ACCC v Leahy Petroleum [2005] FCA 254 | Case summary

REASONS FOR JUDGMENT Introduction 1 In reasons for judgment published on 17 December 2004 (ACCC v Leahy Petroleum [2004] FCA 1678), which are to be read together with these reasons, I found that the third respondent ("Triton"), the sixth respondent ("Apco"), the seventh respondent ("Brumar"), which is now in liquidation, and the fifteenth respondent ("Balgee") contravened s 45(2)(a)(ii) of the Trade Practices Act 1974 (Cth) ("the Act") by arriving at the price-fixing understanding outlined in [330] of the reasons. I also found that Triton, Apco and Brumar contravened s 45(2)(b)(ii) of the Act by giving effect to the understanding between 22 June 1999 and 8 December 2000 on 45 occasions in respect of Triton, 29 occasions in respect of Apco, 53 occasions in respect of Brumar and 68 occasions in respect of Balgee. Finally, I found that the eleventh respondent ("Rosenow"), the thirteenth respondent ("Anderson") and the fourteenth respondent ("Dalton") were persons who were involved in each of the contraventions by their respective corporate principals, being Triton, Apco and Brumar respectively. 2 I observed (at [384]) of the reasons that the contraventions, which involved serious and on-going breaches of important provisions of the Act, resulted in the price of petrol in Ballarat being the subject of a cartel type of arrangement or understanding over a substantial period of time. I also observed that the price-fixing understanding led to the public paying higher retail prices for petrol in Ballarat than they would have paid if the prices had been determined by market forces, rather than by a collusive arrangement between competitors. 3 The Australian Competition and Consumer Commission ("ACCC") has applied, pursuant to s 76(1) of the Act, for the imposition of pecuniary penalties in respect of the contraventions. Under s 76(1), if the Court is satisfied that a person has contravened a provision of Pt IV of the Act or has been involved in such a contravention, the Court may order the person to pay to the Commonwealth such pecuniary penalty in respect of each contravention as the Court deems to be appropriate. The maximum penalty for each contravention of ss 45(2)(a)(ii) or 45(2)(b)(ii) by a body corporate is $10 million (s 76(1A)(b)). The maximum penalty for each contravention by an individual is $500,000 (s 76(1B)). 4 The ACCC also sought declaratory, injunctive and other relief which was not seriously opposed save as to the question of costs and, in some cases, as to whether the injunctive relief sought was necessary or appropriate. Section 76(1) 5 There was little dispute between the parties as to the principles to be applied in respect of a penalty that is to be imposed under s 76(1) of the Act. They were recently summarised by Sackville J in Australian Competition and Consumer Commission v Visy Paper Pty Ltd (No 2) (2004) 212 ALR 564 at 571 [28]-[32]: "Section 76(1) of the TP Act identifies expressly four matters that must be taken into account by the court in determining the pecuniary penalty that is appropriate in respect of the contravention. These are: · the nature and extent of the act or omission constituting the contravening conduct; · the nature and extent of any loss or damage suffered as a result of the contravening conduct; · the circumstances in which the act or omission took place; and · whether the contravener has previously been found by the Court to have engaged in similar conduct. It was common ground that the six additional factors listed by French J in Trade Practices Commission v CSR Ltd [1991] ATPR 41-076 at 52,152-153, should be taken into account: (i) the size of the contravening company; (ii) the degree of its power, evidenced by its market share and the ease of entry into the market; (iii) the deliberateness of the contravention and the period over which it extended; (iv) whether the contravention arose out of the conduct of senior management or at a lower level; (v) whether the company had a corporate culture conducive to compliance with the TP Act, as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention; and (vi) whether the contravenor has shown a disposition to co-operate with the authorities responsible for the enforcement of the TP Act in relation to the contravention. (This list was endorsed by Burchett and Kiefel JJ (with whom Carr J generally agreed) in NW Frozen Foods Pty Ltd v ACCC (1996) 71 FCR 285 at 292; 141 ALR 640 at 645-6, although their Honours regarded the list as an elaboration of the statutory requirement to consider 'the circumstances in which the act or omission took place'.) In NW Frozen Foods at FCR 294-295; ALR 647-9, Burchett and Kiefel JJ expressed the view that the deterrent effect of a penalty, both specific and general, is an important factor to be taken into account in determining the appropriate penalty in a particular case. They also said, however, that the penalty should not so great as to be oppressive: at FCR 293; ALR 646-7. There has