receive hard financial information on individual meat processors, the Pastoral Houses would have privileged access to it. It is not proposed that this information be disseminated to members in general: it is "confidential" information. This means that the members of the Accreditation Committee would be given an advantage vis-a-vis the remaining membership. It could also mean that they secure inappropriate financial information regarding competitors. For, as we have seen, agents and processors may 105. sometimes compete in the purchase of cattle; processors assume some of the functions of agents when making direct purchases; and Elders operates as both agent and processor. Nor is the Tribunal satisfied that the confidentiality arrangements would preclude AMH from obtaining access to. information about the financial position of meat processors who are its competitors. 20.15 The likely result of the proposed system, if authorized, is that it would provide a centralised and compulsory machinery to ensure that an obligation of prompt payment is in fact imposed on meat processors and other purchasers which will be strictly enforced. The enforcement is, however, likely to be discriminatory in that processors probably would be required to provide security for ad hoc reasons having little, if anything, to do with their creditworthiness. Our conclusion is supported by experience in New South Wales and Victoria of the systems presently there in force. 20.16 It would not be surprising if, for example, AMH were not required to provide securities, with QSAA content to accept a letter of comfort from Elders. In the Tribunal's view, such a result would act as a severe anti-competitive detriment to other processors. 20.17 There is some evidence from the Pastoral Houses that, if authorization is not granted, some meat processors may attempt to extend their times for payment. It was argued a£VVe that the proposed system offers a useful control over the meat processors' proclivities. However, an alternative control is available, namely to offer a discount for prompt payment. Also, the Pastoral Houses' fears may simply mean that in practice there will be competition by processors for purchasing cattle from agents who tend to be more indulgent in relation to the provision of credit. On the other hand, it is clear that the proposed accreditation system would enable the security arrangements to be weapons to further the control of time taken by processors for payment. In our view this should simply be left to market forces. 20.18 The alternative of rivalrous conduct of the Pastoral Houses and other agents in relation to the time for payment afforded to processors purchasing at auction should be permitted. Without the benefit of the authorization and without the proposed system the Pastoral Houses would have to meet competition in the marketplace. If other agents permitted their payment patterns to extend, the Pastoral Houses would have to consider their own position and meet that development in a competitive manner. The processors would be allowed to shop around between agents for the terms that best suited them and agents could bargain with the processors accordingly. We not only see nothing wrong with such conduct, but regard it as a matter of positive public. benefit. 20.19 It was submitted by counsel for the Pastoral Houses that competition in credit terms is impracticable. But we "awe have just described one quite practical mode for credit competition. Another lies in the individual agent's making his own assessment of credit-worthiness. 20.20 Mr. Teys, a meat processor, was asked whether he thought that the proposed system was not "quite a harmless kind of arrangement"? He replied: "I do not view it as a harmless arrangement. Why? --- Because an agent - if we had = an accreditation thing put up to us, they could collectively start saying to us, right, we are not going to truck your livestock. You are going to - the - the 12 days could go to seven days. ... Now, I do no ~ I do not mind someone saying - an agent coming to me and saying, 'I'm sorry, I don't want to take your bid today.' Well, that is fine. I - you know, if an agent said that, that is fine. I can —- I can make other arrangements and - and - and there is competition there, but if we have an accreditation, it is taking away the competition that we have with an agent. ... In the respect of Morex that he - the other agents were reluctant to trade him. This is three years or so ago, but a private agent said, I'11 trade this fellow', and he went up there, and the bigger - the market was absolutely the best market. -«» he