Boral Besser Masonry Ltd (Now Boral Masonry Ltd) v Accc

• Jurisdiction: Australia Federal only
• Judge: Gleeson CJ,Callinan J,Gaudron,Gummow,Hayne JJ,McHugh J,KIRBY J
• Judgment Date: 07 February 2003
• Neutral Citation: 2003-0207 HCA A,[2003] HCA 5
• Docket Number: M1/2002
• Court: High Court
• Date: 07 February 2003

Boral Besser Masonry Limited (now Boral Masonry Ltd)

Appellant

and

Australian Competition and Consumer Commission

Respondent

[2003] HCA 5

Gleeson CJ, Gaudron, McHugh, Gummow, Kirby, Hayne and Callinan JJ

M1/2002

HIGH COURT OF AUSTRALIA

Boral Besser Masonry Limited (now Boral Masonry Ltd) v Australian Competition and Consumer Commission

Trade practices — Restrictive trade practices — Misuse of market power — Predatory pricing — Market definition — Concrete masonry products market — Close substitutability — Whether appellant had substantial degree of market power — Recoupment of losses — Analysis of market structure — Market share — Barriers to entry — Whether barriers to entry created by practices and policies of incumbent firms — Pricing behaviour — Increase in supply capacity — Whether taking advantage of a substantial degree of market power for a proscribed purpose — Legislative purpose of Trade Practices Act 1974 (Cth) — Relevance of market economic conditions — Relevance of purpose of damaging a competitor — Trade Practices Act 1974 (Cth), s 46(1), (3).

Words and phrases — ‘market power’, ‘predatory pricing’, ‘barriers to entry’.

Trade Practices Act 1974 (Cth), s 46(1), (3).

Representation:

A C Archibald QC with C M Maxwell QC and I B Stewart for the appellant (instructed by Blake Dawson Waldron)

N J Young QC with D Shavin QC, M J Crennan SC and P M Tate for the respondent (instructed by Australian Government Solicitor)

ORDER

1. Appeal allowed with costs.

2. Set aside the orders of the Full Court of the Federal Court dated 27 February 2001, and in place thereof order that the appeal to that Court be dismissed with costs.

1 Gleeson CJ and Callinan J. This appeal concerns the application of s 46 of the Trade Practices Act 1974 (Cth) (‘the Act’) to the conduct of the appellant in relation to the supply of concrete masonry products (‘CMP’) in Melbourne between April 1994 and October 1996. The central issues are whether the appellant had a substantial degree of power in a market, and whether it took advantage of that power in contravention of s 46.

2 Section 46 provides, so far as is relevant:

‘(1) A corporation that has a substantial degree of power in a market shall not take advantage of that power for the purpose of:

• (a) eliminating or substantially damaging a competitor of the corporation or of a body corporate that is related to the corporation in that or any other market;

• (b) preventing the entry of a person into that or any other market; or

• (c) deterring or preventing a person from engaging in competitive conduct in that or any other market.

…

(3) In determining for the purposes of this section the degree of power that a body corporate or bodies corporate has or have in a market, the Court shall have regard to the extent to which the conduct of the body corporate or of any of those bodies corporate in that market is constrained by the conduct of:

• (a) competitors, or potential competitors, of the body corporate or of any of those bodies corporate in that market; or

• (b) persons to whom or from whom the body corporate or any of those bodies corporate supplies or acquires goods or services in that market.

(4) In this section:

• (a) a reference to power is a reference to market power;

• (b) a reference to a market is a reference to a market for goods or services; and

• (c) a reference to power in relation to, or to conduct in, a market is a reference to power, or to conduct, in that market either

as a supplier or as an acquirer of goods or services in that market.’

3 The provisions of ss 4E and 4F(1)(b) should also be noted. They are as follows:

‘4E For the purposes of this Act, unless the contrary intention appears, “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.

4F (1) For the purposes of this Act:

…

(b) a person shall be deemed to have engaged or to engage in conduct for a particular purpose or a particular reason if:

• (i) the person engaged or engages in the conduct for purposes that included or include that purpose or for reasons that included or include that reason, as the case may be; and

• (ii) that purpose or reason was or is a substantial purpose or reason.’