been a debate as to whether the punishment of a contravenor is a relevant factor to take into account in determining the appropriate penalty to be imposed. The authorities suggest that there is little or no difference between taking into account the deliberate nature of the conduct in question and the object of punishing the contravenor: Australian Competition and Consumer Commission v Ithaca Ice Works Pty Ltd [2002] ATPR 41-851 at [50] per curiam; Minister for the Environment and Heritage v Greentree (No 3) [2004] FCA 1317; BC 200406748 at [52]-[57] per Sackville J. In determining the appropriate penalty, it may also be relevant to take into account the totality principle to ensure that the total penalty does not exceed what is proper for the entire contravening conduct involved: at 40,169 per Burchett J; Greentree (No 3) at [179]." 6 In Australian Competition and Consumer Commission v ABB Power Transmission Pty Ltd (2004) ATPR 42-011 ("ABB Power"), Emmett J (at [49]) also referred to the parity principle which requires the Court to take into account the quantum of any penalties already imposed on co-offenders in relation to the same conduct. His Honour stated: "Corporations guilty of similar contraventions should incur similar penalties. There should be no inequality such as would suggest that the treatment meted out to different contraveners in relation to the same contraventions is not even-handed. The same principles would of course apply to individuals as well as to corporations." 7 However, in Schneider Electric (Australia) Pty Ltd v Australian Competition and Consumer Commission (2003) 196 ALR 611 ("Schneider") at 614 [11] Sackville J observed that the parity principle does not necessarily require corporations guilty of similar contraventions of the TPA to incur the same or similar penalties because, as was pointed out by Burchett and Keifel JJ in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 ("NW Frozen Foods") at 295, it was a rare case in which the consequences of a contravention are identical and a variety of factors may play a part in determining the appropriate penalty. 8 In a number of cases the Court has suggested that the size of the contravening company is relevant to the penalty that is appropriate. In NW Frozen Foods (at 293) Burchett and Keifel JJ observed: "In TNT (at 40,168), it was pointed out that some other factors which have been regarded as important actually flow from what French J called in CSR Ltd (at 52-152) '[t]he primacy of the deterrent purpose in the imposition of penalty'. One of those factors is the size of the corporation involved, since '[w]hat would deter a small company might have little effect on a very large one'. … … … As Smithers J emphasised in Stihl Chain Saws (at 17,896), insistence upon the deterrent quality of a penalty should be balanced by insistence that it 'not be so high as to be oppressive'. Plainly, if deterrence is the object, the penalty should not be greater than is necessary to achieve this object; severity beyond that would be oppression." See also Schneider at 615 [17] and 621 [48]-[49]. 9 The size of the contravening companies and their respective capacities to pay a penalty were relied upon as factors in mitigation in the present case. Plainly, such factors can be relevant to the penalty that is necessary to deter the company from contravening the Act in the future. Size may also be relevant to general deterrence because other potential contraveners are likely to take notice of penalties imposed on companies of a similar size. However, a contravening company's capacity to pay a penalty is of less relevance to the objective of general deterrence because that objective is not concerned with whether the penalties imposed have been paid. Rather, it involves a penalty being fixed that will deter others from engaging in similar contravening conduct in the future. Thus, general deterrence will depend more on the expected quantum of the penalty for the offending conduct, rather than on a past offender's capacity to pay a previous penalty. I therefore respectfully agree with the observation of Smithers J, referred to by Burchett and Kiefel JJ in NW Frozen Foods, to the effect that, a penalty that is no greater than is necessary to achieve the object of general deterrence, will not be oppressive. I have approached the issue of corporate penalties on that basis. The penalties in relation to the individuals may need to be tempered by personal considerations. 