made this market so good for this private agent, but that private agent took his own chance on his credit arrangements. He has got paid for all of his livestock. There was no - no problem, I do not think. He - he seemed to have got paid, and he still goes there, and he still dominates his market every week. Yes? ~-- And - and that is the competition that «es. [we've got] - that competition that - that - that agents have now is going to be diminished under it --- Yes? --- because he - that situation - that person would have been put into a situation that the private agent would not have been able to trade him... Yes? --- where out of his wit he has made a market for that man —-- Yes? --~- and that man has enjoyed being independent." 4VU0. 21. Conclusion 21.1 We have earlier stated our findings on particular matters under the relevant headings and need not repeat them. © A summary will suffice for present purposes. 21.2 What is asserted in essence by the Pastoral Houses in support of authorization is that the proposed system: . will not be dominated by the Pastoral Houses; . will be of equal benefit to the Pastoral Houses and independent agents alike; . will give rise to a better system of credit control with bonds and guarantees being provided for the benefit of all members, not just the Pastoral Houses; . will reduce the del credere risk to agents; . will provide information to agents which is not presently available to independent agents, namely, information as to the financial stability of processors and other purchasers of livestock; . will offer greater ability to monitor payment patterns in accordance with concessional trading terms; 109. . will not be inimical to competition or result in anti-competitive detriment. 21.3 It is hard to imagine an industry which shows. less indication of any real or substantial credit risks than the sale of livestock; the history of the industry over many years proves this. 21.4 The Tribunal is not satisfied that the proposed system of market intelligence would give rise to such improvements or that any real differences would occur in practice in warning agents about purchasers or prospective purchasers who may be credit risks. Any increase in the available credit information would we think be marginal. Past experience in the Eastern States shows that recommendations to members as to the risks" involved in dealing with a particular purchaser or prospective purchaser are of limited practical use. 21.5 Even viewing the proposed system on the basis that the Accreditation Rules include the most recently drawn proposed rules, including Rule 6, it is likely that it would be in practice a compulsory system. It is unreal to think that the system would operate in practice as voluntary. The Tribunal is satisfied that the system would be one in which all, or almost all, members would accept recommendations from QSAA as binding them to comply with such recommendations. It is likely that the proposed system would operate in practice, not as a means to reduce credit risk to agents, but to accelerate payment by purchasers. 21.6 We are not satisfied that the proposed accreditation system would give rise to any public benefit. On the contrary, in our view it is highly likely that it would give rise to considerable anti-competitive detriment. 21.7 We consider that the proposed system would constitute an exercise of market power without redeeming public benefit to shorten credit terms, shift the risk-bearing function, impose undue credit costs upon processors, achieve privileged access to financial information and discriminate in the imposition of security requirements. 21.8 The system would give rise to an inefficient allocation of ctisk-bearing: agents would not be appropriately motivated in their del credere function; and some potential newcomers to meat processing could be inappropriately deterred by bonding requirements. 21.9 Whilst, in the short run at least, the attractiveness of the auction system could be increased for producers, this would not be the result of competition on the merits. The independence of the private agents could be undermined; and the Pastoral Houses encouraged to maintain a co-operative stance, one to another. The system would preclude - competition in the terms of credit which, in the Tribunal's view, is just as valuable as any other form of competition. 111. 