Trade Practices Commission v. Nicholas Enterprises Pty Ltd

26 ALR 609
1979 - 0907A - FCA

(Judgment by: Fisher J)

Between: Trade Practices Commission
And: Nicholas Enterprises Pty Ltd

Court:
Federal Court of Australia

Judge:
Fisher J

Subject References:
Trade Practices

Hearing date: 12 September 1978, 13 September 1978, 14 September 1978, 15 September 1978, 22 September 1978, 23 October 1978, 24 October 1978, 25 October 1978, 26 October 1978, 27 October 1978, 7 December 1978, 8 December 1978, 21 December 1978, 6 February 1979, 7 February 1979, 8 February 1979, 2 April 1979, 3 April 1979, 4 April 1979, 5 April 1979, 6 April 1979, 9 April 1979, 10 April 1979
Judgment date: 7 September 1979

Adelaide


Judgment by:
Fisher J

TRIAL OF ACTION.

On 21st December, 1978, Fisher J. delivered an interim judgment upon the submission for the defendants that there was no case to answer in which he held there was a case for all but the third defendant to answer. The action thereupon continued.

The material facts appear from the judgment.

FISHER J. In this matter proceedings were commenced by the Trade Practices Commission ("the commission") by writ issued on 10th April, 1978, with statement of claim annexed naming as defendants Nicholas Enterprises Pty. Ltd. ("the Royal Oak"), Saturno Holdings Pty. Ltd. ("the Norwood"), Rex Freehold Pty. Ltd. ("the Rex"), Morphett Arms Hotel Pty. Ltd. ("the Morphett Arms"), Lion Bus Co. Pty. Ltd., Merit Nominees Pty. Ltd., General Development Corporation Pty. Ltd. and Agett Nominees Pty. Ltd. (all four of whom are collectively described as "the Old Lion"). It was pleaded and admitted that the first-named defendant carried on business as a retailer of liquor from licensed premises namely, the Royal Oak Hotel, 123 O'Connell Street, North Adelaide, the second-named defendant from licensed premises namely, the Norwood Hotel, 97 The Parade, Norwood, the third-named defendant from licensed premises namely, the Rex Hotel, 172 - 174 West Beach Road, Marleston, the fourth-named defendant from licensed premises namely, the Morphett Arms Hotel, 138 Morphett Road, Glengowrie, and the fifth, sixth, seventh and eighth-named defendants from licensed premises namely, the Old Lion Hotel, Jerningham Street, North Adelaide.

The indorsement on the writ is limited to a claim for recovery of pecuniary penalties pursuant to s. 76 of the Trade Practices Act 1974 ("the Act") and injunctions pursuant to s. 80 of the Act. The statement of claim in summary alleges what are in substance contraventions of s. 45 of the Act (though without specifically referring to that section) contending that the defendants other than the Norwood on 22nd November, 1977, made an arrangement or alternatively arrived at an understanding which had the purpose or effect of substantially lessening competition; and that on or about 5th December, 1977, they gave effect to such an understanding. As to the second-named defendant, the Norwood, it was contended that this defendant and the first-named defendant on or about 1st December, 1977, made such an arrangement or understanding. The essence of the arrangement or understanding as alleged was that the hotels operated by the defendants would on or about 5th December, 1977, fix the allowance offered to the public on each purchase of twelve 740 - millilitre bottles of beer at two such bottles of beer. It was common ground that in respect of the defendants this amounted to a reduction in the allowance for each purchase of twelve bottles from three bottles to two bottles for each such purchase. I will return to deal in greater detail with the allegations in the pleadings and the relevant legislation after I have covered the facts.

Until the year 1976 it appears to have been the practice of the Licensing Court of South Australia in granting a license to impose a condition that the licensee refrain from selling beer at less than a specified minimum price. In that year the Full Court of the Supreme Court of South Australia in the case of Young v. Farrah and Nicholas Enterprises Pty. Ltd. (1976) 13 SASR 444 held that such a condition was not validly imposed by the Licensing Court. Consequent upon this decision the practice of what is generally called "the discounting of beer" became a very prevalent if not universal practice at least in the metropolitan area of Adelaide. This discounting generally appears from the evidence to have been conducted on the basis of varying the number of bottles of beer sold for the price of one dozen bottles. There was no uniformity in the number sold for the price of the dozen, although the price of the notional dozen (i.e. more than a dozen in fact being offered) appears to have varied by only a few cents. Moreover the quantum of the discount or allowance varied depending upon whether the beer sold was brewed by the West End or Southwark Brewery conducted by The South Australian Brewing Company Ltd. or Cooper's Brewery conducted by Cooper & Sons Ltd.

(His Honour considered the evidence in relation to a luncheon which was held at Cooper's Brewery on 22nd November, 1977, at which representatives of all the hotels, save the Norwood, were present. The luncheon was a social gathering at which discounting was discussed. He also discussed evidence of a subsequent discussion between one of the persons attending the luncheon and representatives of the Norwood Hotel. His Honour continued:)

At the end of the plaintiff's case there was a submission of no case to answer by each of the defendants. For the reasons given on 21st December, 1978, I found there was a case to answer in respect of each of the defendants other than the Rex. The Royal Oak elected to call no evidence. Leon Saturno was, as above mentioned, called on behalf of the Norwood, the Old Lion called Mr. Tremaine and the Morphett Arms called one of its directors, Mr. King.

I have set out the evidence upon which the commission primarily relies to establish the essential elements of the alleged offences of contravention by the defendants of s. 45 of the Act. It is necessary now to consider the relevant portions of the legislation. Section 45 was substantially amended in 1977, but was in the form below mentioned at the relevant times. The amendments were only of significance in illustrating particular arguments.

Section 45 in so far as it is relied upon in these proceedings is in the following terms:

"(2)
A corporation shall not-

(a)
make a contract or arrangement, or arrive at an understanding, if - . . .

(ii)
a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or

(b)
give effect to a provision of a contract, arrangement or understanding, whether the contract or arrangement was made, or the understanding was arrived at, before or after the commencement of this section, if that provision - . . .

(ii)
has the purpose, or has or is likely to have the effect, of substantially lessening competition.

(3)
For the purposes of this section and section 45A, 'competition', in relation to a provision of a contract, arrangement or understanding, or of a proposed contract, arrangement or understanding, means competition in any market in which a corporation that is a party to the contract, arrangement or understanding or would be a party to the proposed contract, arrangement or understanding, or any body corporate related to such a corporation, supplies or acquires, or is likely to supply or acquire, goods or services or would, but for the provision, supply or acquire, or be likely to supply or acquire, goods or services."

The commission also relied upon the provisions of s. 45A(1) as assisting in the proving of its case. It is as follows:


"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 to 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 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."

Turning again to s. 45(1) the word "corporation" is defined as meaning inter alia a trading corporation formed within the limits of Australia. There was no dispute that each of the defendants was a trading corporation.

As I have mentioned the principal matter in issue is whether the evidence is sufficient to establish the existence of an arrangement or understanding. The argument before me ultimately came down to whether I could find that the parties or any two or more of them had arrived at an understanding.

The nature of an arrangement or understanding in the context of the Act (albeit under s. 45 prior to its amendment in 1977) was discussed by the Full Court of the Australian Industrial Court in Top Performance Motors Pty. Ltd. v. Ira Berk (Queensland) Pty. Ltd. (1975) 24 FLR 286 , in particular per Smithers J. Considerable reliance was placed by that judge on the decision of the Court of Appeal in Re British Basic Slag Ltd.'s Agreements (British Basic Slag Ltd. v. Registrar of Restrictive Trade Agreements) [1963] 1 WLR 727 . The dicta of Diplock L.J. (as he then was) (1963) 1 WLR, at p 746  was adopted by Smithers J. as stating the essential elements of an arrangement or understanding and such dicta and indeed the whole of the reasoning of Diplock L.J. was subjected to detailed examination before me. Notwithstanding the differences between the English legislation there under consideration, and the amendments to s. 45 since the Ira Berk decision, it was generally accepted that this was the most relevant case law. Counsel for the plaintiff, however, presented a strong argument on the necessary features of the concept of a "meeting of minds" to which I shall refer in due course.

