High Court of Ireland Decisions

1. The 47 Plaintiffs in this Action grow chickens for the Defendant, Monaghan Poultry Products Limited. All of the Plaintiffs reside in the County of Monaghan, and the first named Defendant (herein referred to as 'MPP'), carries on it's business from premises on the outskirts of the town of Monaghan. The agreements between each of the Plaintiffs and MPP, whereby the Plaintiffs grow chickens for MPP, have never been reduced to writing: I shall return to the detail of these contractual relationships later, but, for the present, I shall identify only three elements:

2. The Plaintiff growers contend:-

3. While the Defence delivered by MPP traversed each and every allegation contained in the Statement of Claim delivered by the Plaintiff growers, it can be said that, at the trial of this Action, the following were the matters strongly put in issue by MPP:-

4. There was one matter of importance on which the Plaintiffs and MPP agreed, namely that the relevant product market with which the Court was concerned was the market for the provision of broiler growing services.

5. The production of broiler chickens for processing comprises a number of stages:

6. There are 98 breeder farms for chicken eggs; some 14 hatcheries (2 of which are independent of processors) 335 growers and 13 processors in the republic of Ireland. The industry is concentrated in 8 counties: Monaghan, Cavan, Limerick, Cork, Waterford, Galway, Mayo and Roscommon. Three processors do business in the Cavan Monaghan area: they are MPP, Cartons and Cootehill. the plants of Cartons and Cootehill are in County Cavan, but all three processors have most of their growers located in Monaghan. Mr. Quigley, one of the Plaintiffs, estimated that MPP will produce 46% of the processed chicken flesh in the Cavan-Monaghan area in 1996, with Cartons producing 45%, and Cootehill 9%. Ms. Breda O'Driscoll, a director of MPP, gave evidence that MPP's share of the Monaghan "market" was 34%; of the regional market (Cavan, Monaghan, Louth and Meath) 21%, and nationally 16.3%. It is to be noted that Mr. Quigley's figures cannot be compared with Ms. O'Driscoll's: his figures represent an estimate of the share of binds processed by the three processors in 1996, whereas Mrs. O'Driscoll's figures are representative of market share on the basis of sales in each region and not necessarily for 1996 - though prepared in that year.

7. In 1993, according to Mrs. O'Driscoll, the demand for whole chickens represented 80% of the broiler meat market. This, she says, declined rapidly, such that, by 1995, whole chickens accounted for only 54 or 55% of the market. She explained that this trend was the result of consumer preference for chicken fillets and other portions. The result for MPP, she said, was that instead of having a whole chicken that is just going into a packing department to be put in a plastic bag, fillets now have to be put on trays or bagged depending on customer specification. The new found demand has, according to her, resulted in considerable increased costs such that the benefit of improved prices at retail level had been eliminated in the year 1995 and indeed up to May 1996.

8. Chickens, like all other birds, are susceptible to disease. Broiler growers receive their chicks from eggs produced on breeder farms and are, in the first instance, dependent on the breeders to ensure the health status of these chicks. When the day old chicks arrive at the growing houses, and while they are grown, they can be afflicted by diseases from yolk sack to gumbro, the consequence of which can vary from morbidity to mortality. It was commoncase that the high health status enjoyed by the Irish Avian Industry had all but disappeared by 1993, and that diminution in status has affected vaccination policies and other flock management practices in the industry.

9. There are about 90 significant feed compounders in the Republic of Ireland and, of that number, only about eight are significant in poultry feed manufacture. Cereals comprise 70% of the poultry feed, and poultry feed comprises some 70% of a grower's costs. Because Ireland is not self sufficient in cereals, the cereal element in the feed is high in cost - influenced by a continuation of intervention prices, the price of imported cereal, as well as transport costs into Ireland. Feed is seen as one of the major risk factors in the spread of disease: chickens are fed on one feed only, and have no access to their own feed; in consequence, it is important that the feed represent a complete and balanced diet. Mr. Wilson, a nutritionist, called by the Defendant, said that, in a broiler feed, there might be 30 or 40 individual components added, per tonne of feed, and that some components might go as low as microgrammes per tonne, but were, nevertheless, essential. Mr. Wilson was of the opinion that the quality of meal also affected the quality of the finished broiler. Apart from the care required in compounding, poultry feed regulations now require that such feed be heat treated to minimise the risk of Salmonella and infectious bronchitis. Both Mr. Wilson and Mr. Truesdale (a miller) gave evidence of the extent to which consumer demand has resulted in large retailers requiring processors to be able to trace the produce right "through the system from purchase of raw material right through to the flesh of the chickens or whatever it is on the shelf"; words such as 'bio security', 'traceability' and 'due diligence' were used by witnesses to indicate a trend whereby a processor selling in the marketplace, if he is to satisfy consumer demands, will have to be able to establish that he can supervise the quality of his product from raw material inputs to finished flesh products. If this is to happen, it is agreed, the processor must ensure, among other things, that there is in place a quality control process where processors can immediately link meal product used to flesh on a supermarket shelf. The link between chicken flesh quality and meal quality was recognised by one of the Plaintiffs, Mr. Quigley, when he said

10. Mr. Quigley was making the case that, if the growers could purchase meal direct from the millers, they could themselves assure quality. In the republic of Ireland, all processors (save one) control the purchase of the meal used by their growers. The only exception is Cootehill, a co-operative society, where the members are the growers, and the society owns the processing plant.

11. One of the characteristics of the broiler growing industry is that the vast majority of the growers are located within a radius of 15 miles or thereabouts from the processor to whom they supply the fattened chickens. Another feature of the industry is that, while two or more processors are located in the same area (such as MPP, Cartons and Cootehill) there is very little mobility between the growers and the processors. What inferences can be drawn from the spatial distribution of a processor's growers and from the apparent lack of mobility of growers between processors is a matter to which I will return later in this judgment.