10 In Australian Competition and Consumer Commission v McMahon Services Pty Ltd [2004] FCA 1425 ("McMahon") at [15], Selway J observed in relation to price-fixing: "Once it is understood that deterrence, and particularly general deterrence, is the primary principle in the imposition of penalty for price fixing, then at least two conclusions flow from that. First, it means that penalties for collusive price fixing will need to be substantial and significant. This is, of course, reflected in the size of the maximum penalty upon corporations of $10 million. However, it also follows logically from the principle. Collusive price fixing, particularly between tenderers is difficult to detect. Public enforcement often only occurs with "a tip from an affected party or an insider" (see Marshall & Meurer, "Bidder Collusion and Antitrust Law: Refining the Analysis of Price Fixing to Account for the Special Features of Auction Markets" (2004) 72 AntiTrust Law Journal 83 at 101). Given these difficulties and the potential for large profits from such practices there is a chance that those in the market place might be prepared to factor the risk of a low penalty into its pricing structure as a 'business cost'. That would be inimical to the statutory purpose of ensuring that the practices do not occur. The penalty must be sufficiently high that a business, acting rationally and in its own best interest, will not be prepared to treat the risk of such a penalty as a business cost." 11 In any event, the anomalies that arise from giving substantial weight to capacity to pay can be seen from the facts of the present case. As will become apparent later in these reasons I regard Balgee as the most culpable of the contravening parties before the Court with no factors in its favour that would warrant mitigating or discounting the penalty that was otherwise appropriate. Yet, Balgee was placed in administration, is presently the subject of a Deed of Company Arrangement and there is no evidence that it has any assets of substance or any capacity to pay a substantial fine. Also, the other contravening parties vary considerably in size, and in their respective capacities to pay a substantial penalty, for reasons that are unrelated to the contravening conduct. Giving significant weight to capacity to pay in such circumstances would not only produce anomalous outcomes, such as the most culpable offender receiving the lightest penalty, but it would also reward companies for carrying on business in a manner that resulted in those companies having few, if any, assets available to pay a penalty when it is imposed. Further, such an approach would appear to be difficult to reconcile with the parity principle referred to above. 12 Size is not just relevant to capacity to pay. It can also be relevant to the duties and responsibilities of the contravening parties. For example, during the relevant period Apco, Triton, Brumar and Balgee appeared to conduct substantial petroleum business enterprises using a large number of employees. While Ballarat may have contributed to only a small proportion of the total turnover of those companies, it was an important market that warranted the employees of those companies being properly trained and instructed about Pt IV of the Act. The appropriate penalty 13 In the light of the differing circumstances of each of the contravening parties I propose to approach the question of penalty by first determining the penalty that is appropriate, assuming the absence of any mitigating circumstances, and then to consider the particular position of each of the contraveners, including any mitigating circumstances that should result in a discount from the penalty that would otherwise be appropriate. 14 In determining the appropriate penalty I am satisfied that the totality principle should apply. The close interrelationship between the making of, and giving effect to, the price-fixing understanding during the relevant period make the present case one in which the total penalty ought not to exceed what is proper for the entire contravening conduct involved: see Trade Practices Commission v TNT Australia Pty Ltd (1995) ATPR 41-375 at 40,169 and Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) ATPR 41-562 at 43,817. 15 I agree with the ACCC's written submission as to the nature and extent of the contravening conduct. It stated: "The conduct: a) involved serious and on-going breaches of important provisions of the Act; b) existed over a substantial period of time; c) involved extensive communications …; d) was implemented frequently; e) resulted in the price of petrol in Ballarat being the subject of a cartel type of arrangement or understanding; f) led to the public paying higher retail prices for petrol than they would have paid if prices had been determined by market forces; g) involved contraventions of the per se provisions of the Act (section 45A of the Act) and accordingly is deemed to substantially lessen competition." 16 The conduct of the contraveners was systematic, deliberate and covert. Also, its covertness necessarily presented particular difficulties to the ACCC which is charged with the duty of uncovering and prosecuting such contraventions in the public interest. As the facts of the present case demonstrate, it was particularly difficult for the ACCC to establish that price changes resulted from collusive arrangements, rather than from competitors checking each other's openly displayed prices. As was pointed out by the Full Court in J Macphee & Son (Aust) Pty Ltd v ACCC (2000) ATPR 41-758 at 40,923 such circumstances require a "salutary penalty". 