In the British Basic Slag case, the Court of Appeal unanimously dismissed an appeal against the decision of Cross J. (as he then was). It was conceded before me that the essential informality of an arrangement as stated by Willmer L.J. (1963) 1 WLR, at p 739 substantially coincided with the view of the majority of the High Court of Australia in Federal Commissioner of Taxation v. Lutovi Investments Pty. Ltd. (1978) 53 ALJR 152 . Willmer L.J. was in fact referring to an arrangement and not an understanding but his comments are equally if not more appropriate and applicable to an understanding under the Australian legislation. He expressed his view as follows in the British Basic Slag case:


"To deal first with the meaning of the subsection, I think it is highly significant that Parliament did not see fit to include any definition of 'arrangement'. I infer from this that it was intended that the word should be construed in its ordinary or popular sense. Though it may not be easy to put it into words, everybody knows what is meant by an arrangement between two or more parties. If the arrangement is intended to be enforceable by legal proceedings, as in the case where it is made for good consideration, it may no doubt properly be described as an agreement. But the Act of 1956 clearly contemplates that there may be arrangements which are not enforceable by legal proceedings, but which create only moral obligations or obligations binding in honour . . . For when each of two or more parties intentionally arouses in the others an expectation that he will act in a certain way, it seems to me that he incurs at least a moral obligation to do so. An arrangement as so defined is therefore something 'whereby the parties to it accept mutual rights and obligations'" (1963) 1 WLR, at p 739 .

These last two sentences of Willmer L.J. and the emphasis therein on common expectations and mutual obligations, if applicable to the concept of arrangement or understanding pursuant to s. 45 of the Act, are of much significance in this present matter.

The corresponding passage in the judgment of the High Court in Lutovi's case relates to provisions of the Income Tax Assessment Act 1936 and appears in the joint judgment of Gibbs and Mason JJ., with which Murphy J. agreed. The relevant passage is as follows:


"In the context of s. 260 an arrangement is something less than a binding contract or agreement, something in the nature of an understanding which may not be enforceable at law (Newton v. Federal Commissioner of Taxation (1958) 98 CLR 1, at p 7 ). A similar view has been taken of an arrangement falling within s. 80B(5) (see Federal Commissioner of Taxation v. K. Porter & Co. Pty. Ltd. (1974) 22 FLR 344  and Federal Commissioner of Taxation v. Students World (Australia) Pty. Ltd. (1978) 138 CLR 251 ). It is, however, necessary that an arrangement should be consensual, and that there should be some adoption of it. But in our view it is not essential that the parties are committed to it or are bound to support it. An arrangement may be informal as well as unenforceable and the parties may be free to withdraw from it or to act inconsistently with it, notwithstanding their adoption of it" (1978) 53 ALJR, at p 154

The High Court was hearing an appeal from the judgment of the Full Court of the Federal Court (Federal Commissioner of Taxation v. Lutovi Investments Pty. Ltd. (1978) 37 FLR 209) in which Bowen C.J. drew attention to the above-mentioned passage from the judgment of Diplock L.J. He also indicated that a number of cases, including the British Basic Slag case [1963] 1 WLR 727 , had been referred to by counsel and in respect of them said:


"Except that the cases referred to emphasize that the common expectations of parties to an arrangement arouse mutual moral obligations, I do not regard these cases as taking the matter very much further" (1978) 37 FLR, at p 214.

These concepts, be they of mutual awareness, common expectations or mutual obligations, were seen by Diplock L.J. as essential features of an arrangement and the necessary elements of the required meeting of minds. He said in the British Basic Slag case:


"'Arrangement' is not a term of art; and in section 6(3) of the Act I agree with my lords that it bears the meaning that an ordinary educated man would ascribe to it. It involves a meeting of minds because under section 6(1) it has to be an arrangement 'between two or more persons' and, since it must be an arrangement 'under which restrictions are accepted by two or more parties', it involves mutuality in that each party, assuming he is a reasonable and conscientious man, would regard himself as being in some degree under a duty whether moral or legal to conduct himself in a particular way or not to conduct himself in a particular way as the case may be, at any rate so long as the other party or parties conducted themselves in the way contemplated by the arrangement.

"No necessary or useful purpose would be served by attempting an expanded and comprehensive definition of the word 'arrangement' in section 6(3) of the Act. 'As I see it, all that is required,' said Cross J., 'to constitute an arrangement not enforceable in law is that the parties to it shall have communication with one another in some way, and that as a result of the communication each has intentionally aroused in the other an expectation that he will act in a certain way' (1962) LR 3 RP 178, at p 196 " (1963) 1 WLR, at pp 746-747 .

A significant feature of each of the above passages is the emphasis placed upon the necessity for each of the parties to have communicated with the other, for each to have raised an expectation in the mind of the other, and for each to have accepted an obligation qua the other. These are in my opinion the essential elements of the requisite meeting of minds.

That a meeting of minds is an essential feature of s. 45 of the Act was the view of Smithers J. in the Ira Berk case (1975) 24 FLR 286 , with whose reasons Evatt J. expressly agreed. This was a decision of the Full Court of the Australian Industrial Court. After citing the first paragraph of the last-mentioned passage from the judgment of Diplock L.J.,

Smithers J. said:


"Section 45 is not in the same terms as s. 6 of the Restrictive Trade Practices Act 1956 which is the section referred to in these remarks, but by parity of reasoning it would follow that the existence of an arrangement of the kind contemplated in s. 45 is conditional upon a meeting of the minds of the parties to the arrangement in which one of them is understood, by the other or others, and intends to be so understood, as undertaking, in the role of a reasonable and conscientious man to regard himself as being in some degree under a duty, moral or legal, to conduct himself in some particular way, at any rate so long as the other party or parties conducted themselves in the way contemplated by the arrangement.

"It seems to me also that an understanding must involve the meeting of two or more minds. Where the minds of the parties are at one that a proposed transaction between them proceeds on the basis of the maintenance of a particular state of affairs or the adoption of a particular course of conduct, it would seem that there would be an understanding within the meaning of the Act" (1975) 24 FLR, at p 291.

At the outset therefore it is necessary to examine the evidence for the purpose of determining whether the parties or any of them arrived at an understanding. If such a finding can be made, it will then be necessary to determine whether the understanding is such as contemplated by s. 45. It is accepted that there well may be no or no sufficient direct evidence of an express arrangement or understanding but that it may be possible to infer the relevant understanding from circumstantial evidence.

I am of opinion that there is positive evidence before me which goes a considerable part of the way towards establishing the existence of an understanding. Accordingly, the plaintiff does not have to rely upon deduction from circumstances for every element in the conclusion necessary for its success. It is to the extent that such evidence does not go all the way, and is deficient in itself to prove an understanding that I must fall back on circumstantial evidence and inferences to be drawn therefrom. The occasion of the meeting of minds is alleged by the pleadings to have been the Cooper's lunch in respect of all defendants other than the Norwood and the lunch at the Norwood Hotel in respect of the Norwood. Subsequent to the lunches there is the parallel behaviour of the defendants in raising their prices in similar manner on Monday 5th December, 1977. However, the direct evidence of the two lunches is deficient for the purpose of establishing an understanding.

I find that at the Cooper's lunch, and in the presence and hearing of Messrs. Farrah, Tremaine and Palmer, there was a very significant discussion, the very type of discussion which one could anticipate would be the forerunner to the reaching of an arrangement or understanding. There was discussion concerning the sale of packaged beer and the state of the market for that product. In particular there was discussion concerning the unprofitability of the existing level of discounting, and as W.T. Cooper says, "there was obviously some consensus of opinion on that point". Moreover a comment was made by a person whom W. T. Cooper could not name, that the sooner the industry was back to fourteen to the dozen the better it would be for the industry in general. It was against this background that W.T. Cooper said he heard someone, again unnamed, say that he believed "we will drop back to fourteen to the dozen". W.T. Cooper said that he believed a date early in December was mentioned and that there was "some talk of it".

This evidence was supplemented by the evidence of Mr. Tremaine, who stated that it was Mr. Farrah who made the statement concerning the reduction in the allowance, indicating that he would be reducing his "bonus discount" to fourteen to the dozen the first week in December. Mr. Tremaine confirmed that this statement was made by Mr. Farrah in the course of a general discussion on discounting. In reliance upon this evidence I would find that by making this communication of his intention to reduce the allowance in the first week of December, Mr. Farrah raised an expectation in the minds of the other persons present. Moreover it was an expectation of a very significant nature, namely that, against the background of the agreed unprofitability of discounting and the desirability of the industry in reducing the amount of the allowance, one of the largest discounters proposed to make a specified reduction of the allowance on a nominated date. By arousing their expectations in this way, Mr. Farrah placed himself, in the terminology of Diplock L.J., "in some degree under a duty, whether moral or legal, to conduct himself in a certain way".

However, before the alleged understanding is established it is necessary for each of the other parties intentionally to arouse an expectation in the mind of Mr. Farrah. As I read the transcript there is no direct evidence that any of the other persons present acted in such a way as could be calculated to arouse in the mind of Mr. Farrah an expectation that that other person would also act in a certain way. It is in this area that in respect of each of the defendants the plaintiff has to rely upon deduction from circumstances to establish an essential element of its case, namely the element of commitment by each of the other defendants to Mr. Farrah's proposal.