4 The appellant was formerly named Boral Besser Masonry Limited, and has been referred to throughout the proceedings as BBM. It is a subsidiary of Boral Concrete Products Pty Ltd, which in turn is a subsidiary of Boral Limited (‘Boral’). Boral was the holding company of a large group operating in the areas of building and construction materials, and energy. Group revenue for the year ended 30 June 1995 was $4.9 billion. BBM operated in New South Wales and Western Australia, as well as Victoria.

5 The respondent, the Australian Competition and Consumer Commission (‘the ACCC’), took proceedings in the Federal Court of Australia against Boral and BBM. The proceedings were heard before Heerey J, who found in favour of both Boral and BBM, and dismissed the application 1. There was an appeal to the Full Court of the Federal Court, but ultimately the appeal was pressed only in relation to BBM. The Full Court (Beaumont, Merkel and Finkelstein JJ) allowed

the appeal, found that BBM had contravened s 46, and ordered that the matter be remitted to the trial judge for further hearing on the question of relief 2. BBM now appeals to this Court against that decision.

6 Since the case is about market power, and alleged illegal use of that power, it is necessary to begin by examining the nature of the market, and the detail of the conduct of BBM which is said to have contravened the Act.

Concrete masonry products

7 The concrete masonry products of present relevance are blocks, bricks and pavers. Such products are manufactured from cement, sand, stone aggregate, and water; all raw materials that are readily available in Melbourne. The process of manufacture is relatively simple, and the products are not the subject of patent, copyright, or any other form of intellectual property. With limited exceptions, they are not sold under trade marks or brand names. Heerey J described them as being, in essence, a commodity.

8 Masonry blocks come in a range of sizes, the most common being referred to as 10.01, 15.01, and 20.01. Such blocks are used as a building material for the construction of walls in commercial buildings, or where aesthetic appearance is not important. It was found convenient to take the 15.01 block as a standard basis of comparison of prices.

9 Masonry bricks are made in one size only, which is the same size as a standard clay house brick. Bricks are primarily used as a material for the construction of walls, particularly in residential housing.

10 Pavers are made in a range of sizes. They are designed for use as an external pavement, and are commonly used around domestic residences and commercial buildings.

11 There are also retaining wall products which are used for landscaping external areas around residences, commercial buildings, public parks, and along roadways for retaining earth and stopping erosion.

12 The evidence showed that there were a number of alternative products available to the building and construction industry for use instead of CMP. They included tilt-up and precast panels, plasterboard, and clay bricks. There were also paving alternatives. Heerey J found that BBM and other concrete masonry

manufacturers regularly monitored products which threatened to take sales away from CMP, and formulated strategies to capture sales from other products. BBM strategic business plans showed an awareness of a constant threat from such competing products. The availability of those products was a significant factor in the pressure which customers for CMP were able to apply to suppliers, as evidenced in the price war referred to below.

Suppliers of concrete masonry products

13 Other significant suppliers of CMP in Melbourne were as follows.

14 Besser Pioneer Pty Ltd (‘Pioneer’) was a subsidiary of Pioneer International Limited, the holding company of another large Australian group. Pioneer manufactured concrete masonry blocks, bricks and pavers in Victoria at a plant in Melbourne.

15 C & M Brick (Bendigo) Pty Ltd, and a related company, (collectively called ‘C & M’) had for many years manufactured CMP at Bendigo. In 1993, C & M established a concrete masonry plant at Campbellfield on the northern outskirts of Melbourne. It commenced full-scale production of concrete bricks and pavers at Campbellfield in February 1994. It commenced the production of concrete blocks later. C & M was a highly efficient producer, partly because it had a new Hess machine which was said to be state of the art. The commencement by C & M of production at Melbourne was regarded by its competitors (rightly, as things turned out) as a serious threat.

16 Rocla was the trading name of Amatek Ltd, which was part of the large BTR Nylex group. Partly as a result of the price war to which reference will be made below, Rocla ceased to manufacture concrete blocks in Victoria in September 1993 (several months before the commencement of the allegedly contravening conduct of BBM). It ceased the manufacture in Victoria of its remaining concrete masonry products in August 1995.

17 Budget Bricks & Pavers Pty Ltd (‘Budget’) was a private company which operated a plant for the manufacture of CMP at Springvale. It ceased operations in June 1996.

18 Before 1992, BBM's share of concrete masonry sales had been more than 30 per cent. Heerey J found that in January 1992 BBM's share had fallen to 12 per cent, but by 1993 it had risen again to 30 per cent. From 1994 to 1996 (the period of the alleged...