17 The amount of loss or damage caused to the public can also be relevant to the determination of penalty, although in McMahon Selway J stated that the actual market outcome in a price-fixing case is not necessarily an important issue in determining the appropriate penalty except, perhaps, as a matter of aggravation. The rationale of that observation was stated by his Honour (at [16]): "… In relation to price fixing agreements, the law itself assumes that the purpose and/or the effect of the proscribed behaviour is to "substantially lessen competition": s 45A of the TPA and see Brunt Economic Essays on Australian and New Zealand Competition Law (2003) at 133. Given that assumption, it cannot be a factor in mitigation of a pecuniary penalty for engaging in price fixing that no such purpose or effect occurred in the particular case. If it is true that the uncompetitive purpose and effect did not result in a measurable or ascertainable loss to a particular individual, that is necessarily fortuitous and coincidental. It is not a matter of mitigation. Further, as already noted, the reason for the prohibition is the effect of the behaviour on the overall market, not on a particular transaction. Collusive bidding practices are unacceptable whatever their effect in a particular transaction. Those involved in them must expect significant penalties." 18 His Honour, however, accepted (at [17]) that it does not follow that in fixing the penalty the Court is entitled to ignore the particular position of the contravener or the detail of the contravening conduct. 19 In the present case, it is clear that on each of the occasions that the price-fixing understanding was given effect to by the parties to it the public suffered, or was exposed to a substantial risk of suffering, payment of higher prices for petrol by reason of the price-fixing understanding. The price-fixing understanding was given effect to on numerous occasions over a substantial period of time and the co-ordinated price increases by the parties to the understanding generally ensured that discounting of petrol prices in Ballarat started from a higher price than would have been the case if there had not been a price-fixing understanding. 20 Any determination of the actual quantum of the higher retail prices paid for petrol by reason of the understanding would necessarily be speculative and would be unlikely to serve any useful purpose. The important point is that price-fixing arrangements and understandings of the kind made and given effect to in the present case have been treated by the legislature as per se contraventions of the Act because their inherently anti-competitive nature inevitably harms consumers and has a deleterious and pernicious effect on economic efficiency. 21 The above observations need to be balanced against the fact that the price-fixing understanding only related to price increases that brought a discounting period to an end and did not directly interfere with the discounting of prices for petrol in Ballarat after such increases. Of course, the understanding indirectly affected those prices because, when the understanding achieved its objective, any subsequent discounting necessarily started from a higher price than would have been the case in a competitive market. Put simply, the loss and harm suffered by the public was the denial of a competitive retail petrol market in Ballarat during the relevant period. 22 Having regard to the above observations, and the seriousness and extent of the contraventions, it is plain that the present case is one in which substantial penalties are called for. Significant penalties, the ignomy of the Court's findings of contraventions against the various parties, the costs they had to incur in contesting the proceedings and the liability for costs that they will incur as a result having been unsuccessful in contesting the proceedings, are likely to go a long way towards ensuring that the objective of specific deterrence of the actual contravener will be achieved. 23 In my view, however, the factor of greatest significance in the circumstances of the present case is the need to impose penalties that will constitute a general deterrence to others who may be disposed to engage in proscribed conduct of a similar kind. As was observed by Finkelstein J in Australian Competition and Consumer Commission v ABB Transmission and Distribution Limited (2001) ATPR 41-815 at 42,938 [13]: "If general deterrence is the principal object of imposing a penalty, the number of cases that still come before the court, and the seriousness of the conduct that is involved in some of them, suggests that past penalties are not achieving that object. For a penalty to have the desired effect, it must be imposed at a meaningful level. Most antitrust violations are profitable. Accordingly, the penalty must be at a level that a potentially-offending corporation will see as eliminating any prospect of gain." See also Schneider at 623-624 [61]. 