A like situation arises as far as the Norwood is concerned. There is again evidence that in a discussion on 2nd December, 1977, concerning discounting generally in the liquor industry, Mr. Farrah made the statement that the Royal Oak Hotel would be reducing its allowance from fifteen to fourteen bottles to the dozen on the following Monday. Such a statement raised the relevant expectation in the mind of Leon Saturno, but there is no positive evidence that he did or said anything to indicate what he proposed to do, and thus to raise an expectation in the mind of Mr. Farrah as to his future conduct.

However the arousal of such an expectation in the mind of Mr. Farrah may be inferred from circumstantial evidence. In Federal Commissioner of Taxation v. K. Porter & Co. Pty. Ltd. (1974) 22 FLR 344 Mahoney J. emphasizes that the words "enter into a contract, agreement or arrangement" indicate an element of commitment, one to the other, necessary to satisfy the statutory requirement. Having stated that this element of commitment may arise from express statement or actual representation, he goes on to say:


"In the absence of such a statement or actual representation, the element of commitment to the course of conduct may be inferred or implied from the dealings between the parties.

The question whether any such inference or implication should be drawn in the present case, was, as I understand the argument, the main difference between the parties in the present case" (1974) 22 FLR, at p 353 .

This dicta is very much in point in the matter before me. Mahoney J.'s reference to the necessity for an element of commitment coincides with my view that the arousal of an expectation is an essential feature. His statement that the element of commitment may be inferred not merely from dealings but from dealings between the parties highlights the fact that communication of the commitment to the course of conduct is necessary. This necessity for communication was emphasized by Cross J. in the British Basic Slag case (1962) LR 3 RP, at p 196 in the passage cited by Diplock L.J. set out above. Moreover, as in the case before Mahoney J. the question before me is whether the necessary element of commitment on the part of the defendants other than the Royal Oak or any of them can be inferred or implied.

Turning to the evidence, apart from the happenings at the two lunches, for the purpose of determining whether it can be inferred that any of the defendants committed themselves to the course of conduct which I find was at least impliedly proposed by Mr. Farrah, it will be generally appropriate to deal separately with each defendant if only because much of the evidence is not admissible against all defendants. However, each of the defendants did in fact decrease its allowance on 5th December; in other words they engaged in parallel action. This is significant circumstantial evidence from which the existence of an understanding might be inferred. But as doubtless is true with all circumstantial evidence, the drawing of the relevant inference is seldom irresistible. As is the case here, it is frequently possible for another explanation of the facts to be given in evidence, for example that the reduction in the allowance was dictated not by commitment to an understanding but by ordinary commercial considerations. However, failure to explain the reasons for and circumstances of the parallel reduction encourages the tribunal to feel that it is "less unsafe to make" the requisite finding; see per Zelling J., in Thorogood v. Warren (1979) 20 SASR 156, at p 159

The commission in the first instance served upon each of the defendants other than the Old Lion a notice pursuant to s. 155 of the Act directed to the defendants seeking information in the nature of answers to questions in the notice. The questions were in standard form. The notice which was doubtless directed to the Old Lion was addressed to "Kevin Lane, Agent Nominee, Old Lion Hotel". I deal separately with this notice later in my reasons. The defendants responded in writing to the notices and in each instance complied with the requirements of s. 155(1)(a) that the information be furnished "by writing, signed . . . in the case of a body corporate, by a competent officer of the body corporate". A particular objection to the admissibility of these responses was raised by counsel for the Royal Oak and I deal with it in the succeeding paragraph. At the time I ruled that the responses were admissible but only against the corporate body providing the information. Subsequently to the receipt of these responses, the commission served further notices upon three of the persons who signed as "competent officers" and who had each been personally present at one or other of the lunches. These persons were Messrs. Farrah, Leon Saturno and Tremaine, and the questions which were answered dealt primarily with happenings at the lunches. In respect of these responses there were further objections on the ground that there was no or no sufficient evidence from which I could infer authority to speak on behalf of the bodies corporate. I ruled that in the then state of the evidence of the position each held in his company, combined with the fact that each had been held out by his company as "a competent officer", there was sufficient evidence from which I could infer that each had authority to speak on behalf of his company in respect of happenings at the respective lunches. There was of course further evidence on the part played by Leon Saturno and Mr. Tremaine in the management of the particular defendants, and as to Mr. Tremaine, objection was pressed again by counsel for the Old Lion in his final address.

I should now refer to a particular objection raised by counsel for the Royal Oak, namely that the responses, in this case the answers, having been given under compulsion of law are not evidence against the defendants. He cited in support of his submission the case of Ex parte Gerard & Co. Pty. Ltd; Re Craig (1944) 44 SR (NSW) 370, at p 376  and in particular Jordan C.J. in Fraser Henleins Pty. Ltd. v. Cody (1945) 70 CLR 100  Latham C.J. referred to the fact that in the former case the answers were made under compulsion as a ground for distinguishing that case from the matter before him. However in my opinion the fact that Mr. Lipman, a director and manager of a section of the business of the appellant company in Ex parte Gerard, gave the answers under compulsion was not a factor which by itself determined that his answers were not properly receivable in evidence against his company, but rather as indicating that the answers were given in circumstances outside of the ordinary course of his limited authority. The learned Chief Justice referred to this fact in identifying the answers under consideration, but thereafter, as I read the case, neither referred again to this fact nor placed any reliance thereon as a basis for his decision. The fact of compulsion did not conclude the question of admissibility but rather was one circumstance which established that the manager was acting outside of his authority.

In respect of the answers given by Messrs. Tremaine, Leon Saturno and Farrah to the notices addressed to them, there was evidence from which I was, and still am, prepared to infer that each such person had authority to make the admissions on behalf of the defendant with whom he was associated. There is as I have said subsequent evidence which is relevant on this question of authority, and no subsequent evidence that they or any of them exceeded their authority. Subject to what I have to say later in respect of the notice addressed to "Kevin Lane, Agent Nominee, Old Lion Hotel" I am of opinion after consideration of the arguments presented before me that the answers to the s. 155 notices addressed to the companies are admissions binding on the companies whose officers gave the responses. However they are evidence only against the particular company and not against any other defendant.

Being admissions this evidence is receivable against the other parties only if it can be said to relate to something done in furtherance of the common purpose (Cross on Evidence, 2nd Aust. ed., p. 519; Tripodi v. The Queen (1961) 104 CLR 1, at p 6 ). The making of admissions was no part of the common purpose on any view. Also I do not see that the provisions of s. 84 (2) of the Act are relevant on this point being restricted to "acts" performed on behalf of companies and not extending to "admissions".

Having been admitted in evidence against the particular defendant making the admission, the question arises as to the use which can be made in favour of that defendant of self-serving statements. I refer to the conflict of judicial and text book opinion on this topic discussed in Lopes v. Taylor (1970) 44 ALJR 412 especially per Menzies J. (1970) 44 ALJR, at p 417 and Gibbs J. (1970) 44 ALJR, at p 421 . However it seems to be generally accepted that I am not obliged to attach the same weight to all parts of the admission. In this particular matter the problem is doubtless resolved for me in that in two instances the self-serving statements are corroborated on oath and in the other instance in determining the weight to be attached I can have regard to the failure of the maker of the statement to give evidence.

Additional evidence in respect of the Royal Oak is to be found in the answers to the s. 155 notices addressed to that company and to Mr. Farrah. Each of these answers refers to the happenings at the two lunches and the answers of Mr. Farrah personally are restricted to such happenings. They are confirmatory of the evidence recounted to date as is the evidence Leon Saturno gave of the Norwood Hotel lunch and Mr. Tremaine of the Cooper's lunch. There is also evidence from which I can infer that the Royal Oak was the largest discounter (in fact it so advertised itself). Without doubt Mr. Farrah on behalf of the Royal Oak by his statement committed his company to reducing its allowance on 5th December, 1977, in the context of a discussion where the statement was virtually an invitation to others to do likewise. Moreover in the light of the consensus of opinion on the unprofitability of the current allowance and the statement that "the sooner the industry was back to fourteen to the dozen the better", Mr. Farrah must have had an expectation that it was probable that the other hotels represented at the lunch or at least some of them would follow his hotel. However no prior conduct was proved as a basis for a submission that such conduct warranted this expectation. It is significant that his statement followed the discussion concerning the state of the industry, (and did not initiate the discussion) and thus takes colour from what had gone before.