12. With the exception of Cootehill, all growers purchase their chicken meal, and day old chicks, from the processors for whom they grow: this is not a matter of choice but a requirement of the processors. Of the growers costs (excluding financing costs) the costs of meal and day olds account for about 92%, with other "on farm" costs of about 8%. The prices charged by MPP for day olds and for meal are deducted by them at the time when they are paying for the live chickens delivered by the growers at MPP's plant.

13. Whatever about the early years of the industry, the evidence established that over the last 20 years there was little or no scope for a person to make the financial investment, required of a grower, without being assured of a processor who would take his fattened chicks. In consequence, becoming a grower depended, in effect, on being so invited by a processor. The major investment for a grower was and is the acquisition of a site and the erection of a chicken house. In 1988 Mr. Quigley, one of the Plaintiffs, erected his chicken house which had a capacity for 20,000 birds at a cost to him of £65,000. It cost him a further £10,000 plus V.A.T. to equip his house. The house, as he described it, was 70 yards long and 16 yards wide and came in a "kit" form and was erected on a concrete base. It contained fibreglass wool all over the structure so that it was totally insulated. It had a store at one end (8 foot by 6 foot) with the rest of the building being open plan with posts down the middle supporting the roof. The house did not have windows but adjustable flaps for ventilation. Ventilation, heaters, feeders and drinkers were all controlled from panels in the store room. The feed was augured from a feed bin outside the house. Mr. Quigley's house was of a kind used by many of the growers.

14. Most processors have their own hatcheries but not their own breeder farms. Mr. McGlone, the procurement manager for MPP outlined the planning needed to ensure that MPP, as a processor, could meet consumer demand. At any given time, the hatchery is told the number of eggs to set: the grower is told to expect the arrival of day olds; the growers phone in the daily weights of growing chickens and their meal requirements; MPP ensure delivery of that meal by the designated millers. Each grown receives his batch of "day olds" in rotation and the number of batches varies, annually, between 4 and 6. The growing cycle is about 8 weeks with the processor taking delivery of some of the birds from the grower at around 36 days and 43 days during the cycle. The weight of birds, and customer orders, dictate when exactly during the cycle, birds will be taken in by the processor.

15. There was no disagreement between the parties as to what the nature and form of the contractual relationship between the grower and MPP was. There is no written agreement between MPP and the grower. The main features of the relationship, at the date of the institution of the proceedings, were:-

16. The growers are not paid for the offal.

17. The foregoing as I have noted represent the conditions applicable at the date of these proceedings. It is worthwhile recounting some of the conditions, which, though relevant to the proceedings, had ceased to apply to the contractual relationship at the date of the proceedings:-

18. The proceedings were instituted on 13th May, 1994. They followed a period of two years in which the Plaintiff growers were unhappy at the way MPP were conducting their business with the growers. They formed an association and elected Mr. Blemings as Chairman and Mr. Quigley as Secretary. A series of meetings were held between MPP officers and members of the growers' association. The growers complaints aired at these meetings can be summarised thus:-

19. On 10th November, 1993 MPP absorbed all the deductions (save the £5/£25 per 1000 birds) into a new flesh price of £0.33 per lb. On 11th March, 1994 MPP offered to introduce a new flesh price of 27.89p per lb. and a new meal price of £210 per tonne; the meal price had been £266 per tonne and the flesh price

20. On 9th May 19994 Mr. Barry McEntee wrote to each of the growers in which he recounted proposals made by MPP to the association as follows:-

21. His letter assured growers that

22. On 1st November, 1995, MPP offered its growers new terms and conditions. Discussion followed the publication of these terms and as a result MPP's Barry McEntee wrote to growers on 24th November, 1995 enclosing "A" and "B" terms and conditions to be effective from 8th December, 1995. Under the A Conditions the growers would purchase their meal through MPP but at prices generally in line with open market prices. Under the B Conditions, a grower would be free to purchase his own meal, but would be responsible for the disposal of his own bird offal. Growers opting for the A conditions were to get 26.438p per lb. and those opting for the B conditions 25.438p per lb. Both sets of draft conditions had detailed terms dealing with quality assurance. On 15th December 1995, in these proceedings an undertaking was given by MPP not to introduce the proposed terms pending the determination of this action. On that date (the 15th December, 1995) the flesh price was 33p per lb. MPP altered the price subsequently on 2 occasions -

23. In aid of the argument that the prices offered by MPP were and are unfair prices, the Plaintiffs adduced evidence of -

24. The questionnaire was submitted by Mr. Quigley to Mr. Ned Walsh of the poultry section of the Irish Farmers Association. He, according to Mr. Quigley, obtained the information necessary to complete the questionnaire from 5 Irish groups of growers whom the Defendant MPP suggested in evidence grew for Cartons, Kantoher, Western Brands, Castlemahon and Cappoquin. Further questionnaires were completed for MPP growers (by Mr. Quigley) and a Scottish grower. All of the questionnaires related to the month of January, 1996. If one allows that any evidential weight should attach to the questionnaires filled out by Mr. Walsh, the conclusions to be drawn from the answers of the growers do not clearly suggest a proposition that MPP is paying a price which is less than the economic value of the chicken flesh or that other processors are, pound for pound, paying a greater price than MPP. Indeed, an analysis of the answers shows that there are so many variables applicable to each processor and its growers that no real price comparison is possible.

