Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd
High Court of Australia · 1989
Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) 167 CLR 177
BHP made the steel bar everyone needed to make star pickets, and would not sell it to anyone in Australia. Hard competition, or misuse of market power?
The "take advantage" element this case construed was removed from s 46 in 2017, and with it the counterfactual as the statutory test. Section 46(1) now reads: "A corporation that has a substantial degree of power in a market must not engage in conduct that has the purpose, or has or is likely to have the effect, of substantially lessening competition in" that market or certain related markets. Three changes matter. There is no longer a "take advantage" element to satisfy. The proscribed purposes directed at competitors -- damaging a competitor, preventing entry, deterring competitive conduct -- are gone, replaced by substantially lessening competition. And effect, or likely effect, is now enough; purpose need not be proved. Queensland Wire remains the authority on what the old test meant, and its market-definition reasoning retains its force, but the counterfactual is no longer the question the section asks.
What happened?
BHP manufactured Y-bar, the steel input from which star picket fence posts are made. It was the only Australian producer, and Y-bar was the one product of its rolling mills that it did not offer for general sale in Australia — it had exported some, but domestically it kept the Y-bar for its own star pickets, in a market where it was the sole domestic supplier. Queensland Wire wanted to make star pickets and needed Y-bar. BHP effectively refused to supply it, eventually offering it only at a price that made competition impossible.
Queensland Wire sued under s 46 of the Trade Practices Act 1974 (Cth) as it then stood. Pincus J dismissed the claim, holding that "take advantage" required something "reprehensible" or "predatory or unfair"; the Full Court dismissed the appeal on the different ground that because Y-bar had never been sold there was no market for it.
What did the Court decide?
The appeal was allowed.
On "take advantage", the Court rejected the gloss. Pincus J's phrases "suggest some notion of hostile intent. For our part, we have difficulty in seeing why an additional, unexpressed and ill-defined standard should be implanted in the section. The phrase 'take advantage' in s 46(1) does not require a hostile intent inquiry" — and it is "significant that s 46(1) already contains an anti-competitive purpose element" (Mason CJ and Wilson J at [22]).
What "take advantage" did require was a commercial comparison. "It is only by virtue of its control of the market and the absence of other suppliers that BHP can afford, in a commercial sense, to withhold Y-bar from the appellant. If BHP lacked that market power — in other words, if it were operating in a competitive market — it is highly unlikely that it would stand by, without any effort to compete, and allow the appellant to secure its supply of Y-bar from a competitor" ([28]).
That was not the end. "The question remains whether BHP, in taking advantage of its substantial market power, has done so for a purpose described in par (a), (b) or (c) of s 46" ([29]). Pincus J had found the purpose of preventing entry to the star picket market, supported by BHP's failure to offer any legitimate reason and by the fact that Y-bar was the only product it withheld. Mason CJ and Wilson J accepted that finding while observing that the more informative market was the market for rural fencing products ([30]).
Proposition
What is the principle?
Under the former s 46, "take advantage" of market power asked whether the conduct was made possible by that power — whether the firm could, in a commercial sense, have behaved the same way in a competitive market. It imported no requirement of hostile intent or "reprehensible" conduct. Taking advantage was necessary but not sufficient: the section separately required one of the proscribed purposes in s 46(1)(a), (b) or (c).
Why does this case matter?
Because of how much of it survives the rewriting of the section, and that part is about markets. The Full Court had dismissed the case on the footing that there was no market for Y-bar at all, because none had ever been sold domestically. The High Court's answer separates two things a student is prone to run together: the market in which BHP held its power — steel and steel products — and the market into which that power was extended. Mason CJ and Wilson J observed that the star picket market, on which the trial judge had focused, "is not the most informative one", and pointed instead to rural fencing products, where the advantages of being the only full-range supplier actually lay ([30]). Whatever the statutory test, picking the wrong market ends the analysis before it starts.
It is also a reminder that competition law protects competition rather than competitors. That a rival was shut out of business proved nothing by itself, and an answer that begins and ends with the harm to the plaintiff has not engaged with the section at all.
Exam and application relevance
Check which provision governs before you do anything else. Section 46 was rewritten in 2017: "take advantage" is gone, and with it the counterfactual as the statutory question. Conduct now contravenes if a corporation with substantial market power engages in conduct with the purpose, or the effect or likely effect, of substantially lessening competition in a relevant market. Do not run a Queensland Wire counterfactual against the current section.
Where the former provision applies — historical conduct, or an examiner asking about the old test — run the counterfactual in the Court's own terms: could the firm afford, in a commercial sense, to behave this way if it faced competitive constraints? Then deal with purpose separately, because the old section required both, and resist the temptation to import anything about how badly the firm behaved.
Either way, define the market first, and do not assume the obvious one is the right one.
Check your understanding
A competitor is driven out of business by a firm with substantial market power. Under the current s 46, what must be shown before that is a contravention?