24 The circumstances of the present case suggest that the substantially increased monetary penalties provided for by the legislature in respect of conduct contravening Pt IV of the Act, and the numerous occasions on which the Court has imposed substantial penalties on arrangements and understandings proscribed by Pt IV of the Act, have had little, if any, affect on the parties to the price-fixing understanding. 25 It is true that in at least one instance participation in the understanding was engaged in by an employee of the contravener without the principals being aware of the contravening conduct. However, I do not accept that culpability in such cases lies only with the employee. Although there was no prior history of Pt IV contraventions having been established against any of the respondents there was not one instance in which the employees of the contravening parties had been given meaningful education or information by their employers about their responsibilities in relation to matters proscribed by Pt IV of the Act. In each instance the employer company was a substantial company with a significant involvement in the petroleum business in Victoria. The senior executives of those companies were astute businessmen who can be taken to have been well aware of the particular vulnerability of the retail petrol market to price-fixing arrangements or understandings. Yet, there is no evidence that any of those executives took the elementary step of ensuring that employees were not acting in breach of any provision of Pt IV of the Act by educating or giving information to those employees about their obligations in that regard. In those circumstances, while innocence or ignorance on the part of senior management in respect of the contraventions can be a mitigating factor, the absence of any Pt IV training or information sessions until after the ACCC commenced its investigation in respect of the price-fixing understanding is a serious omission, which is an adverse factor in relation to penalty: see Australian Competition and Consumer Commission v Alice Car and Truck Rentals Pty Ltd (1997) ATPR 41-582 at 44,050 per Mansfield J. 26 Thus far, I have considered the contravening conduct without reference to the significance I attach to it having been engaged in a local petrol market. Such markets exist throughout Australia and price-fixing understandings of the kind the subject of the present case can easily be replicated in any local market in Australia for the retail sale of petrol. Because of the personal relationships that might exist between many competitors, the homogeneity of petrol, the open display of retail prices and the consequential high level and significance of price competition such markets are particularly prone and vulnerable to price-fixing arrangements. While it is correct that none of the contraveners have a significant degree of market power that is of little relevance because the absence of such power was a factor, among others, that required collusion between competitors if the price-fixing understanding was to be made and given effect to. The incentive to engage in such arrangements in those markets is considerable but the prospects of being detected are not. 27 Having regard to all of the above matters, I am satisfied that the appropriate corporate penalty, in the absence of any mitigating circumstances, is $5 million. That penalty, although substantial, is less than the penalty sought by the ACCC. However, for the reasons set out above I regard it as the appropriate penalty in all the circumstances. 28 The circumstances of the individuals, whose conduct resulted in the contraventions by their corporate principals, varies. However, the common factor in respect of each of those individuals is that their conduct not only contributed to the contraventions by their corporate principals but actually constituted, and resulted in, each of the contraventions. Accordingly, save for the absence of Pt IV training, the other factors referred to above in respect of the contraventions by the corporate principals are generally relevant to the contraventions by the individuals without whose co-operation and involvement the contraventions could not have occurred. However, the legislature has specifically addressed the issue of individual liability by providing that the maximum penalty for a contravention in respect of an individual is $500,000, notwithstanding that the maximum corporate penalty for a contravention is $10 million. In all the circumstances it is appropriate that, in the absence of mitigating circumstances, the individual penalty be $250,000. 29 In the context of the above observations I now turn to consider the specific circumstances of each of the contravening parties. Balgee 30 Balgee is subject to a Deed of Company Arrangement, its Board having resolved on 3 December 2000 that administrators should be appointed and its creditors having resolved on 22 March 2002 that the company should execute a Deed of Company Arrangement. Both events occurred after the commencement of the ACCC's investigation into the price-fixing understanding. Although Balgee filed a defence denying liability and it required the ACCC to prove its case against it, it sought and was granted leave to be excused from attending the trial in relation to liability. Balgee tendered no evidence and made no submissions in relation to penalty. 