Mr. Farrah's visit to the Norwood Hotel, in company with the same representatives of the Royal Oak who had attended the Cooper's lunch, on the last weekday prior to the date of the alteration, where he repeated the statement in the same context of the state of the discounting business, is to me confirmatory of a desire to influence other people, and particularly large discounters such as the Norwood, to follow his lead.

When this evidence is combined with the fact that all of the hotels, to representatives of each of which he made his statement, in fact did make the alteration on 5th December, 1977, it seems to me that there are objective facts on the basis of which the inference that there was a meeting of minds between the Royal Oak and one or more of the other defendants is open to be drawn. There is of course the statement of Mr. Farrah in his s. 155 answers to the effect that the oral response from Leon Saturno, Mr. Tremaine and Mr. Palmer was in each instance non-committal. However I do not attach a great deal of weight to this self-serving statement (except to the extent that it is corroborated) in that it is not made on oath nor subjected to cross-examination. In any event an oral response is not the only way a commitment could have been communicated. The fact that Mr. Farrah did not himself give any explanation of his conduct makes it "less unsafe" for me to draw an inference. I refer to what I have to say subsequently in respect of the failure of Mr. Palmer to give evidence and do not repeat it here.

Counsel for the plaintiff strongly argued that it was not essential in proving an understanding for the evidence expressly or by inference to establish the element of commitment on the part of anyone other than Mr. Farrah. He said that the presence of the words "arrived at" inserted by the 1977 amendment indicated that mutuality need not necessarily exist between the so called parties to the understanding. It was in his submission sufficient for him to establish that Mr. Farrah placed himself under an obligation to other persons, and that those other persons subsequently in his absence and without his knowledge arrived at an understanding with him, which understanding was not required to be communicated to Mr. Farrah. Inherent in this submission is the fact that whilst Mr. Farrah is required to have placed himself under an obligation to the other parties to the alleged understanding, it was not necessary for them to have placed themselves under an obligation to him. In presenting this submission there was in counsel's submission a clear difference between the making of an arrangement which required mutual obligations and the arrival at an understanding which did not.

Mr. Russell pressed strenuously this submission but he was unable to draw my attention to any authority in support. He acknowledged that this construction was contrary to the views expressed in the Ira Berk case (1975) 24 FLR 286 but very properly used the subsequent amendment of s. 45 in an attempt to distinguish that case. As I have said he based this argument on principles of statutory construction, the deletion of the words "entered into" and substitution of the words "arrived at" by the 1977 amendment of s. 45(2). Additionally by that amending Act "arrived at" by s. 4 "includes in relation to an understanding; reach or enter into". It is to my mind significant that the words "entered into" which were simultaneously deleted by s. 45(2) are repeated in the definition. Moreover the additional word "reach" is included. Prima facie in my opinion an understanding is reached by two persons each with the other and there is no suggestion that it can be unilateral. Without doubt the amending of s. 45(2) subsequent to the Ira Berk decision is significant and is an important factor in deciding what is entailed in "arriving at an understanding". However in my opinion it does not assist the interpretation contended for by Mr. Russell. He desires to remove from the notion of arriving at an understanding the element of mutual obligations, which obligations are in my view of the authorities the essential feature of an understanding and not of the means whereby the understanding is "made", to use a neutral expression. The essential elements of an understanding are the same, whether it be reached, arrived at or entered into. Moreover there can not be, on the authorities, an understanding unless each has aroused in the other an expectation, and I do not see how A. can arouse an expectation in the mind of B. unless there is some form of communication, oral or otherwise, flowing from A. to B.

In my opinion by making the amendment subsequent to the Ira Berk decision (1975) 24 FLR 286 the most that can be said is that the legislature intended to expand the means whereby an understanding could be achieved. It did not have in mind altering the essential features of an understanding, one of which is the necessity for communication. Rather it sought to emphasize that the method of achieving the necessary meeting of minds was immaterial. It may well be that the notion of "entering into an understanding" postulates the concept of this occurring at a particular moment of time between two persons in each other's presence, whereas an understanding may be arrived at over a subsequent period when for example by a series of acts the proposal is adopted by the other party. However, in my view, it continues to be necessary for the adoption of the proposal to be made known in some way to the proposer, otherwise the latter will be unaware whether an understanding has been achieved. Until the proposer becomes aware, I do not see how any expectation can in the ordinary course be raised in his mind as to how the adopter will act. I exclude of course the situation in which pre-existing circumstances such as price leadership or interdependence are such that the proposer has some grounds for assuming that once he proposes, his proposal will be adopted unless he is notified to the contrary.

In my opinion therefore Mr. Russell's submission is unaceptable and I must review the evidence for the purpose of determining whether commitment on the part of all or any of the other defendants has been proved positively or inferentially.

Moving now to the position of the Norwood, I consider what evidence is available from which I might infer that it arrived at an understanding with the Royal Oak to reduce its allowance, and that on 5th December, 1977, it gave effect to such an understanding. As I have found, there is no direct evidence that at the lunch on 2nd December, 1977, it committed itself to the reduction mentioned by Mr. Farrah or raised any expectation in the mind of Mr. Farrah that it would reduce on that day. In the answers of the company and Leon Saturno to their respective s. 155 notices they confirm in effect that the reply of Leon Saturno to Mr. Farrah's statement was non-committal. I reach therefore the situation that there was in effect an invitation on the part of Mr. Farrah to Leon Saturno to arrive at, and subsequently give effect to, an understanding to reduce the allowance on the necessary Monday. But there is no direct evidence of any commitment on the part of Leon Saturno. However the Norwood did in fact on the Monday reduce its allowance in conformity with the Royal Oak. These are objective facts from which it is open to me if I consider it appropriate to draw the inference that an understanding was reached at the lunch and that on 5th December, 1977, the Norwood gave effect to that understanding.

However, in this instance there was additional evidence placed before me, and in particular Leon Saturno gave evidence that he did nothing to raise an expectation in the mind of Mr. Farrah and that the reduction of the allowance was dictated by commercial considerations and not an understanding with Mr. Farrah or anyone else. Leon Saturno denied on oath that he did or said anything which could have raised or was intended to raise Mr. Farrah's expectations. This evidence confirms the unsworn statement of Mr. Farrah that he merely said "that's interesting" and no more. There is no reason for me not to accept this evidence.

In addition he gave evidence that it was the practice of himself and his brother to watch advertisements in both newspapers and on television and also signs outside hotels for the purpose of ascertaining their prices. He said he was aware on 2nd December, 1977, of the Royal Oak's advertisements to the effect that a change in respect of beer prices was in the offing, and that such was to be expected at that particular time of the year. He said that he and his brother in consultation had, by 30th November, 1977, made a decision to change their prices but they had not decided upon the date or amount of the change. The fact that the Norwood Hotel inserted an advertisement in the Advertiser newspaper which appeared on 1st December, 1977, which for the first time contained the statements "Beat the Christmas rush" and "Time is running out on beer discounts" is confirmatory of this evidence of Leon Saturno. It is also significant that this advertisement appeared prior to the luncheon with Mr. Farrah.

There was also evidence from Mr. Weir, an officer of the commission, of a visit to the Norwood Hotel on 30th November, 1977. In reply to his question, two employees in the drive-in-bottle department indicated that beer was selling at fifteen to the dozen, but would be fourteen to the dozen on the next Monday. In my opinion this evidence is admissible in that the employees were acting within the scope of their employment in answering inquiries as to the price of beer. It confirms that a decision had been made prior to the lunch with Mr. Farrah. The statement of one of the employees that "all hotels are doing it" is in my opinion inadmissible against the Norwood in that there is no evidence that the employee had authority to make such an admission which is prima facie outside the scope of his employment.

On 5th December, 1977, the Norwood Hotel did not reduce the discount forthwith upon the opening of the hotel, but at approximately 11 a.m. Prior to that time a telephone check was made of a number of hotels as to the allowance they were making, and Leon Saturno and his brother drove to a few of the larger discounting hotels to check their allowances. I accept this evidence of Leon Saturno as supplying an alternative and plausible explanation of his parallel behaviour and as establishing the existence of another inference which could be drawn from the facts, which other inference is consistent with his contention that he was not a party to an understanding with Mr. Farrah.

Turning to the evidence against the Morphett Arms, I have already referred to the presence of Mr. Palmer, a director of that company and with other hotel interests, at the lunch, and his visits to Mr. Ritchie and Mr. Richards. There are also the responses to the s. 155 notice directed to that defendant, which do not greatly assist (except to the extent that one answer is, as below mentioned, defective). The Morphett Arms did not at the relevant time engage in advertising in the newspapers. There was evidence given by Mr. King a director of the Morphett Arms and the person who made the responses on its behalf. Mr. Palmer did not give evidence.

