Competition Law Cases
Outboard Marine Pty Ltd v Hecar Investments (No 6) Pty Ltd
 FCA 265; (1982) 66 FLR 120 (1982) ATPR 40–327
Outboard Marine manufactured and distributed 'Evinrude' and 'Johnson' outboard marine engines, spare parts and accessories. Hecar was a retailer of outboard marine engines, spare parts and services of engines. Hecar purchased the 'Powercraft Marine' business in 1981; prior to this time Powercraft had marketed Evinrude engines. Subsequently a request to continue a dealer arrangement for those engines was refused; Outboard refused to supply Evinrude equipment to Powercraft (Evinrude engines could only be purchased from authorized dealers).
The primary judge held that the primary reaon for the refusal was that Hecar proposed to continue its relationship with Suzuki. It was alleged that this constituted exclusive dealingw ithin s 47(3)(a) and (d). The trial judge further held that 'the likely effect of Outboard's refusal would be to deprive customers of an opportunity to view two competing engines side by side' and that as a result the refusal to deal was likely to substantially lessen competition.
On the issue of competition generally in s 47(10):
[Bowen CJ and FIsher J at 43,983 ATPR]... "competition" for the purposes of s.47(10) must be read as referring to a process or state of affairs in the market. In considering the state of competition a detailed evaluation of the market structure seems to be required. In the Dandy Case Smithers J. regarded as necessary an assessment of the nature and extent of the market, the probable nature and extent of competition which would exist therein but for the conduct in question, the operation of the market and the extent of the contemplated lessening
The Court also made clear that competition, in Part IV of the TPA, was about protecting the market, not individual competitors.
[Justice Fitzgerald at 43,990 ATPR] ... where there is a market which is generally competitive, it plainly does not follow that conduct which affects the balance of competition by advantaging or disadvantaging a particular dealer or dealers or a particular product or product necessarily lessens competition in the market.
On the issue of substantial lessening of competition generally:
[Bowen CJ and FIsher J at 43,983 ATPR] ... Section 47(10) refers to a "substantial" lessening of competition. His Honour defined "substantially" as meaning at least "real", "of substance" or "of significance". On appeal it was argued by counsel for OMA that his Honour was in error in adopting such a definition. Courts have in the past been reluctant to attempt a definition of "substantially" ... However, it is difficult to say that the primary Judge erred in law in ascribing the above meaning to "substantially". In any event it is not necessary to decide this in view of the fact that we consider OMA's conduct was unlikely to lessen competition in the market at all '
On the 'side by side' argument in this case
[Bowen CJ and FIsher J at 43,984 ATPR] 'The "side by side on the same floor" theory of Hecar seems to assume that there is a significant connection between the convenience of prospective customers and competition in the market. A similar argument was put to Smithers J. in the Dandy Power Case ... it is relevant to note the reservations expressed by his Honour as to whether the inability of purchasers to look at competing engines side by side was a factor of lessening of competition in a market. In none of the authorities cited above has the convenience of consumers been an important feature of the market structure for the purposes of determining the state of competition in a particular market.
The standard of proof is a civil one, but it is necessary to bear in mind that the sanctions which may be imposed for breach of s.47(1) may be severe ... We are not persuaded that the primary Judge could properly be satisfied that Hecar established that a likely effect of OMA's refusal to supply was a substantial lessening in competition in the market.
The market in question is geographically wide. There seems to be no evidence that OMA's refusal to supply Hecar had or would be likely to have the result of altering the market structure so as to produce an anti-competitive effect, for example there is no evidence that the barriers to entry have been raised, nor that price competition has been reduced. Although the competitive position of Hecar as an individual retailer may be affected in the future, it is unlikely that this would have such a dramatic effect as to lessen substantially competition in the retail market which extends from Forster to Umina. Moreover, Hecar has been able at all times to obtain Evinrude supplies through a process of "farming", albeit at less advantageous prices. This may be due to an undertaking given by OMA not to interfere with supply pending determination of this case. But the evidence does not enable one to say whether or not this "farming" arrangement will continue. The evidence suggests that OMA wishes and intends to appoint a new Evinrude dealer in the immediate area served by Hecar, if it is successful in these proceedings. These considerations do not support a conclusion that there will be a lessening of competition'
[Fitzgerald J at 43,988 ATPR] 'Evidence was also given of shopping habits in the market. Obviously, large numbers of consumers undertake the common course of investigating what is available and comparing prices and other matters considered pertinent to a decision to purchase. A number of consumers, however, purchase from their favourite dealer. The industry practice of "farming" means that some of these nonetheless acquire a chosen brand, even if not stocked by their dealer. Some, however, purchase the brand which their dealer has available. Further, a significant number of consumers who purchase a hull from a dealer purchase whatever motor he stocks.
Hecar neither established nor sought to establish that OMA's refusal to supply it was or was likely to have:
- any effect on the capacity of consumers in the market to influence the market;
- any effect on the capacity of the dealers or products in the market to continue, or on fresh entry into the market;
- any effect on a capacity or willingness of dealers in the market to meet the present or future requirements of consumers in the market or to respond to variations in those requirements;
- any effect on the cost or profit structures in the market or its efficiency otherwise;
- any effect upon the product range, including brands, sizes, finishes, colours etc. available in the market;
- any effect upon prices, terms, standards, service, etc. in the market;
- any effect on the number or identify of the retailers in the market, or the number, location, or convenience and accessibility of retail outlets, or on any other aspect of the efficient retail sale and distribution of outboard motors in the market, save to the specific limited extent which I will indicate.
There was no direct evidence that competition has been lessened to date'.
[at 43,989 ATPR] The thesis underlying the position finally adopted by Hecar was that competition is stimulated by an opportunity for comparison of rival products at a single sales location. It may, I think, be accepted that such comparison is an element of competition. Nonetheless, the comparison for which Hecar contends is only between two brands, albeit major brands, and even then permits comparison only of their inherent advantages relative to each other as products and not of other material considerations in a market, such as price, terms etc. elsewhere available. ... OMA on the other hand, sought to establish as a general proposition that competition is fostered if a retail market is composed of single brand dealers
[at 43,990 ATPR]: It seems to me impossible to accept that either proposition, that competition is stimulated by an opportunity for comparison of products in a single sales location, or that a retail market composed of single brand dealers is the most competitive, is possessed either of universal validity or present relevance. The material question in these proceedings simply requires an assessment on the effect of competition in the subject market of a refusal by OMA to supply Hecar with Evinrude outboard motors. ...
It would, I think, be an unusual and exceptional case in which it could be shown that competition in a generally competitive market was or was likely to be substantially lessened by a refusal to supply one of a number of competitive retailers in the market with a product otherwise freely available and competitively marketed. Further, where there is a market which is generally competitive, it plainly does not follow that conduct which affects the balance of competition by advantaging or disadvantaging a particular dealer or dealers or a particular product or product [sic] necessarily lessens the competition in the market. No doubt it may be necessary in an appropriate case to have regard to the position in the market of the individual dealers or products affected to see if the interference with the balance between competitors or competing products lessens competition in the market overall. Nothing, however, can be pointed to here except the lost opportunity of purchasers to compare two major brands of motor, neither of which is dominant, at the premises of a single major dealer, with the probably consequence that some of them who would not otherwise do so will purchase the brand which the dealer stocks. Such considerations seem to concern convenience rather than competition, particularly if the consumers are free to undertake the comparative exercise by visiting other premises nearby.'
View full decision