31 Balgee was an instigator of the price-fixing understanding and gave effect to it on 68 occasions during the relevant period. Balgee operated a substantial retail petroleum business which appears to have had an annual turnover in excess of $100 million. While it is not possible to quantify the benefits it received from its role in relation to the price-fixing understanding it is likely that the benefits were substantial because of the manner in which the understanding brought periods of discounting to an end. Balgee's involvement in the price-fixing understanding was by its general manager (Gourley), its Ballarat Operations Manager (Muller) and its Ballarat sales representative (Levick). I am satisfied there are no mitigating circumstances that would warrant discounting the penalty I have otherwise found to be appropriate. Accordingly, the penalty I propose to impose on Balgee is $5 million. Brumar 32 At the trial in relation to liability Brumar and Dalton were jointly represented by the same counsel and solicitors. After the publication of my reasons for judgment Brumar went into voluntary liquidation and the liquidator and Dalton were separately represented at the penalty hearing. The evidence tendered by Dalton at the penalty hearing included a memorandum on Brumar's letterhead that he sent early in 1999 to Shell Australia. A copy of the memorandum appears to have been sent to Brumar's principal, Mr Bruce Holland. In my view the memorandum was required to be, but was not, discovered by Brumar under the discovery order made on 1 November 2002. Under that order the discoverable documents included documents recording discussions or communications between the respondents or some of them relating to the Existing Arrangements, which are described in [60]-[65] of the reasons for judgment. The memorandum recorded discussions or communications between Rosenow and Dalton which ensured "consistency" of prices at Brumar and Triton supplied sites during the period in which the Existing Arrangements applied. 33 The case presented on behalf of Brumar and Dalton at trial was that the evidence adduced by the ACCC against them was speculative and was not sufficient to establish any contraventions of the kind alleged. Had the memorandum been discovered it would have been tendered by the ACCC as it supported its case. In the memorandum Dalton described his pricing strategy in relation to the Ballarat market as follows: "Upwards price changes are usually initiated by BP with their commission agents or at times us when the price falls [too] low. The others usually follow fairly quickly (i.e. couple of hours.) I work fairly closely with TONY ROSENOW at TRITON PETROLEUM Creswick road to ensure consistency between the BRUMAR Vic sites and the TRITON supplied sites. Both Tony and I keep a close eye on the Ballarat pricing." 34 The memorandum pre-dates the relevant period but it relates to the period in which the existing price-fixing arrangements were relied upon by the ACCC. The memorandum contains an admission by Dalton that he had been working "fairly closely" with Rosenow at Triton to ensure consistency of pricing at the Brumar and Triton sites at Ballarat. While those sites were all Shell sites, that was of little relevance to the s 45 issues arising in the present case. Those issues concerned whether certain parties (including Triton and Brumar) were colluding in relation to price increases in the Ballarat market. The brand of petrol sold by those parties was of little consequence to that issue. 35 The memorandum is relevant to both liability and penalty. It is relevant to liability because it is confirmatory of the findings I made concerning the role of Dalton and Brumar in relation to the price-fixing understanding. It is also inconsistent with the case presented by Brumar at trial that there had been no collusion between Dalton and Rosenow "to ensure consistency" in pricing. Although I published my reasons for judgment in relation to liability prior to the tendering of the memorandum it is appropriate to grant the ACCC leave to rely on it in relation to its case on liability against Brumar and Dalton. The consequential re-opening of the ACCC's case in that regard is for the limited purpose of relying on the memorandum, which is an important discoverable document that should have been, but was not, discovered. 