At the time of the submission of no case to answer I was of opinion that there was insufficient evidence from which I could infer that Mr. Palmer, being merely a director and secretary of the Morphett Arms, could speak on behalf of that company. There was no evidence that he had any involvement in an executive capacity or in the making of day-to-day decisions. However I was of the opinion at that time that the acts of Mr. Palmer in making the visits and extending the invitations were acts undertaken on behalf of the Morphett Arms. I set out in my reasons my tentative grounds for making this finding, and after hearing further evidence and much argument on s. 84(2) and its proper construction, I confirm that finding.

In my opinion s. 84(2) can also be used for the purpose of making a finding that the Morphett Arms was present at the Cooper's lunch on 22nd November, 1977, in the person of Mr. Palmer. It was a lunch to which people were invited in consequence of their interests in the liquor industry, and there was no suggestion that any guest was invited for any other reason. Admittedly Mr. Palmer had an interest in hotels other than the Morphett Arms, but there is no basis for a finding that he left that particular hat at home when he attended the lunch. In the absence of evidence from him, it is reasonable to infer that, it being a lunch of people interested in the liquor industry, he was there because of his involvement with a number of hotels, including the Morphett Arms Hotel. In consequence of the construction I have placed on s. 84(2) it is nothing to the point that his action in being present may not have been authorized by the company or known to Mr. King.

However in my opinion there is by virtue of the evidence of Mr. King justification for a finding that Mr. Palmer was sufficiently involved in the management of the Morphett Arms to have authority to speak on its behalf, particularly on matters of pricing. That company employed a manager in the Morphett Arms Hotel, and its board of directors comprised Mr. King and his wife, and Mr. Palmer and his wife. There is no suggestion that Mrs. King or Mrs. Palmer were other than non-executive directors and there was no managing director. The manager was not a director and was subject to instructions from Mr. King and Mr. Palmer, who was also the secretary. Mr. King's evidence was to the effect that decisions were made by him and Mr. Palmer and that they had informal discussions together four to five times each week. In particular he said that they discussed matters relating to discounts in the hotel trade three or four times a week. In so far as the management of the company's activities was by its articles of association vested in the board of directors, this management was conducted by these two directors except to the extent that such management was delegated to the manager of the hotel. The manager did not have the right to fix prices. Such decisions were made by the two directors in consultation with him. Mr. Palmer was certainly actually concerned in the management of the company, at least in respect of pricing, which activity would include the granting of discounts and allowances. In these circumstances I am of opinion that Mr. Palmer had authority to speak on behalf of the Morphett Arms in respect of those activities of the company relating to prices, discounts and allowances. Mr. Palmer gave no evidence of this authority and Mr. King did not deny it.

In these circumstances I am of opinion that the statements made by Mr. Palmer in his interviews with Mr. Ritchie and Mr. Richards are admissible as evidence against the Morphett Arms. These statements are thus additional objective facts which support the drawing of the relevant inference.

The position therefore is that Mr. Palmer was present at the lunch as a director of the Morphett Arms, and sufficiently involved in management to make statements or like actions prima facie binding on the company. There is no evidence from him as to the part he played at the lunch. There is the evidence from Mr. Tremaine that no other person made any oral response. However an oral response is not the only method open to Mr. Palmer to raise an expectation in the mind of Mr. Farrah.

This evidence recounted to date, and in particular Mr. Palmer's admissions in the interviews that certain companies had made an agreement to reduce the allowance on 5th December, 1977, combined with the fact that the Morphett Arms reduced its allowance on that day, provide sufficient objective facts from which the relevant inference might be drawn if there is no acceptable explanation. A further significant fact is the failure of Mr. Palmer to give evidence, and in this regard I would refer to the statements of Cockburn C.J. in McQueen v. Great Western Railway (1875) LR 10 QB 569, at p 574 and Menzies J. in Jones v. Dunkel (1959) 101 CLR 298, at p 312 . There is no explanation why Mr. Palmer failed to give evidence and thus I am entitled to infer that his evidence would not have helped the Morphett Arms' case. This inference is particularly appropriately drawn when the facts are peculiarly within the knowledge of the silent party (Tozer Kemsley & Millbourn (A/asia) Pty. Ltd. v. Collier's Interstate Transport Service Ltd. (1956) 94 CLR 384, at p 403 per Fullagar J.).

Mr. King, as mentioned above, gave evidence as to the manner in which the Morphett Arms made its decision to reduce its allowance. He recounted that it was a joint decision of himself and Mr. Palmer and that they discussed the matter on a number of occasions. He said, however, that he was not aware of the happenings at the Cooper's lunch nor that Mr. Palmer had made a visit to Mr. Ritchie and proposed making a visit to Mr. Richards. This I find very hard to accept in the absence of corroboration (which was available but not availed of) particularly as Mr. King indicated how closely he and Mr. Palmer worked together. Moreover the answer to the fifth question in the s. 155 notice signed by Mr. King on behalf of the company is defective in that it necessitated Mr. King making inquiries of officers of the company. This question, in so far as relevant, inquired whether since 1st November, 1977, any officer of the company had any communication with any officer of a retail liquor outlet concerning the price of beer supplied by the company, the retail liquor outlet or any other outlet, the discount or allowances of those bodies or any proposed changes to the prices, discounts or allowances. Mr King stated in his response that he had no communication of the nature referred to and that he was not aware of any such communication on behalf of the company. It appears he either failed to make inquiries or if he did he either secured no information or failed to pass the information on to the commission.

I also find the evidence of Mr. King unsatisfactory when he attempted to recount the inquiries made (or directed to be made) prior to the making of the change on 5th December, 1977. Additionally, I cannot accept Mr. King's explanation concerning the making of the change as supplying a reasonably plausible alternative explanation. I am not prepared to find that the change by the Morphett Arms was dictated only by commercial considerations and without reference to the activities of Mr. Palmer.

I turn now to the evidence which relates to the involvement of the Old Lion. Mr. Tremaine, general manager of the hotel until 1st July, 1977, and still closely involved in management thereafter, was present at the Cooper's lunch and he heard Mr. Farrah's intimation as to what his hotel proposed to do. In consequence there is no doubt that an expectation was raised in the mind of Mr. Tremaine. In fact Mr. Tremaine said in evidence that he left the lunch in a state of enthusiasm about Mr. Farrah's comment. Again there is no direct evidence that Mr. Tremaine at that lunch committed himself to follow Mr. Farrah's proposal, or gave any indication at all as to what action his hotel would take, if any. In support of this there is W.T. Cooper's evidence to the effect that he did not hear any response from other persons at the lunch. This evidence accords with that given by Mr. Tremaine during the hearing to the effect that he did not reach any understanding with Mr. Farrah at the lunch or at any other time. However I treat Mr. Tremaine's evidence with considerable caution. He stated that he had given incorrect answers to the first s. 155 notice but, as will subsequently appear, I am not satisfied with his explanation. His justification for the making of the statement which he now contends to be false, and which in effect he called "an intelligent lie", does not impress me in the least.

The first s 155 notice answered by Mr. Tremaine was directed to, "Kevin Lane, Agent Nominee, Old Lion Hotel, Jerningham Street, North Adelaide, SA 5006". This notice was answered by Mr. Tremaine and signed by him as "general manager of the Old Lion Hotel". It was contended that these answers were not binding on the Old Lion defendants in that the notice was not directed to them and Mr. Tremaine had no authority to answer on their behalf. I accepted the notice and the answers subject to objection at the time of tender. Counsel for the Old Lion submitted that, although early in the proceedings I had indicated that on the evidence then before me I was prepared to infer that Mr. Tremaine had authority to bind the Old Lion by his answers, Mr. Tremaine's evidence should have satisfied me that he did not have actual authority. In my opinion the further evidence confirmed rather than denied my earlier finding. There is evidence upon which I am entitled to find, and I do find, that the answers of Mr. Tremaine are binding on the Old Lion defendants. There was evidence establishing that Kevin Lane, to whom the notice was directed and upon whom it was served, was the nominee of these defendants pursuant to s. 55 of the Licensing Act consequent upon a notice of re-entry having been given. He was also the night manager in charge of the dining-room, the underground bar and two main bars. Kevin Lane brought the notice to Mr. Tremaine, who told the court that he undertook to effect the reply as over the years he had generally handled any dealings or correspondence with the Licensing Court, the City Council or other statutory bodies.

