The Federal Court rejected yesterday allegations of petrol price fixing by the service-station industry.
The action was brought by the Trade Practices Commission in response to the industry’s “”Prosper from Petrol” campaign among service-station owners in 1990.
The case was a test of the extent to which industry associations can act to promote their industry without falling foul of Trade Practices Act prohibitions against retail-price maintenance and other anti-competitive conduct.
The “”Prosper from Petrol” campaign was launched by the Services Station Association of NSW which has some 1100 members. Justice Peter Heerey said, “”By the first half of 1990 profitability for Sydney service stations had sunk to a disastrously low level. Margins were 3 cents per litre or less. A minimum of 4.5 cents was necessary to break even.”
The essential advice of the “”Prosper from Petrol” campaign was to get service station owners to change their marketing strategies and attitudes. Petrol should not be a loss leader to get people into the service station for other business; it should be profitable on its own. Petrol should be priced according to costs and reasonable return on investment. Service stations should not pursue volume at all costs. There was no need to display price signs, for example. Service stations should take responsibilities for their own businesses rather than them being seen as outlets for the oil companies.
Part of the campaign was for the SSA to talk to the oil companies about pricing at their tied sites.
The TPC took action against the SSA and its president, John Langley, and executive officer, Brian Mark.
The TPC’s case fell down on the evidence. Justice Heerey found there was no evidence of mutual promises or undertakings as between dealers and the SSA. “”The evidence fails to show that prices were in fact fixed, controlled or maintained.”
Justice Heerey said it was possible under the Act to have a system of a recommended retail price. In this case it was a margin of 6 cents a litre of 10 per cent. The SSA did not fall foul of the Act because it had told its members that pricing was ultimately a matter for each business; there was no obligation to follow them. Further, the nature of the market (one of high mobility and little brand loyalty) was such that it required more than a the vague understanding to increase margins to 10 per cent or 6 cents per litre as against the margins of the previous six months.
There was evidence that petrol prices had risen in parts of the Sydney metropolitan area after and because of the campaign, but that did not support an allegation of fixing, controlling or maintaining.
Justice Heerey rejected the TPC’s submission that Mr Langley and Mr Mark, on behalf of the SAA, tried to induce dealers to make and arrangement or arrive at an understanding to fix prices.
The case will give industry associations some guidance on what sort of advice they can give members without falling foul of the Act. It is the second major Trade Practices cases against an industry association, rather than businesses in an industry. The first was 14 years ago against the Australian Hotels Association.
It appears associations can make recommendations, provided they make it clear that pricing is ultimately a matter for individual businesses and that there is no coercion or obligation to charge the recommended price.
The executive director of the Motor Trades Association, Michael Delaney, said yesterday that if the decision had gone the other way many good quality people would have refused to work for industry associations with that sort of exposure.
He criticised the TPC for not attempting to reach a settlement before putting the parties to great expense with legal action; for taking action against an industry association and its officers and not the industry principals; and for excessive use of its Section 155 powers which require people appear at the commission and to be interrogated under oath.
Judging by the nature of the case and the complexity of the evidence there would be little change out of $400,000 in total legal expenses of both sides.
The TPC is still considering the judgment before making comment.