25. Jack Scott gave evidence that Cootehill Co-operative Society has a processing plant with a capacity for 35,000 to 40,000 birds per week. There are 50 employees in a modern plant. 14 persons grow for the co-operative, of whom 13 are members, holding shares in the co-operative. Mr. Scott indicated that he was a director of the co-operative from the outset. He produced a schedule of prices paid by him for meal between 1991 and 1996 for use in his Cootehill production. He also produced a schedule of the prices paid by Cootehill for its chicken flesh. Cootehill growers were able to purchase meal on the open market at all material times. Mr. Scott allowed that the price for meal from Kavanaghs and Paul and Vincent, as shown in his Schedule, included a discount which was variable. The working committee of Cootehill comprised 8 persons (including Mr. Scott) and fixed the flesh price payable to growers: as Mr. Scott said:

26. Because Mr. Scott was a member of the co-operative and because its members were in effect deciding what they should pay to themselves as growers for chicken flesh, Mr. Quigley and the other Plaintiffs suggested that by subtracting 1p from the flesh price paid by Cootehill, the price would represent an "arms length" or market price. I set out hereunder the contents of the Schedule produced by Mr. Scott which are relevant to the matters in issue in this case:

27. The Plaintiffs suggest that in assessing what is a fair price, Cootehill is a valid comparison, and, that the price paid by MPP should be compared to it, after MPP's margin on the meal and the other deductions are subtracted from the price. Mr. Magee an accountant who gave evidence for the Plaintiffs assessed the difference between the price charged to the Plaintiffs for meal and the cost to MPP of that meal between 1991 and 1996. He also assessed the value of the deductions made by MPP in that same period. He added these two sums together and then subtracted the flesh price differences between the actual MPP price and the Cootehill (minus 1p) price. The figure emerging from this calculation is a figure of £2,551,681 for the period from 1st February, 1991 (prior to the coming into force of the 1991 Act) to date: this is part of the Plaintiffs' claim for damages in these proceedings..

28. Mr. Magee compared the market price of meal, the price charged by the millers to MPP and the price charged by MPP to the Plaintiff growers. This exercise was partly completed through an analysis of an MPP ledger called the Red Meal Book which detailed the amounts charged to growers for meal and the cost of that meal to MPP. I return to this matter later in this Judgment.

29. The evidence clearly established - and it was commoncase - that the average grower margins had declined from 1992 through 1996. What was not agreed were the reasons for such a decline.

30. The growers margin (i.e. gross margin over feed and chicks per 1000 birds) for the years 1992 to 1996 was calculated by each of the parties as follows:-

31. The Plaintiffs suggest that the reasons for the decline in margins are due to the unfair pricing system of MPP, the difference in quality between the meal of different millers, increased mortality rates, disease rates and poor quality day olds. MPP, for their part, suggest that looking at average margins is misleading and that the mean or average is only a central tendency, and that one should observe what is happening with certain growers who have actually increased their margins in the same period. MPP's analysis suggest there is no such thing as a "representative" grower with declining margins. They suggest that their pricing system can be rationalized on the basis of market trends and that shrinking margins (where they occur) reflects a declining product market and bad management on the growers' part.

32. The answers in the questionnaires furnished by Mr Walsh to

33. Mr. Quigley show widely different approaches to the provision of day old

34. £205 per 1000; Cartons £198 per 1000 with Western Brands topping the league

35. Both the Plaintiff growers and MPP saw meal quality as critical. The growers saw high quality meal as giving them a good food conversion ratio ("FCR") and MPP saw high quality meal as ensuring a high quality product. The Plaintiffs' witnesses saw cost advantages and quality control advantages to them in purchasing meal direct from growers of their choice. While much evidence was adduced as to the FCR of the Plaintiff growers (and the FCRs of other growers as relayed by

36. Mr. Walsh) the Plaintiff did not establish any causal link between any of the

37. Mr. Wilson, both nutritionists called by MPP, was that feed conversion was influenced by many factors other than the quality of the feed: they identified the following factors: the sex of the bird, the age at which the bird is killed, the time of year, the temperature, ammonia levels, mortality, management practices and the disease status of the flock. That FCR was affected by such a range of factors was something with which Mr. Bole, a nutritionist, with David Patton Limited (and called by the Plaintiffs) agreed. Mr. Wilson outlined recent developments in the industry designed to ensure "biosecurity" and "traceability". He said that supermarkets are now dictating what goes into chicken feed and are requiring the processors to show due diligence in their compliance with the supermarkets' requirements. Mrs. O'Driscoll said that, in the context of traceability, it would be "an administrative nightmare" if growers could purchase meal independently of MPP and she feared they would not keep records so as to meet the requirements of traceability. Her evidence was that at present MPP know what meal is sent to every grower and accordingly MPP can trace from the consumer product back to the meal the particular bird was fed on. She said:

38. She acknowledged that where the bird supplied was below standard the liability would fall on MPP ultimately.

39. Supporting Mrs. O'Driscoll's evidence as to traceability was Victor Truesdale, Sales Director, of Thompsons, a firm of millers, who said:

40. Mr. Quigley, on the other hand, was confident that quality could be assured in circumstances where growers purchased directly from the millers.

41. Mrs. Traynor, Mr. Scott, Mr. McKenna and Mr. Quigley all recounted difficulties they had with the MPP designated millers and they were of the view that if they had a direct contractional relationship the millers would have been more responsive to their difficulties, and that they could control quality in conjunction with MPP. As to cost, Mr. Quigley and the other Plaintiff growers believed that if they were free to purchase their own meal either collectively or individually as growers, they could improve their gross margins. Mr. Magee, the Plaintiffs' accountant, gave evidence that having examined the Books of MPP he could show that between December, 1991 and December 1995 the price charged by MPP for meal was in the region of £266 per tonne whereas the cost per tonne to MPP was in the region of £210 during the same period. Mrs. O'Driscoll, on behalf of MPP gave evidence that MPP did not make any profit on the meal and that the meal when charged at £266 per tonne resulted in the flesh price being "inflated" to 33p per lb. and that "one was compensated for in the other".