There was evidence as to the involvement of Mr. Tremaine in the management of the hotel and in decision making, although he did not have the final say subsequent to the appointment of Mr. Sangster as managing director. In the absence of other evidence I am entitled to find that he had authority to answer these questions and that he was a competent person to sign on behalf of the defendants. There was no evidence from the managing director or any other director denying Mr. Tremaine's competence or authority or disavowing the response as the response of all the companies who comprise the Old Lion defendants. For the reasons given earlier when I was considering s. 155 notices generally, I find that Mr. Tremaine's answers to the second s. 155 notice directed to him personally are binding on the Old Lion defendants to the extent that they refer to happenings at the Cooper's lunch. In answer to questions 5 and 6 of the first s. 155 notice directed, as I have found, to the companies, Mr. Tremaine answered as follows:


"During recent months the shareholders of this company have been concerned regarding the long term impact of discounting on the liquor industry. As such, there have been a number of meetings at our own management and directors level to discuss this issue.

"On or about 22nd November, the writer attended a social luncheon at Coopers Brewery (this is a regular event for members of the industry) and, on this occasion, one of the guests present was a Mr. Peter Farrar (sic) of the Royal Oak Hotel. In conversation Mr. Farrar advised that his company had made the decision to reduce their discounting operation to fourteen to the dozen the first week in December, but did not express any reason why.

"On my return to the Old Lion Hotel I advised my managing director, Mr. Howie Sangster, of the decision made by the Royal Oak and we decided that this would be an ideal opportunity to reduce our discounting arrangement.

"Accordingly, we re-scheduled our advertising - effective Monday 5th December and reduced our 'bonus bottles' to fourteen to the dozen on all beer products."

In his evidence before the court Mr. Tremaine said that the information in the last two paragraphs was not correct and that a firm decision had been made to change the discounting rate early in November. That decision having been made, the relevant advertising copy, he said, had been changed. His explanation was that he believed the inquiry related almost entirely to the newspaper story of 30th November, 1977, in which he said he placed no credence. He said that unfortunately he had placed very little significance on the Trade Practices Commission's inquiry because he assumed it hung entirely on the newspaper story so "it tended to be an intelligent answer to get them off my back". Such irresponsible behaviour does no credit to him or the Old Lion, and there is much justification for treating his subsequent evidence with caution if not suspicion. In general I am not prepared to accept his evidence unless it is either corroborated or confirmed by oral evidence or other material before me. This other material comprises advertising both in newspapers and on television and the contemporaneous instructions given to the advertising agents. To some extent this confirms Mr. Tremaine's evidence to the effect that the Old Lion had made some decisions prior to the Cooper's lunch to reduce the discount, but I must confine this finding to Cooper's beer. To make this finding does not mean that I accept without reservation either Mr. Tremaine's statement in the s. 155 response or his evidence given in court as to when and what decision was made to change the rate of discount. Neither story is wholly acceptable.

It seems to me after considering all the evidence, that it is more likely that the true position is that the Old Lion had made a decision prior to the Cooper's lunch to change at least its Cooper's allowance early in December, but probably had made no firm decision in respect of West End or Southwark Beer. Its television advertisement to the effect that its offer of sixteen to the dozen of Cooper's beer "closes 3rd December, 1977" is confirmatory of this being the case. The instructions for the television advertisement in this form bear the date 17th November, 1977, as the date upon which they were typed. These instructions were given to the television station on 18th November, 1977, for televising in the week commencing 20th November, 1977. Whether the advertisement was in fact shown before the lunch on 22nd November, 1977, is unclear on the evidence.

After hearing of the intentions of the Royal Oak, Mr. Tremaine returned "with enthusiasm" to report to his managing director that the latter company would also be reducing its allowance and at approximately the same time. The Old Lion in consequence decided to reduce its allowance for West End and Southwark products and that the allowance for all its packaged beer would be fourteen to the dozen. This decision was made on the day of, but subsequent to, the Cooper's lunch. It seems to me that this is evidence which, albeit with some hesitation, I should accept as going at least some distance towards explaining the parallel behaviour of the Old Lion on 5th December, 1977, in reducing its allowance.

One further matter should be mentioned. It was alleged that the understanding between the defendants other than the Norwood was arrived at at the Cooper's lunch. The plaintiff did not plead that it occurred on any later date and there is no evidence of any communication between the Old Lion and the Royal Oak subsequent to the lunch. In the circumstances there can be only one question, namely whether Mr. Tremaine reached an understanding with Mr. Farrah at the Cooper's lunch. This inference I am not prepared to draw in the circumstances that Mr. Tremaine has given evidence and been subjected to cross-examination and there is corroborative evidence of his contention that a decision had been made prior to the lunch to make a change.

I have set out the circumstantial evidence in respect of each group of defendants. The question now arises for consideration in respect of each of the defendants whether I am prepared to draw the inference that it in some way raised an expectation in the mind of Mr. Farrah, and thus arrived at an understanding with him. It seems accepted that the requisite degree of satisfaction is the civil test, namely the balance of probabilities. However I accept the submission of counsel for the defendants, and not disputed by counsel for the plaintiff, that I should pay regard to the gravity of the matters in issue on the ground that the graver the allegation the greater should be the strictness of proof required. In this regard I was referred in particular to Briginshaw v. Briginshaw (1938) 60 CLR 336, at pp 347, 353, 362 . Moreover it is perhaps of some significance that the fines for offences under the Act are very much less than the maximum sum I am empowered to award by way of pecuniary penalties.

There is one other matter, and that is whether I should be prepared more readily to draw an inference in a civil matter. In this regard I am assisted by, and with respect adopt, the distinction referred to by Gibbs J. in T.N.T. Management Pty. Ltd. v. Brooks (1979) 53 ALJR 267, at p 269 between criminal and civil proceedings in the case of circumstantial evidence. I refer to the whole of the passage in the last paragraph of that page, and in particular to the extract quoted from Bradshaw v. McEwans Pty. Ltd. Unreported. (High Court of Australia, Full Court, 27th April, 1951.) cited in Luxton v. Vines as follows:


"The difference between the criminal standard of proof in its application to circumstantial evidence and the civil is that in the former the facts must be such as to exclude reasonable hypotheses consistent with innocence, while in the latter you need only circumstances raising a more probable inference in favour of what is alleged. In questions of this sort, where direct proof is not available, it is enough if the circumstances appearing in evidence give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is mere matter of conjecture . . . But if circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusion sought then, though the conclusion may fall short of certainty, it is not to be regarded as a mere conjecture or surmise . . ." (1952) 85 CLR 352, at p 358.

It seems to me therefore that in so far as these proceedings are civil in nature, I should be more prepared to draw the inference sought by the plaintiff than if they were criminal. However again it is appropriate that I have regard to the gravity of the matters in issue.

I now turn to the objective facts upon the basis of which I am invited to draw the relevant inference against the first-named defendant. They are, the making of a statement by Mr. Farrah during the discussion at the Cooper's lunch in such a way as to raise an expectation in the mind of other persons present. It was, in contradistinction to a price decrease, obviously in that defendant's interest that other hotels follow suit and in the context in which it was made it was virtually an invitation to them to do so. Mr. Farrah as representing the market leader was giving a lead, and his visit to Leon Saturno can be seen in this light. Whether or not Mr. Farrah, and through him the first-named defendant, was a party to an understanding depends upon whether or not any other person raised an expectation in his mind. He has not given evidence to the contrary, and this is a matter which encourages me to draw the inference that at the lunch some person indicated his attitude. Obviously my ultimate finding in respect to the Royal Oak must depend on my finding as against the other defendants and I defer making the former finding until I have considered the position of the other defendants.

As to the Norwood, in all the circumstances, I am not inclined to draw the relevant inference. Leon Saturno has from the witness box given not only a denial of having raised any expectation in the mind of Mr. Farrah at the Norwood lunch, but most importantly he has given a reasonably plausible explanation of the Norwood Hotel's parallel behaviour.

My task is more difficult when I come to consider the Old Lion. I have already dealt at some length with the reasons why I have concern in accepting all the evidence of Mr. Tremaine if not otherwise corroborated. He told us that he did not make anything other than a non-committal reply at the lunch, and this is confirmed by the evidence of W.T. Cooper. There is no evidence that he or anybody else on behalf of the Old Lion had any subsequent communication with Mr. Farrah or the Royal Oak. There is of course the Old Lion's parallel behaviour, but on balance, albeit with some hesitation, I feel that I can accept that there was before the court a reasonably plausible explanation, sufficient at least to show that the probabilities are that there was no understanding with Mr. Farrah or any other person. There is acceptable evidence that the Old Lion had made, prior to 22nd November, 1977, plans to change its allowance on Cooper's beer (its largest discount line). In these circumstances the explanation is available that the only consequence of the Cooper's lunch was to encourage the Old Lion to extend the reduction of the allowance to West End and Southwark packaged beer because of what it had heard of the intentions of the market leader. In these circumstances I am not prepared to draw the inference that Mr. Tremaine raised an expectation in the mind of Mr. Farrah at the lunch or shortly thereafter on behalf of the Old Lion and thus arrived at an understanding with the Royal Oak. It follows that by reducing its allowance on 5th December, 1977, it was not giving effect to an understanding.