21.10 The Tribunal refuses to grant the authorization sought and sets aside the decision of the Commission granting the authorization. The authorization granted by the Commission will therefore not come into force. I certify that this and the preceding one hundred and ten (110) pages are a true copy of the Reasons for Decision herein of the Trade Practices Tribunal. Associate Date: 14 April 1989 Counsel for John Dee (Exports) Mr. C.A. Sweeney Q.C. with Pty. Limited: Mr. M. Cashion Solicitors for John Dee (Exports) Messrs. Allen Allen & Hemsley Pty. Limited Counsel for Elders IXL Limited, Dalgety Farmers Limited and Mr. R. Conti Q.C. with Primac Association Limited: Mr. N. Cotman Solicitors for Elders IXL Limited, Dalgety Farmers Limited and Messrs. Sly & Russell Primac Association Limited: Counsel for Trade Practices Commission: Mr. J. Hilton Solicitors for Trade Practices Commission: Australian Government Solicitor Date of Decision: 14 April 1989 APPENDIX A LIST OF WITNESSE S AND OCCUPATIONS Witnesses giving oral evidence David Geoffrey ARMITAGE Benjamin BALL Andrew William Robert BLOMFIELD Baden John CAMERON John Bruce CAMERON Clifford Brian CAMMACK Gary William DANIELS Howard James GARDNER Barry Thearle HART Richard James HUGHES Edwrad James INGRAM Darryl Gregory KIRKBY Thomas Esmond KNOX Michael James MAGUIRE Stock and Station Armidale; Chairman, Accreditation Committee of New South Wales. Stock and Station Agents Association Agent, Director of Marketing, South Burnett Meatworks Co-operative Association Ltd. Corporate Adviser, Ernst & Whinney Chief Executive Officer, United Graziers Association of Queensland Manager Accounting, Elders Pastoral Queensland Livestock Manager, R.J. Gilbertson (Qld) Pty. Ltd. Senior Credit Officer, Elders Pastoral Queensland Chief Executive, CALM Services Director, Hart Holding Group Assistant Manager, Queensland, Dalgety Winchcombe FGC Manager - Rural Finance, Primac Association Ltd. General Manager, Pastoral Division (Livestock Section), Elders IXL Ltd. Livestock Auctioneer, Dalby, Qld. Stock and Station Agent, Emerald, Qld. George Stephen PRATT Brian Robert QUINN Geoffrey Graham ROBERTS Kenneth Maynard SAVAGE Donald Joseph STEELE Clifford Geoffrey TEYS Roy David TURPIE Philip Laurence WILLIAMS Colin James WOUDHEAD Statements Tendered Graham William ACTON Maurice Gregory BINSTEAD Jeffrey James DANIELS Quentin John Barclay ELLIS John McDonald ENGWICHT Robert McDonald ENGWICHT Peter Malcolm HUGHES Terence John LOASUE John ONLEY Managing Director, Lee Pratt Pty. Ltd., Casino, NSW Legal Liaison Officer, Elders IXL Ltd. General Manager, Elders Pastoral Queensland Stock and Station Agent, Rockhampton, Qld. Secretary, Queensland Livestock Property and Produce Brokers Association Livestock Manager, Teys Brothers Beenleigh Pty. Ltd. Stock and Station Agent, Ballarat; Member, Credit Committee of Victorian Stock and Station Agents Association Reader, Graduate School of Management, University of Melbourne Senior Branch Inspector, Elders Pastoral Queensland Managing Director, Acton Land & Cattle Company Manager, Binstead & Kirk Stock and Station Agent Secretary/Director, Harry Ellis Trading Pty. Ltd. Pastoralist Pastoralist Managing Director, Hughes Grazing Co. Livestock Department Manager, Central Queensland Meat Exports Co. Pty. Ltd. Partner, Hamilton Park Grazing Company George Edward PETERSON Betty Olive SHANNON Pastoralist Pastoralist 17. annual general meeting, the upholding of the appeal requiring a three-quarters majority of members to be in fevour of the appeal (clause 12(vi)). 6.7 There was sharp conflict between the parties as to whether QSAA will be dominated by the Pastoral Houses. 6.8 The Pastoral Houses pointed to the provisions of the Constitution of QSAA and argued that on all critical matters the majority power is conferred on private agents, not the Pastoral Houses. They referred to the fact that private agents are assured of at least the bare majority of members of the Council and that it is the Council which elects directly all members of the Executive Committee except the Chairman of tne Accreditation Committee. Through their voting power at Council level the private agents have the majority vote on election of the Accreditation Committee which elects its own chairman. Also, the Council elects all members of the Accreditation Appeals Committee. 6.9 The Meat Processors emphasised that it is how QSAA works in practice that is the critical consideration, not merely the formal Structures of its Constitution and Committees. The Processors said it was likely that QSAA would be dominated by Pastoral Houses. They pointed to the fact that each financial member has one vote for each piace of business with respect to which an annual subscription has been paid. In the case of the Pastoral Houses, each of which has a lazge number of places of business, they would be