42. Mrs. O'Driscoll acknowledged that in the past Manor Mills gave a rebate of some £6 pr tonne to them which was only passed on to the growers after December 1995. It was commoncase that the price paid by MPP for its meal was significantly lower than the list prices of the millers.

43. On account of its bulk purchasing, Mr. Bole of Pattons believed that for similar volumes and similar credit terms Pattons would supply the growers at the same prices as they, Pattons, supplied MPP (Pattons supplied 20% of MPP's meal requirements).

44. As I have already indicated MPP adduced evidence as to the importance of the quality of meal to any processor. Mrs. O'Driscoll stated that MPP "need to be able to guarantee that quality".

45. All processors in the Republic of Ireland (save Cootehill) require their growers to purchase their meal through them. This started in the 1960s - and in MPP's case became a term of the agreements with growers in 1976. A similar practice exists in the United Kingdom.

46. The Plaintiff growers are not paid for birds unless the birds are alive when 'admitted' to the processing plant. They can die en route to the plant and, indeed, while awaiting processing in the yard adjoining the plant. Apart from dead birds, the growers are not paid for birds condemned as "useless" by the Department of Agriculture. As already noted, MPP's managing director, Barry McEntee, in a letter dated 9th May, 1994 addressed to the growers stated:

47. When a load of birds is taken from a grower by MPP, the grower receives a purchase note which details among other things the number of dead and useless birds in the load together with their weight. The production procedures manual for MPP adopted by MPP on 17th December, 1992 provides under the heading Dead and useless as follows

48. Department of Agriculture condemnations for the months of May to August 1994 (both months inclusive) showed condemnations for growers that were at variance with the purchase notes relative to the same loads. Equally, forms REV 2 showed dead and useless figures that did not coincide with those of the Department for the same period. The REV 2 form figures (filled in by MPP employees) for 'VB' (vet's bin) 'GL' (green leg) and 'useless' coincided with the "dead and useless" figure on the purchase notes. By way of example, in Mr. Quigley's case. on 22nd July, 1994,

49. Mrs. O'Driscoll, in her evidence, was of the view that what Barry McEntee said in his letter to growers about condemnations was incorrect and that there are occasions where MPP employees will still remove birds "but the Department will sign and authorize those..." While I had before me REV 2 forms for different periods of time, together with the relevant purchase notes and Departmental condemnations for July 1994, I did not have established in evidence any document signed by a departmental official authorizing the condemnation of birds as 'useless' which had been removed from the line by MPP employees. Nor did I have before me any amendment to page 8 of the production procedures manual 1992. I did however have evidence of an MPP meeting, held in December 1994 , to discuss the need to reconcile the Departmental condemnations and MPP's own figures for dead and useless.

50. David Jacobson is a senior lecturer in economics at Dublin City University. He holds the degree of Doctor of Philosophy from the University of Dublin and is the author of a number of academic articles. His area of speciality is industrial economics and organization. Dr. John Fingleton is an economist and lecturer in the University of Dublin. He has co-authored a text on competition policy and has written a number of articles on competition matters.

51. Both economists gave evidence as to the relevant product market and the relevant geographic market and whether, in such market, MPP is in a dominant position and if it is, whether its conduct constitutes an abuse of dominance. Both Dr. Jacobson (for the Plaintiff growers) and Dr. Fingleton (for MPP) were agreed on the relevant product market: it was the market for the provision of a broiler growing service. Where the economists were in disagreement was as to the relevant geographic market and MPP's role in such a market. Dr. Jacobson acknowledged that the relevant product market was an intermediate one and that broiler growing is in fact an input into the processor's production of final product - namely, the processed chicken, or portions thereof, sold to retailers. While in many respects that intermediate market will be affected by what happens in the "downstream" market where MPP sells its chicken product, and is, therefore, not entirely independent of that market, nonetheless the extent of the geographic market for broiler growing services does not in any way depend on the geographic market for chicken flesh. Dr. Jacobson adverted to the existence of barriers to entry to the market for broiler growing services, being the processors control over who will supply the services; and also barriers to exit being evidenced, he said, by the lack of mobility of growers between processors. He drew attention to the high sunk costs, being the expenditure on chicken houses and equipment. Dr. Jacobson expressed the opinion that the relevant geographic market was best determined by observing the clustering of growers in relation to processors. Such an empirical analysis, which showed that MPP's growers were, in general, located no more than 15 miles from MPP pointed, he said, to the fact that the spatial range of the market was extremely limited. Given the absence of mobility over time of growers from one processor to another (he took account of a single movement of MPP growers to Cartons in the mid 1980s, the single movement of oriel growers to MPP in 1995, and the erection of new houses by new growers over the years). Dr. Jacobson was of opinion that the relevant geographic market was located in County Monaghan within a 15 mile radius of MPP's processing plant. He did not think that the presence of a few isolated growers outside that range was relevant to his conclusion on the geographic market.

52. Having formed a view as to the geographic market, Dr. Jacobson advanced reasons for the existence of such a spatially limited market: the tight agglomeration of growers around MPP made the organization and monitoring of growers easier and less expensive; the proximity to the plant reduced the extent of chicken mortality where birds were transported in adverse weather conditions; and, finally, transport costs were a relevant factor in the observed clustering. While Dr. Fingleton, as I have stated, agreed on the relevant product market, he disagreed with Dr. Jacobson as to what was the relevant geographic market for the product. In his opinion, the geographic market was the island of Ireland. As Dr. Fingleton noted, the geographic market referred to the geographic region in which competition occurred. He observed that competition occurred in the downstream market for chicken flesh and that ultimately that competition will affect conditions of competition in the upstream market for the provision of broiler services. He believed that because price competition (described by Mrs. O'Driscoll as "cut throat") necessarily impacted on the upstream market, growers for different processors, throughout Ireland, were indirectly in competition with one another in the provision of their broiler growing service. Dr. Fingleton did not believe transport costs limit the geographic market: he was of the view that a grower wishing to leave MPP has several alternatives: he could switch to another processor in the local area, he could switch to a processor further away or he could exit the market.