I have already referred in some detail to the available objective facts in respect of the Morphett Arms. In my opinion the inference could be drawn that it arrived at an understanding with Mr. Farrah in that Mr. Palmer raised an expectation in his mind at the Cooper's lunch. The drawing of this inference against each of them could be reinforced by the subsequent conduct of each, but I do not rely upon the subsequent conduct of each as evidence against the other except in respect of the parallel conduct of reducing the allowance on the same day. As against the Morphett Arms the court has not had the benefit of a denial by Mr. Palmer of a commitment having been reached at the lunch or heard from him on the matter of the visits, and the evidence of Mr. King if anything increases the necessity for an explanation. I find it very hard to accept Mr. King's evidence that he was not informed by Mr. Palmer of the happenings at the Cooper's lunch or of Mr. Palmer's subsequent visits to Mr. Ritchie and Mr. Richards, notwithstanding their many discussions. If he was not told anything by Mr. Palmer, that in itself needs explanation. It is on his own story so surprising as to be unacceptable without corroboration from Mr. Palmer. I am not satisfied that Mr. King's evidence provides a reasonably plausible explanation of the Morphett Arms' parallel conduct. I therefore am prepared to draw the inference that the Morphett Arms did arrive at the relevant understanding with Mr. Farrah.

In these circumstances my findings on this aspect of the case are that the Royal Oak and the Morphett Arms did arrive at an understanding on 22nd November, 1977, and did on 5th December, 1977, give effect to that understanding. I am not prepared to find that the Norwood or the Old Lion either arrived at the understanding alleged or gave effect to such an understanding.

As my order ultimately must be that the plaintiff's claim against the Norwood, as well as the Old Lion, be dismissed, it is proper that I should at this stage refer to the attack which counsel for the Norwood made upon the Act, and its administration by the plaintiff and its officers. This attack received some publicity in at least one daily newspaper. As to the policy of the legislature in enacting particular provisions of the Act, this is obviously not a matter for this Court or of any relevance in these proceedings. Counsel also complained of the conduct of the plaintiff and its officers in the investigation of the circumstances of this matter and the launching and carriage of these proceedings. It is proper that I should say that I see no justification for those complaints. The matter has to the extent of my knowledge been conducted with complete propriety.

Having concluded that two defendants arrived at an understanding it is necessary to determine whether it is such as to come within the scope of s. 45. This section is directed against understandings, a provision of which "has the purpose, or would have, or be likely to have the effect of substantially lessening competition". I shall hereafter identify this purpose or effect as "the relevant purpose".

In the early stages of these reasons I set out in full s. 45(3) and s. 45A. Each has to be considered in determining whether the plaintiff has established that the understanding had the relevant purpose. In referring to the provisions of these sections or parts thereof, I have hereafter extracted only the words which have relevance to the facts of this matter.

Section 45A(1) assists the plaintiff to discharge its onus in that it provides that if the understanding conforms with the requirements of that section it is deemed to have the relevant purpose. The first requirement is that the understanding contain a provision which has the purpose of, or has, or is likely to have the effect 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 relation to the supply of goods. These purposes and effects, which I shall refer to as "the relevant sub-purpose", all relate to price fixing whether achieved directly or indirectly. If the plaintiff establishes that the understanding has the relevant sub-purpose of price fixing it is, subject to what I say later concerning "competition between the parties", deemed to have the relevant purpose i.e. substantial lessening of competition.

Counsel for the first defendant contended that the purpose or effect of the understanding was not the relevant sub-purpose of price fixing. He submitted that its purpose or effect was to change the selling base of packaged beer from fifteen to fourteen bottles to the dozen. However, in my opinion it was of the essence of the understanding that notwithstanding the alteration of the selling base, the price for the notional dozen would remain virtually unchanged. Thus it was, at least indirectly, a means whereby an increased price was fixed. Before me, the consequence of what was allegedly achieved by the understanding was called "the fixing of an allowance", but whether it be this, or more correctly the fixing of a price, discount or rebate is immaterial. The result of the understanding was to increase the price of each individual bottle of beer and thus, at the least, the effect of the understanding was the relevant sub-purpose. In my opinion the plaintiff has satisfied the first requirement of s. 45A.

The section however additionally provides that the understanding is only deemed to have the relevant purpose if the price fixing relates to goods supplied "by the parties to the understanding . . . or by any of them . . . in competition with each other". In this present matter it appears that it will be necessary to determine whether the Royal Oak and the Morphett Arms are in competition with each other. Section 45(3) defines "competition" in s. 45 and s. 45A as "competition in any market in which a corporation that is a party to the . . . understanding . . . supplies . . . goods". It will therefore also be necessary to define the nature and area of the relevant market.

What I have set out above in relation to s. 45(3) and s. 45A doubtless oversimplifies what I see as difficult questions of construction. The application of and interaction between these sections is not easy to determine, particularly in circumstances where there are more than two parties to an understanding who are not all in competition or all supplying goods in the same market. The first question is to determine the meaning to be attached to the words "by any of them . . . in competition with each other" in s. 45A(1). Counsel for the Morphett Arms contended that the deeming provisions of that section could have no application unless all parties to the understanding were in competition with each other. Alternatively, the section could only be availed of in respect of those parties to the understanding who were in competition. These arguments were of significance in the case of his client, as he contended it was not in competition with any of the other defendants. This construction of the section may well be correct, though there are in my view substantial arguments to the contrary. However the facts of this matter do not require a decision on these questions of construction, as I have found only two defendants to be parties to the understanding. As the plaintiff relied exclusively on s. 45A(1) to establish the relevant purpose, it follows that it must prove that these two defendants were in competition with each other.

Section 45(3) defines the word "competition" in s. 45A as meaning "competition in any market in which a corporation that is a party to the . . . understanding . . . supplies . . . goods". Again counsel for the Morphett Arms submitted that what the legislature had in mind was a market in which all the parties to the understanding supplied goods. He based his argument on the use of the words "a corporation that is a party", contending that the words "any corporation" would have been more appropriate if fewer than all the corporations was intended. However in my opinion, this argument is not well founded. The expression "the corporations" or "the parties to an understanding" would doubtless have been used, as it is in s. 45A, if it was intended to cover all parties. It follows that in my opinion it is not necessary that the market be a market in which all parties to the understanding supply goods. In the present matter, however, as there are only two parties to the understanding, for practical purposes it is doubtless necessary that they supply goods in the same market so as to compete each with the other. But all that the plaintiff is required in my opinion to establish, for the purposes of s. 45(3), is a market in which either the Royal Oak or the Morphett Arms is supplying goods.

The word "market" is defined in s. 4E of the Act as follows:


"For the purposes of this Act, 'market' means a market in Australia and, when used in relation to any goods or services, includes a market for those goods or services and other goods or services that are substitutable for, or otherwise competitive with, the first-mentioned goods or services."

It is generally accepted that there are in fact two markets, the product market and the geographic market. The definition indicates that the product market includes goods that are substitutable for the particular products under consideration. It was contended before me, albeit somewhat faintly, that I should find that in respect of beer there is some cross-elasticity with, for example, champagne and other wines. However in my opinion, in the context of this matter, it could not be said that wines are substitutable for packaged beer. The product market is packaged beer. This expression "packaged beer" was universally accepted and used by all parties and witnesses in the proceedings before me as appropriate to describe bottles of beer sold by way of a dozen or notional dozen. Perhaps the expression relates to the fact that a true dozen is invariably encased in a cardboard carton, with the number allowed by way of discount usually being inserted through holes in the top of the carton. However the expression seems to be accepted usage in the hotel trade, and was in fact used in the condition imposed on the grant of the licence which was before the Full Court in Young v. Farrah and Nicholas Enterprises Pty. Ltd. (1976) 13 SASR 444 . Bray C.J. was also mystified by the expression "packaged beer" as he acknowledged:


"I find the phrase a difficult one. The word 'packaged' seems to connote some sort of wrapping, yet it is difficult to think that discount prices would be acceptable if the bottles were sold in the primitive nudity of glass but not if they were concealed from the public gaze by a decent garment of brown paper" (1976) 13 SASR, at p 447 .

The geographic market is not so easy to determine, though it was not a significant issue before me and none of the defendants adduced evidence directly to counter that of the plaintiff. Their evidence was rather directed to the question whether or not particular hotels were in competition with each other. A geographic market can be considered in the present case as an area in which hotels operate as retailers of liquor and which is accessible to a substantial proportion of purchasers.

