1. ACCC takes legal action

Mike turned on the Lightbulb in 2006 on reading about the court action instituted on 27 June 2003 by the Australian Competition and Consumer Commission (ACCC) against Liquorland and Woolworths. In the case Woolworths was represented by Clayton Utz, solicitors and the ACCC by solicitors from the Australian Government Solicitor.

2. Liquorland settles, Woolworths fights on

Liquorland, the co-accused, admitted on 31 May 2005 that it had entered into illegal agreements (ie contrary to the Act) with five applicants for liquor licences. Liquorland was penalised A$4.75 million by Justice Gyles of the Federal Court for these contraventions. Note that Liquorland is a party to what we’re calling Exhibit A, the contract illustrating this post.

Surprisingly at least to Mike and I, Woolworths allowed the ACCC case  against it to continue. The hearing involved sittings on 33 days. Thus Woolworths took the risk of seeking an outcome better than a Liquorland-level negotiated settlement with the ACCC. By the time Mike wrote his post the decision against Woolworths had already been handed down on 30 June 2006, which you can read at ACCC v Liquorland (Australia) Pty Ltd [2006] FCA 826 (30 June 2006). With curiosity about Woolworths’ litigation strategy, we then awaited news of the penalty the court might impose against Woolworths. Potentially it faced a penalty of A$10 million per illegal episode.

3. Woolworths fined $A7 million and ordered to pay legal costs

According to the ACCC Press Release, on 16 December 2006, following arguments heard on the prior day in the Federal Court of Australia, the penalty imposed by Justice Allsop for Woolworths’ anti-competitive strong arm tactics was $A7 million. This is a historically high penalty for breach of Australian trade practices law. Woolworths will also have to pay the legal costs of the ACCC, which The Age estimated to be $A2 million. Of course Woolworths will also have to pay the legal costs of its own legal representatives and wear the lost management time. All up it’s feasible that Woolworths’ legal costs greatly exceed A$11 million for the case.

In the 30 June 2006 judgement, put simply, it was held that Woolworths’ was in breach of the Trade Practices Act for blocking entry of packaged takeaway liquor from small businesses into local liquor markets.

Justice Allsop found that Woolworths had entered each of the contracts (with the following small businesses) with the substantial purpose of “substantially lessening competition” in local packaged takeaway liquor markets affecting the following small businesses:

  • Ettamogah Bar & Restaurant, Campbelltown
  • Dry Dock Bottleshop, Tweed Heads
  • Global Beer Importers, Tweed Heads, and
  • Jin Ro Australia, Arncliffe.

Justice Allsop also found that the Ettamogah and Global Beer agreements contravened the Trade Practice Act on the additional basis that each contained an “exclusionary provision” which had the purpose of preventing the small business applicants from supplying packaged takeaway liquor to Woolworths’ actual and potential customers.

For brevity we’ll focus just on the Ettamogah Bar & Restaurant, Campbelltown story in the case.

4. Expert economics evidence in trade practices cases

In the decision, as in other court decisions under the Act, while useful for proving a breach, it is not necessary to prove an anti-competitive effect has taken place due to the alleged facts. Instead the focus falls on whether there is evidence of a “substantial purpose”.

Economic evidence can be useful but it can also be ignored by a judge, eg on the grounds of it not being useful. For example, as regards expert economic evidence adduced on the question of the effect of Woolworths’ actions under examination in the case, Justice Allsop at paragraphs 197 and 198 states:

“…I was not assisted by the analysis of the expert economic evidence, as to the effect or likely effect on competition of the deed in respect of each episode. Ample evidence exists of the purpose of both Mr Smith and Mr Meagher [both senior managers in Woolworths liquor division]. … The provisions of the deed were one way (pressing an objection thought to have reasonable prospects of success was another) of seeking to exclude a competitor, or a platform or vehicle for competitive activity from the market in order to protect Woolworths local turnover.”

Also as regards the opinion of economists and economics as a social science, at paragraph 838 Justice Allsop quotes John Maynard Keyes: “The Theory of Economics does not furnish a body of settled conclusions immediately applicable to policy. It is a method rather than a doctrine, an apparatus of the mind, a technique of thinking, which helps its possessor draw correct conclusions.” I would add that law too has those qualities of tending to be a method or technique of thinking rather than a settled doctrine ready for immediate application. Recognising this improves understanding of legal advice (what is being said by lawyers) and the legal process (what is being done by lawyers).

Note Ettamogah Darling Harbour Pty Ltd is also a party to our Exhibit A. It is related to The Ettamogah Pub Mob, which specialises in Ettamogah cartoon-themed pubs and other outlets. While it owned a Darling Harbour outlet (since closed), it also in December 1998 sought to open a Campbelltown outlet to be named Ettamogah Bar & Restaurant, Campbelltown. It too has since closed. Note here, as Justice Allsop did, how Exhibit A’s contract date of 28 November 1998 falls one month before that opening month. This simple yet certain fact, of the date when something was done, was relevant to Justice Allsop’s determination of Woolworths’ purpose for the contract.