53. Dr. Jacobson observed that the position of MPP in the relevant product market was, in substance, that of a monopsonist. A Monopsony, he said, exists where a firm is the sole buyer of a good or service. It is the opposite of a monopoly. He noted that George T Sigler put it ( in the Theory of Price, McMillon 1996) thus:-

54. The observable barriers to entry and exit from the market, and the general lack of mobility of growers, provides MPP with potential to exploit its growers according to Dr. Jacobson. In particular, he said, MPP has the capacity to use its monopsony power to impose unfair trading conditions and prices unilaterally. He gave as examples of a condition imposed "contrary to the interests of the growers" the prevention of growers from negotiating the purchase of meal directly from the millers; further, he said, as a monopsony buyer, MPP has used its power to determine the broiler growers margins unilaterally. The use of such power in such a manner amounts to an abuse of a dominant position by MPP. Professor Rodney Thom, the Jean Monnet Professor of Economics at University College Dublin, with a special expertise in econometrics, looked at the relationship between price structure and returns in the production of chicken meat. His main conclusions were that market prices for feed and final output are independent from the relationship between growers and processors; that causation runs from final market prices to flesh prices paid by processors, and, that recent trends suggested to him a market characterised by increased competition and declining output prices, in which it was, he said, untenable to suggest that the MPP could guarantee "a fair" price or return to growers. Professor Thom (see Table 1 below) looked at the pre December 1995 price structure (feed: £266 per tonne; chicks £19 per 100; flesh £0.33 per lb.) and the December proposal of MPP of £20.50 per 100 chicks, £195 per tonne feed and £0.27038 per lb. for flesh. He was able to establish that the proposed price structure, if implemented, would have left the return to growers virtually unaffected

55. As to the suggestion that preventing growers from negotiating the purchase of meal directly from the millers was unfair and anti-competitive, Dr. Fingleton was of the view such conduct was not abusive, not anti-consumer and could, in any event, be objectively justified.

56. Desmond Murnane, a chartered accountant, gave evidence on behalf of the Plaintiff growers. He had been furnished with the audited accounts of MPP for the years ending 31st December, 1991 to 1994, MPP's draft accounts for the year ending

57. The long title to the Competition Act, 1991 ("the Act") states:-

58. The balance of Section 4 contains provisions relating to the licensing or certification of agreements decisions and concerted practices by the competition authority established under the Act

59. While it may be said that Article 85(1) closely mirrors Section 4(1) of the Act, it is not identical in wording. Article 85(1) contains the additional phrase:"Which may effect trade ...." in qualifying the prohibited conduct, whereas, the Section 4(1) conduct is not so qualified - but limits or qualifies the competition which is sought to be protected as "competition in trade". Equally, Article 86 is similar in terms but not identical to Section 5(1) and (2) of the Act. In

60. The rules on competition, contained in Articles 85 to 94 of the Treaty of Rome (as amended), are interpreted having regard to the general objectives of the Treaty; additionally, in looking at the Rules on Competition other provisions of the Treaty may be relevant (for example the Article 36 restriction on imports or exports grounded on public policy). In Masterfoods Ltd. -v- HB Ice Cream Limited 1993 ILRM 145 Keane J. warned that ( at p. 184 ) Article 85 "is not to be considered in isolation from other provisions of the Treaty". Also the provisions of Articles 85 to 94 may be influenced by Community policies in other areas (such as patent and know how licensing). As Keane J. noted in Deane -v- VHI , supra, at p.107 the 1991 Act is an autonomous Act of the Oireachtas and not one implementing a directive of the European Union. It has its own machinery for implementing its rules on completion which are quite different to those of the Treaty. In applying the jurisprudence of the European Courts of Justice, the Court of First instance and the Commission, to Sections 4 and 5 of the 1991 Act, there is no doubt that decision of those bodies should have very strong persuasive force - however it should be borne in mind that such decisions are based upon competition rules which are, textually and contextually, different to the 1991 rules and which often are decisions influenced or affected either by policy considerations, objectives or Articles of the Treaty which do not necessarily underpin the 1991 Act.

61. The Plaintiff growers also contend that there is a concerted practice, or arrangement, between MPP and the millers who supply MPP with the object or effect of restricting competition in chicken feed. In summary, the Plaintiffs say that MPP has restricted competition by imposing unfair purchase prices (contrary to Section 4(1)(a) of the Act on the growers, by price discriminating between growers (contrary to S.4(1)(d) of the Act and by restricting their ability to purchase meal independently (contrary to S.4(1)(e) of the Act). The Plaintiffs urged that in considering whether there was an infringement of Section 4 I should adopt the approach of the Court in Societe Technique Miniere -v- Maschinenbau Ulm GmbH 1966 ECR 235 , namely, I should first look at the object of the agreement or concerted practice; if the object does not by its nature restrict competition I should next consider the effect of the agreement or practice on competition taking into account the whole economic context in which the agreement operates. The Plaintiffs say that in judging the effect of the agreement, regard should be had to the competition that would occur in the absence of the practice or agreement in dispute; that the effect on competition must be "appreciable" and, in that context, it is relevant for the Court to look at the market share of the relevant parties in the relevant market whether the agreement stands in isolation or is part of a network of agreements. The Plaintiffs submit that if the Court finds that the object of an agreement or practice is to restrict competition, the Court does not have to consider its effect on competition. They submit that this is the approach adopted by Keane J. in Masterfoods Limited -v- HB Ice Cream Limited 1993 ILRM 145 in relation to Article 85 of the Treaty and it is an equally appropriate way in which to look at Section 4 of the 1991 Act. The Plaintiffs say that MPP's systematic deductions from growers' margins together with the gradual, but consistent decline, of those margins points to an agreement or practice which necessarily has as its object or effect the restriction of competition in that it, directly or indirectly, imposes on the growers unfair purchasing prices for chicken flesh. Equally, they submit that the agreement or practice whereby they are required to purchase their meal through MPP has the object or effect of restricting competition and is a contractual term which has no real connection with the subject matter of their contracts, namely, the provision of a broiler growing service. Finally, in relation to