The Trade Practices Tribunal considered the concept of market in some detail in Re Queensland Co-operative Milling Association Ltd. where the members said:


"A market is the area of close competition between firms or, putting it a little differently, the field of rivalry between them . . . Within the bounds of a market there is substitution - substitution between one product and another, and between one source of supply and another, in response to changing prices. So a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive" (1976) 25 FLR 169, at p 190.

That tribunal, consisting of Woodward J., Presidnet and Mr. J.A. Shipton and Professor M. D. Brunt, was considering a market for goods in relation to s. 50 of the 1974 Act, but the comments are equally applicable here.

The tribunal, this time consisting of Northrop J., President and Mr. J.N. Walker and Professor B.L. Johns, further considered this question in Re Howard Smith Industries Pty. Ltd. where they said:


"A market represents a range of goods or services which are good substitutes for one another in satisfying the buyers' requirements of a particular type. If there is a variation in the relative prices of the goods or services offered for sale in a given market, then buyers can be expected readily to switch their custom from one seller to another or from one product to another" (1977) 28 FLR 385, at p 394 .

These comments were considered by Northrop J. in Trade Practices Commission v. Ansett Transport Industries (Operations) Pty. Ltd. (1978) 32 FLR 305, at pp 310-312 and adopted by him. With respect, I also adopt this approach.

In my view, the geographic market in which the Morphett Arms competes is not restricted to its sphere of activity or the limit of its actual sales. In Re Queensland Co-operative Milling Association Ltd. (1976) 25 FLR, at p 190 , the Tribunal referred to the market as "the field of actual and potential transactions". In Re Howard Smith Industries Pty. Ltd. (1977) 28 FLR 385 the relevant market for tug-boat services was every port in Australia, even though no company operated in every State. Similarly in the Ansett case the relevant market for rental cars was found to be Australia-wide. The evidence was that there were three or four companies which operated on an Australia-wide basis, and many others whose activities were restricted to a town or a regional area. Northrop J. found that, within the market the national operators carried on their business throughout Australia, while the local operators carried on their business within limited areas of Australia. He found that in all areas within Australia there was substitutability for the services provided by the national operators and the local operators in the local area, and that competition existed between the national and local operators in the areas in which the latter operated, between the local operators themselves and of course between the national operators themselves.

The primary evidence defining the outer boundaries of the relevant geographic market was given by Mr. Skinner, the general manager of Coles Stores in South Australia and the Northern Territory, and a person experienced in marketing. He was called by the plaintiff and stated as his opinion that a liquor outlet anywhere in the metropolitan area would be accessible generally to the public who live in that area, and would be in competition with other outlets selling in that area. He supported this opinion by drawing attention to the mobility and preparedness to travel of the people of Adelaide. This view received support from extracts from the publication of the Australian Bureau of Statistics based on the 1971 census which indicated the large number of people who travel to various sections of the metropolitan area on the way to or from work, and the sections in which these commuters reside. Mr. Skinner said that as the manager of a liquor outlet in the city he would be concerned about the prices advertised by the Morphett Arms, a suburban hotel, as well as the prices of the other near city hotels. He also stated that in his opinion a buyer would travel up to ten kilometres to obtain an extra bottle of beer for the price of a dozen.

The defendants did not put forward any independent witnesses for the purpose of defining the relevant geographic market. Counsel for the Morphett Arms was not prepared to accept that as far as that hotel was concerned the market in which it operated was the metropolitan area. He supported his contention by reference to portion of the evidence of Messrs. Ritchie, Tremaine and King, and in due course I will refer to this evidence. However, to my mind this evidence is more relevant to the question whether the Morphett Arms is in competition with the Royal Oak. In any event on my construction of s. 45(3) the area in which the Morphett Arms operates is immaterial. In my opinion for the purposes of s. 45(3) the market in which the Royal Oak supplies its goods is the metropolitan area and I so find.

The final matter for consideration is whether the Royal Oak and the Morphett Arms are in competition in the market of the metropolitan area. Counsel for the Morphett Arms strongly contended that on the evidence I should not find that his client was in competition with the Royal Oak. There was as mentioned earlier no evidence tendered by the Royal Oak on the question of its competition with the Morphett Arms. In the circumstance that the Royal Oak is the largest retailer of discount beer, with substantial advertising in newspapers distributed throughout the State and in particular the metropolitan area, it would appear to be competing with all liquor outlets in the metropolitan area including the Morphett Arms. Such a view is confirmed by the mobility of the people of that area and the fact that the Royal Oak is on the periphery of the city square mile.

The evidence to which counsel for the Morphett Arms pointed as supporting the contrary finding was given by Messrs. Ritchie, Tremaine and King. Mr. Ritchie was asked what he considered to be the extent of his competition, that is from which hotels and retail storekeepers might he attract custom and to whose prices might he respond. His opinion was that he considered his outlet to be competing in a local market of some four miles in diameter. It is perhaps significant to appreciate that the retail outlet with which Mr. Ritchie is associated is primarily a grocery store situated in a suburb.

Mr. Tremaine gave evidence to the effect that at the relevant time he did not know what allowance the Morphett Arms was making, and that although he was concerned generally to know the price at which other hotels were selling beer, he was not concerned about the Morphett Arms. Mr. King stated that the competition to the Morphett Arms was drawn from surrounding areas only, his main competitor being a bottle shop on the Anzac Highway. He also expressed the opinion that the Morphett Arms was in no significant competition with the Royal Oak.

Counsel for the commission pointed to the evidence of Mr. Skinner to which I have already referred, and in particular his opinion that a person would travel ten kilometres for an extra bottle of beer. It was accepted that the distance between the Morphett Arms and the Royal Oak Hotels is twelve kilometres. Mr. King also said that the information that he gained from a newspaper article that the Norwood, Old Lion and Royal Oak Hotels were reducing their discount was a very important factor in motivating the Morphett Arms to move. He seems therefore to be conceding that if he increased his price and the Royal Oak did not, he could lose custom to that hotel. That this concession is probably correct is confirmed by the fact that Mr. Palmer visited a city hotel, the Aurora, in an effort to persuade that hotel to reduce its allowance to fourteen to the dozen. It is further confirmed by the evidence of Mr. Skinner that a person would be prepared to travel up to ten kilometres for an extra bottle of beer, which tendency would be applicable to persons living as close as two kilometres from the Morphett Arms Hotel as the greater part of the area between that hotel and the Royal Oak Hotel is within a distance of ten kilometres from both hotels. There is also the evidence from Mr. King that "local competition is more important than, for instance, say competition ten miles away", which indicates that he acknowledged the possibility of competition from an outlet ten miles from the Morphett Arms.

It is in my opinion more appropriate to see most of the evidence of Mr. King as going to the amount of competition he actually experiences in relation to the Royal Oak in circumstances where there is little, if any, price differential. Although he does not see the Morphett Arms Hotel as being in a position, or in any way attempting to draw custom from the immediate vicinity of the Royal Oak Hotel, he concedes what I would see as being the position otherwise disclosed by the evidence, namely that he could lose custom to the Royal Oak Hotel or any large city discounter if it was selling at a lower price. In this regard I would draw attention again to the words of the Trade Practices Tribunal in Re Queensland Co-operative Milling Association Ltd. "So a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive" (1976) 25 FLR, at p 190 . (The emphasis is mine.)

The findings in the Ansett case (1978) 32 FLR 305 provided a useful analogy to the present matter. The relevant geographic market is the metropolitan area of Adelaide. Within that market, some suppliers, namely the large city or near-city discounters, including the Royal Oak, operate throughout the metropolitan area, while others are restricted in their activities to more limited areas. In any suburb or other limited area there is competition between the suppliers in that area, such as existed between the Morphett Arms and the bottle shop on the Anzac Highway but there is also competition in that area between the local suppliers, such as the Morphett Arms, and those suppliers, such as the Royal Oak, who supply goods throughout the metropolitan area. This latter competition may only become apparent to management if there is "sufficient price incentive".

In the circumstances I am of opinion that the Royal Oak and the Morphett Arms are in competition with each other and thus the plaintiff is entitled to rely upon the provisions of s. 45A to establish that the understanding has the relevant purpose.

I therefore find that each of them, the Royal Oak and the Morphett Arms, has contravened the provisions of s. 45(2)(a)(ii) and s. 45(2)(b)(ii).

I do not propose to enter any formal judgment at this stage but ultimately to make one order encompassing all matters in issue in respect of all defendants. I now stand the matter over to a date to be fixed to allow an opportunity for evidence to be put before me on the question of pecuniary penalties and for argument on matters of penalty, injunction and costs.