Tuesday, 21 August 2012

Blast from the Past Case Summary

Tuttle v Buck 107 Minn. 145, 119 N.W. 946 (1909)

In this Blast from the Past Case Summary, I will be briefing discussing the curious case of Tuttle v Buck decided by the Minnesota Supreme Court at the beginning of the last century.[1] The reason for looking at this case now is because I think that some parallels can be drawn between this case and the recently released report from the Master Grocers of Australia entitled Let’s Have Fair Competition! [2]

Facts: The plaintiff, Tuttle, was the only barber in the village of Howard Lake, Minnesota. He had enjoyed that local monopoly for about ten years. Due to his monopoly of the local market for the supply of haircuts, he enjoyed a prosperous existence – ie he was able to “comfortably maintain himself and family out of the income and profits thereof, and also to save a considerable sum per annum, to wit, about $800”.

The defendant, Buck, a local banker of “great wealth and prominence” in the community decided to establish his own barbershop in competition with Tuttle. He did this by employing barbers at an agreed salary and charging a nominal rent for his barbershop premises. Tuttle sued Buck on the basis that Buck has set up his barbershop for the “malicious” purpose of driving Tuttle out of business.

Issues: Could Buck be liable for trying to drive against Tuttle out business out of pure personal animus?

Decision: The Supreme Court of Minnesota decided that Buck was guilty of “a wanton wrong and actionable tort” because he had the "malevolent" purpose of driving Buck out of business and then “retiring” from the barbershop business.

As stated by the court:

To divert to one’s self the customers of a business rival by the offer of goods at lower prices is in general a legitimate mode of serving one’s own interest, and justifiable as fair competition. But when a man starts an opposition place of business, not for the sake of profit to himself, but regardless of loss to himself, and for the sole purpose of driving his competitor out of business, and with the intention of himself retiring upon the accomplishment of his malevolent purpose, he is guilty of wanton wrong and an actionable tort. In such a case he would not be exercising his legal right, or doing an act which can be judged separately from the motive which actuated him. To call such conduct competition is a perversion of terms. It is simply the application of force without legal justification, which in its moral quality may be no better than highway robbery.[3]

In other words, the fact that Buck simply wanted to set up his business to destroy Tuttle’s business and then close down his barbershop business made his actions illegal. Ironically, had Buck been motivated by a desire to drive Tuttle out of business and then to recoup monopoly rents from his barbershop business, his conduct may have been legal.

The court also made the following broad observations about the dangers of “unrestrained business competition”:

[T]he common law is the result of growth, and . . . its development has been determined by the social needs of the community which it governs. It is the resultant of conflicting social forces, and those forces which are for the time dominant leave their impress upon the law. It is of judicial origin, and seeks to establish doctrines and rules for the determination, protection, and enforcement of legal rights. Manifestly it must change as society changes and new rights are recognized. To be an efficient instrument, and not a mere abstraction, it must gradually adapt itself to changed conditions. Necessarily its form and substance has been greatly affected by prevalent economic theories.
For generations there has been a practical agreement upon the proposition that competition in trade and business is desirable, and this idea has found expression in the decisions of the courts as well as in statutes. But it has led to grievous and manifold wrongs to individuals, and many courts have manifested an earnest desire to protect the individuals from the evils which result from unrestrained business competition.
The problem has been to so adjust matters as to preserve the principle of competition and yet guard against its abuse to the unnecessary injury to the individual. So the principle that a man may use his own property according to his own needs and desires, while true in the abstract, is subject to many limitations in the concrete. Men cannot always, in civilized society, be allowed to use their own property as their interests or desires may dictate without reference to the fact that they have neighbors (sic) whose rights are as sacred as their own. The existence and wellbeing of society requires that each and every person shall conduct himself consistently with the fact that he is a social and reasonable person. The purpose for which a man is using his own property may thus sometimes determine his rights…[4]

Relevance: The Master Grocers would have the public believe that independent retailers are being driven out of business by the illegal anti-competitive conduct of Coles and Woolworths. They make reference to alleged cross-subsidies, price discrimination and over investment by Coles and Woolworths as the cause of their demise. However, none of this conduct is currently illegal under the Competition and Consumer Act 2010. Therefore, in reality the Master Grocers are complaining about Coles and Woolworths engaging in legal but (in their view) unfair competition.

While I suspect that Coles and Woolworths may be engaging in illegal anti-competitive conduct (given their record of contravening such laws in the past - see earlier post on this blog entitled ACCC’s investigation of Woolworths and Coles: A Blueprint for Action [5]), that is not the real reason why the independent supermarket sector is failing. The main reason that the independent supermarket sector is failing is because the sector has not been able to differentiate itself successfully from the supermarket offerings of Coles and Woolworths.

An inconvenient truth for the independent supermarket sector is the fact that both ALDI and Costco appear to be having a great deal of success in competing with Coles and Woolworths. These companies are enjoying this success because they have been successful in differentiating themselves from Coles and Woolworths in meaningful ways.

If the Master Grocers are hoping that the Commonwealth government will embrace a paternalistic approach to assisting the independent supermarket sector, similar to that shown by the Minnesota Supreme Court to Buck in Tuttle v Buck over 100 years ago, they are very much mistaken.

Furthermore, even if the government accepted all of the Master Grocer’s recommendations as set out in its Report, such assistance would do no more than provide a short respite from the inevitable fate of the independent supermarket sector.

The only way that the independent supermarket sector can remain viable and grow is by spending the time and effort necessary to fully explore ways of differentiating itself from Coles and Woolworths. While this will be no easy task, the sooner the independent supermarket sector focuses on exploring such approaches (rather than continually trying to get legislative relief from what they believe is “unfair” competition), the better.

[1] Cited in Roscoe Pound, A Selection of Cases on the Law of Torts, Cambridge Harvard University Press, 1919 at http://archive.org/stream/selectionofcases00amesuoft/selectionofcases00amesuoft_djvu.txt

[2] Master Grocers Australia, Lets Have Fair Competition!: The risk of losing retail diversity, choice and true competition in the Australian supermarket industry at http://www.mga.asn.au/files/5313/4482/4428/Fair_Competition_Release_Aug2012.pdf

[3] Pound, op. cit., footnote 1.

[4] Ibid.

[5] http://competitionandconsumerprotectionlaw.blogspot.com.au/2012/05/acccs-investigation-of-woolworths-and.html

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