62. The Plaintiffs place strong reliance on the decision of the European Court of Justice in Co-operative Stemsel en Kleurselfabrick -v- Commission 1982 1 CMLR 227 where the Court held that the rules of a production co-operative which required its members to obtain from it all their supplies of certain substances (rennet of animal origin and colouring agents for cheese) constituted an infringement of Article 85(1) of the Treaty.

63. Two decisions in relation to Article 85(1) are worth recording: they are the decisions of the European Court of Justice in Metro (No 1) 1977 ECR 1875 , and in Metro (No 2) 1980 ECR 3021 , where the European Court decided that certain 'restrictions' did not amount to restrictions on competition within the meaning of Article 85(1) if they could be " objectively justified " by certain policy considerations. In each case, SABA refused to supply its electrical products to Metro Cash and Carry outlets. Metro alleged that the refusal to supply, and a maintained system of high prices, offended Article 85(1) . While SABA undoubtedly restricted competition, the Court decided not to apply Article 85(1) to a system based on qualitative technical criteria applied by a supplier of technical goods. The Court in deciding that the restriction was justified under Article 85(1) balanced the price rigidity of such a system against the possible improved competition through the maintenance of standards of service. The editor of Bellamy and Child's Common Market Law of Competition , 4th Edition , comments on Metro, at para. 2-083 :

64. The Plaintiffs say that the 'unfair' purchase prices offered by MPP for chicken flesh, the restriction on the purchase of meal other than through MPP, and the price discrimination of MPP, are all features of what they submit is abusive conduct within Section 5 of the Act. They contend that the Court in assessing such conduct should follow the approach of the European Court which approach is, first, to identify the relevant product market, then the relevant geographic market and having established the market consider whether the undertaking is in a dominant position in that market and if so, whether it has abused that position. This was the approach adopted by Keane J. in Masterfoods Limited -v- HB Ice Cream Limited 1993 ILRM, with which I respectfully agree. There was no dispute between the parties as to the relevant product market: it was the market for the provision of a broiler growing service. There was however disagreement on the relevant geographic market. The "dominant position" to which Section 5 refers is one defined by reference to a good or service and by reference to a geographic area of the State. The geographic market is an area in which the conditions of competition applying to the product are the same for all traders. In United Brands Company and United Brands Continental BV -v- Commission 1978 ICMLR 429 the European Court said:

65. The Plaintiffs argue, in reliance on Dr. Jacobson's evidence, that the relevant geographic area is an area within a 15 mile radius of MPP's processing plant whereas the Defendant argues that the geographic area which falls to be considered is the island of Ireland.

66. Both parties accepted as applicable to Section 5 definitions of "dominance" and "abuse of dominance" found in Article 86 cases. In Hoffman - La Roche -v- Commission of EC 1979 3 CMLR 211 , the Court defined 'dominance' as:-

67. In considering allegedly "abusive conduct" the European Court of Justice has been prepared to look at the conduct in question for the purpose of assessing whether it can be objectively justified and whether the conduct can be said to amount to what is regarded as normal competitive practices. There are a number of decisions of the Court of Justice which endorse this approach: among them Michelin -v- Commission 1985 1 CMLR 282 and Tetra-Pak Rausing SA -v- Commission. 1991 4CMLR 334 . These authorities are quoted with approval by Keane J. in Masterfoods Limited, supra , and it suffices here to refer to a passage from the judgment of the Court in Michelin, supra ,:

68. As Advocate General Krischner observed in Tetra-Pak, supra

69. The Plaintiffs complaint of infringement of Section 5 is that unfair purchasing prices are "imposed" by MPP for their chicken flesh. They say the flesh price is fixed unfairly low and is designed to achieve and has achieved for MPP 'supernormal' profits. A number of cases before the European Court have dealt with the issue of alleged unfair selling prices. The evidential burden applied in these cases appears to me to be relevant to the present case.

70. The Plaintiff growers also contend that MPP is not only a monoponist - but a price discriminating monoponist, in that it has, as noted above, applied its deductions and flesh prices in a discriminatory fashion in breach of Section 5(2)(c) of the 1991 Act. It is argued that the same deductions and prices should have been applied to all and that the failure to do so has disadvantaged some of the growers. Bellamy and Childs, supra (at para. 9.055) observing on the equivalent provision in Article 86 say:-