5. Lessons from the case

–  Liquor licensing practice and procedure

The case is particularly relevant to enterprises seeking or opposing a liquor licence and considering what should be their legal strategies, tactics and documentation.

–  Settlement strategy and litigation strategy

The penalty and the costs award against Woolworths provide a reminder on the consequences of legal decisions and litigation strategy that goes wrong.

–  Need for legal advice

Anti-competitive conduct is contrary to the Act. In-house counsel, solicitors, managers and business proprietors who prepare or put in place contracts, arrangements or understandings should, as a common practice, review possible trade practices legal problems or issues.  The wide scope of the Act is immediately apparent when you consider the breadth of transactions in the nature of the above bolded terms.

With some exceptions all contracts, arrangements or understandings need to comply with the Act. If they do not, they may be legally non-binding or illegal, result in penalties, bad press and lost management time spent in a solicitor’s office, barrister’s chambers or witness box.

–  Document drafting and trade practices compliance

However for all solicitors, in-house counsel and business people negotiating contracts, arrangements and understandings reading the case provides a salutary lesson in the care which should be taken with contracts, arrangements and understandings that have exposure to the Act.

With the benefit of hindsight Justice Allsop has recorded a trail of poor business/legal decisions (ie from a trade practices law perspective) made from the beginning by Woolworths and its senior liquor division management and legal team as they imposed a contract on Ettamogah Bar & Restaurant, Campbelltown which at the same time had a high risk of exposure to trade practices law and action by the ACCC.

What were the people for Woolworths thinking in having another giant, Liquorland, also be a party to the contract? Here and elsewhere the case is also a reminder that when a deal already smells legally, then it is not a good idea for lawyers or others to dutifully dress it up in a contract. In court the deal’s rank aroma can emerge out of the contract and really get up a Judge’s nose.

Judges and our legal system have a remarkably fine way of regularly sniffing out the facts and issues. Where there is no specific written contract on point, courts can and do consider other evidence to adduce the purpose of conduct by a party. For example, in his search for a basis for his decision, in the case Justice Allsop refers to letters written by managers, economic reports by Bain International, consumer interview surveys, and the Woolworths Stategic Plan for liquor outlets. Despite Woolworths’ arguments, ill-considered contracts and letters comprised evidence assisting Justice Allsop to form conclusions about the purpose Woolworths had in its corporate mind for having the contract.

Rejection of “finely spun distinctions” and any “semantic tournament”

The successful ACCC case was founded primarily on sections 4D and 45(2) of the Trade Practices Act. As regards Ettamogah Bar & Restaurant, Campbelltown, at paragraph 816 of his 848 paragraph decision, Justice Allsop concluded:

“Woolworths’ purposes included, relevantly, the purpose of preventing the supply of takeaway packaged liquor (other than themed liquor) to all future customers of the Ettamogah Pub. The commercial aim of Woolworths was to protect the existing business of Woolworths in the local area from losing custom to the Ettamogah Pub. The purpose therefore can also, and separately, be expressed to be preventing the supply of takeaway packaged liquor (other than themed liquor) to future customers of the Ettamogah Pub who might otherwise buy such liquor from the Woolworths’ stores in the area. I do not think that one can define the group any more closely. Though the evidence tells one that there is likely to be a geographical catchment for people who will shop at the Ettamogah Pub or the Woolworths’ stores at Campbelltown, that does not really assist in the delineation of the class. This can, perhaps, be contrasted with the class defined by the trial judge in Rural Press (HC) (see [56] above). Nevertheless the class can be defined in one of two ways. It has a degree of particularity in both forms. This is sufficient, it seems to me, for the class to be called a particular class. The purpose of Woolworths was directed towards restricting supply to that identifiable (and particular) class. I therefore conclude that the purpose of the provisions of the Ettamogah Deed, in particular clause 1.2, was to prevent or restrict or limit the supply of takeaway packaged liquor to the above particular classes of persons. I conclude that Woolworths thereby contravened s 45(2)(a)(i) and (b)(i) in that respect.”

A quote cited by Justice Allsop at the beginning of his decision seems pertinent to his above conclusion. Personally I read it also as being descriptive of Woolworths’ failed litigation strategy and supportive arguments run in the case.

“Thus, what is to be rejected is an approach which, because the provision is penal, employs a literal analysis with an eye to the discernment of textual ambiguity through finely spun distinctions. As Professor Pearce said in Statutory Interpretation in Australia, 5th Edn Butterworths, Sydney, 2001 at 232, [9.8], speaking of such a literalist or textual approach:

“This somewhat naïve approach leads to the situation where counsel and judges worry away at individual words of Acts, seeking to squeeze out a possible interpretation that will enable a defendant to be acquitted. The intention of the legislature becomes lost in a semantic tournament. This in turn results in the courts being denigrated for not looking to the purpose of an Act, for being too ‘legalistic’. “

Noric Dilanchian