71. The final complaint of the Plaintiffs relates to Section 5(2)(d) of the 1991 Act. It is contended that the growers obligation under their agreements with MPP to purchase their meal from MPP is the imposition fo a supplementary obligation which by its nature and according to commercial usage has not any connection with the broiler growing service agreement. The Plaintiffs rely on Hilti -v Commission 1992 4CMLR 16 . Hilti manufactured and supplied power driven nail guns. It occupied a dominant position in the supply of these guns. It also supplied cartridge strips and nails with the guns. It required purchasers of the guns to purchase its nails. The Court of First Instance held that its conduct was abusive. Hilti had argued that safety considerations justified it in insisting on the purchase of its nails with its gun. Technical reports on nails manufactured by the complainants (against Hilti) established defects in those nails. The Court held that Hilti could not justify the tying provision on product liability grounds where it could invoke national laws concerning product liability to protect its position. In Tetra-Pak, 14th November, 1996, (unreported) , the ECJ again considered a tying clause. Tetra- Pak's customers were contractually obliged inter alia to purchase from Tetra Pack all their requirements of carton packaging material used in Tetra-Paks carton filling machines. The Court did not accept that such a tie was justified on the grounds that it eliminated the difficult question of apportioning responsibility for any defect in the system to the supplier of the machine and the supplier of the packaging material and, also, that it was necessary to safeguard public health because of the dangers inherent in storing milk at ambient temperatures. The ECJ at para 36 approving of the decision of the Court of First Instance noted that that Court had held

72. I shall deal first with the issues which arise in relation to section 5 . As I indicated earlier there was no dispute between the parties as to the relevant product market: it was the market for the provision of a broiler growing service. The dispute between the parties was as to where the competition in that market took place.

73. Dr Jacobson suggested that the geographic market was determined by observing the physical location of growers in relation to processors. He found that the clustering of MPPs growers in a 15 mile radius around the processing plant combined with a history of lack of mobility of these growers from MPP to any other processor defined the geographic market as one located in County Monaghan. Dr Fingleton as, I have noted, believed that all growers for different processors were indirectly in competition with each other and that the geographic market was Ireland. He expressed the view that because price competition on the downstream market impacted on the upstream markets (including that for broiler growing services) in effect growers on the entire island were competitors inter se. While there is no doubt that prices achieved on the downstream market will have their effects on all upstream markets I am not satisfied that such effects necessarily imply that the geographic area of the downstream market defines the area in which competition takes place in the provision of a broiler growing service. I believe the Plaintiffs assertion that the geographic market is one within a 15 mile radius of MPPs Plant is correct. There was no evidence that over time there was any real mobility (of those growers within that radius) between processors and there was evidence of the economic benefits, to grower and processor, of such a spatially limited market. Because the geographic market is defined in this way, it follows that it is a market in which there is only one purchaser of the service being provided and, as Dr Jacobson notes, that purchaser is, in an economist's language, a monopsonist. The next issue which arises is whether MPP occupies a dominant position in the relevant product market. a firm which has the position of a monopsonist has, as Stigler noted, the same power to control price in purchasing as a monopolist has in selling; a monopsonist however, the economic evidence suggests, only retains that power to control price and the power to behave independently of its competitors and customers where there are barriers to entry and exit the market in question. If it is easy to enter a market and the costs of entry can be recouped on exit then in such a contestable market the monopsonist is not necessarily dominant in that he cannot act independently of his competitors or customers without the risk of a "hit and run" operation whereby his price changes attract his competitors into the market. However, in the present case, the evidence suggests that the market is not contestable and that there are significant non strategic barriers to entry and exit from the market both for growers and processors alike. The failure of growers to exit the market in the face of a perceived decline in their margins and in the face of a perceived unfair pricing system is indicative of the high sunk costs they have and a lack of contestability of the market. It is of course not a breach of section 5 of the 1991 Act for MPP to have (as I find they have) a dominant position in the market: it is necessary for the Plaintiffs to establish that it has abused that position by the use of anti competitive practices which cannot be objectively justified. I have to decide whether any of MPP's practices complained of by the Plaintiff growers amount to an abuse of a dominant position by MPP.

74. In aid of their primary allegation that the flesh price offered by MPP was an unfair price, the Plaintiffs led evidence as to flesh prices paid to other growers, the flesh price offered by Cootehill Co-operative Society, the market price of meal sold by the designated millers, the price they sold it to MPP, and the price MPP sold the meal to growers. The Plaintiffs also had evidence as to the price of day olds charged by different processors and the generally declining gross margins of growers for MPP between 1991 and 1996. Apart from the evidence as to the Cootehill and MPP flesh prices, the only 'evidence' as to flesh prices paid by other processors was that contained in the questionnaire that had been drawn up by

75. Mr Quigley and apparently filled in by Mr Walsh of the IFA on behalf of other processors. Counsel for MPP did not object to the admissibility of the questionnaire replies but did submit that little, if any, weight should be attached to the evidence. I am satisfied that I should attach, little if any, any weight to responses to the questionnaire for the following reasons

76. MPP next advanced the Cootehill flesh price as a basis for asserting MPPs flesh price is unfair. In my opinion the Cootehill price is not a proper basis for comparison because it emerged that the mechanism whereby Cootehill established its flesh price was one where most of the persons deciding the price were the beneficiaries of that decision. The Plaintiffs recognised that this price was not established on an "arm's length" basis but felt that the subtraction of 1p from the price cured that defect. I do not accept that it does cure the defect. If the price originally fixed is not an open market price, no arbitrary additions or subtractions can make it so.

77. Next the Plaintiffs contended that the "mark up" by MPP when they resold the meal to the growers was evidence of an unfair pricing system for the chicken flesh. Mr Magee's evidence was that between December 1991 and 1995 the price charged for meal was £266 per tonne whereas the cost to MPP was in the region of £210 per tonne during that period. While I accept that evidence, and its accuracy, I also accept the evidence of Mrs O'Driscoll that MPP did not make any profit on the meal and that the meal when charged at £266 p.t. resulted in the flesh price being "inflated" to 33p per lb. and that "one was compensated for in the other". She acknowledged, and I accept, that in the past Manor Mills Ltd had given a rebate of the order of £6 p.t. which was not passed on to growers until after December 1995. Professor Thom suggested that it was untenable for the Plaintiffs to assert that MPP should be able to assure the growers a "fair" return. I accept his evidence and in particular his analysis of the pre December 1995 price structure and the December 1995 proposal (see Table 1, ante) which seems to establish clearly that the proposed price structure - involving no mark up by MPP on meal - would not affect growers margins, this evidence also supports the evidence of Mrs O'Driscoll that one price was "compensated for in the other". The Plaintiffs further point to the declining margins of the MPP growers between 1992 and 1996 as evidencing an unfair pricing regime. I cannot accept that, even if it was a legitimate exercise to look at a representative grower's margin (i.e. the average margin over these 4 years), the margin to the grower is influenced solely or even to a significant extent by the flesh price paid to him. There are too many variables involved in the determination of the growers gross margin over time to allow a decline in the average gross margin to be attributed solely or primarily to unfair pricing. Finally, MPPs control over the price of day old chicks is advanced as evidence of unfair pricing. While the control certainly exists, it does not evidence unfairness in the pricing regime. In general terms, the Plaintiffs also point to the unilateral imposition of "deductions" as examples of what they regard as an inherently unfair system of price. I am satisfied that there is not evidence which as a matter of probability establishes that MPP have offered prices which are unfair and I am satisfied that the Plaintiffs have failed to establish a breach of section 5(2) (a) by adducing evidence either to satisfy the test adopted by the ECJ in United Brands supra or the test propounded in Bodson v Pompes Funetrees des Regions Libres , supra: no genuinely comparable flesh prices were adduced in evidence such as to allow the Court to make an assessment of the fairness of MPPs prices in accordance with the tests laid down in these cases..

78. The Plaintiffs suggest that MPP is guilty of abuse of dominance in obliging them to purchase their meal from MPP. They say that imposes on them an obligation which by its "nature or according to commercial usage" has no connection with the subject of such contracts. The evidence before the Court establishes beyond doubt that the practice of requiring growers to purchase their feed through their processor commenced in the 1960's; and that in 1976, MPP required its growers to purchase its meal through MPP, that, currently all processors (save Cootehill) require their growers to purchase meal through them. Similar "integration" exists in the United Kingdom. The prevalence of the practice over such a prolonged period of time leads me to the conclusion that the obligation to purchase meal through the processor is an obligation, which, as a result of commercial usage, has been connected with the contract for the provision of a broiler growing service. Even if I am wrong in reaching this conclusion, I believe that the obligation to purchase feedstuffs through the processor is not one which is capable of being characterised as a "supplementary obligation" which has "no connection" with the object of the contract rather it is one where there is a natural link between the meal and the growing chicken. As stated, the contract is one whereby a grower agrees to provide a broiler growing service for a processor who agrees to pay a price for the grown chicken. It is common case that the "quality of the feed determines the quality of the chicken". The processor, it seems to me, is perfectly entitled to specify how and with what particular feed the chicks, the subject of the contract, shall be reared. In so specifying, he is not in any way imposing an obligation which has "no connection" with the subject of the contract, namely, growing chickens. It seems to me that the foregoing characteristics of the broiler growing contract are such as to take it out of the prohibition in section 5(2) (d) of the 1991 Act. In any event I believe that the imposition of such an obligation as to feedstuffs can (unlike the supplementary obligations in Hilti and Tetra Pak 2 ) be objectively justified and in that regard I accept the evidence of Mr Truesdale and Mr Wilson that supermarkets and ultimate consumers expect "traceability" of product from raw materials through to chicken flesh. I accept also that the system of purchasing meal through MPP assists in achieving traceability and that were growers to purchase their own meal traceability would be "an administrative nightmare".

79. While there was evidence that MPP offered different terms to different growers (the £5/25 deduction, the incentive of .5p per lb for new growers) there was no evidence to suggest that in fact such conduct had the result of placing the affected growers at any competitive disadvantage. In substance and in fact, this minimal price discrimination had no effect on competition in the market in question. Accordingly, I am satisfied that MPP has not abused its position of dominance and (if I am wrong in coming to such a conclusion) that any abuse of dominance can be objectively justified.

80. The Plaintiffs alleged that their agreements with MPP have as their object or effect the restriction of competition by the imposition of unfair purchase prices and by requiring growers to purchase their meal through MPP. I am satisfied that the evidence does not sustain these allegations. There is no evidence that the objective of the broiler service contracts (either in stipulating the purchase of meal through MPP or in fixing prices) was to restrict competition either in the broiler growing market or, indeed, in the market for meal. I am equally satisfied that the agreements did not have this effect. No proper evidential basis was laid, as I have already indicated, for the allegation that MPP was guilty of fixing unfair prices. As to the question of requiring growers to purchase meal through MPP, even if it can be argued that such an obligation has the effect of restricting competition in the adjoining market for the sale of chicken feedstuffs there can be no doubt but that the restriction on competition can be objectively justified for the reasons already stated by me. Because it can be objectively justified, therefore, the restriction on the purchase of meal (looked at from either the broiler growing contract or the millers' contracts with MPP) does not fall foul of section 4. The application of a principle of "objective justification" to section 4 seems to be appropriate having regard to the reasoning in Metro (i) 1977 ECR 1875 and Metro (2) 1986 ECR 3021 referred to earlier.

81. Finally, the allegations of price discrimination by MPP has already been dealt with in relation to section 5: given that the discrimination has had no discernible effect on competition among growers no breach of section 4 has occurred.

82. The Plaintiff growers allege that MPP were in breach of its contracts with them in failing to properly account to them in respect of deal and useless birds. I am satisfied that the Plaintiff growers have established as a matter of probability -