36 The memorandum is also relevant in relation to penalty. I regard the failure by Brumar to discover the document as a serious omission on its part. It is trite to observe that discovery is an important obligation on the part of litigants and any omission in relation to discovered documents is a matter that, if not properly or adequately explained, reflects adversely on the party concerned. It was clear to Brumar and Holland that Dalton proposed to rely on the memorandum at the hearing in relation to penalty but at the hearing no explanation was given by them to the Court as to why the memorandum was not discovered. That is of particular significance in the present case as Brumar's unexplained failure to discover the memorandum is consistent with an inference, which I am prepared to draw, that Brumar concealed, or took no steps to reveal, the memorandum in an endeavour to conceal or down-play its role in relation to the price-fixing understanding. The memorandum is also difficult to reconcile with Holland's alleged ignorance of Dalton's communications with Rosenow. Rather, it confirms that Holland was informed of Dalton's collusion with Rosenow in relation to pricing at Brumar and Triton supplied sites. Thus, there was an awareness on the part of Holland, as a director of Brumar, of some of the communications that I have found resulted in Brumar's contraventions. 37 Brumar operated a very substantial petrol retail business in Victoria until about the middle of 2003 when its business was taken over pursuant to agreements between Brumar, an associated Brumar company, Shell Australia and Coles Myer ("the Coles Myer agreements"). Neither the liquidator nor Mr Holland were forthcoming about the amounts paid under the Coles Myer agreements. Brumar went into voluntary liquidation on 17 February 2005 claiming to have assets of $50,000, debts to creditors in the sum of $22,400 and a prospective liability for a penalty which was "anticipated" to be greater than its assets. 38 As a result of a subpoena served on Coles Myer it appears that payments made pursuant to those agreements to "Brumar" totalled $26,303,385.26. While the true asset position of Brumar remains to be investigated, it is fairly clear that Holland elected to try his chances with the voluntary liquidation of Brumar and an apparently inadequate disclosure of its financial position, rather than with a court hearing at which he could have instructed counsel to put any mitigating factors in relation to penalty on Brumar's behalf. 39 Indeed, Holland's conduct in relation to the penalty hearing is curious. He filed and served an affidavit that purported to address his, and Brumar's, situation in relation to penalty but after objections by Dalton to parts of the affidavit, a responding affidavit on behalf of the ACCC concerning other parts of the affidavit, the production of Dalton's memorandum and a decision by Holland to go skiing in Canada rather than attend for cross-examination, Brumar stated it no longer proposed to rely on Holland's affidavit. In the result, after Brumar unsuccessfully opposed the ACCC's application for leave to proceed against it under s 500(2) of the Corporations Act 2001 (Cth), it elected to tender no evidence and make no submissions in relation to penalty. 40 Brumar acted through its operations manager, Dalton, who reported directly to Holland. Acting through Dalton, a senior manager, Brumar engaged in systematic, deliberate and covert conduct in making and giving effect to the price-fixing understanding on 53 occasions. Further, Brumar not only exercised its entitlement not to assist or co-operate with the ACCC in its investigation and prosecution in relation to the understanding, but provided false answers to the ACCC's s 155 request and did not reveal the incriminating memorandum, which it was not entitled to do. Further, its conduct in relation to the penalty hearing evidences an absence of contrition or remorse concerning Brumar's contraventions. 41 The factors that I have outlined suggest that there is little that Brumar can put forward in mitigation of penalty. There are, however, some factors in Brumar's favour. Unlike Balgee, it did not instigate price increases. It also made its own decision on the increases, although it now appears that it acted closely with Rosenow to ensure "consistency" between Brumar's and Triton's supported prices. Further, because Brumar's arrangements with Shell meant that it was shielded to some extent from the losses it might otherwise have suffered during the discount cycles, it probably made little or no profit from the contraventions. Brumar also held a TPA training session early in 2002 after the commencement of the ACCC's investigation in relation to the price-fixing understanding. These factors, however, need to be balanced against the factors set out above and the findings at [375]-[382] of my reasons in relation to Dalton's, and therefore Brumar's, awareness of the purpose and significance of the price increase calls Rosenow made to Dalton. It is clear that, if Brumar had refused to become involved in the understanding, then the parties to it probably would not have been able to achieve their objectives. 42 In the circumstances, I regard $4 million as the appropriate penalty in respect of Brumar's contraventions. Dalton 43 Brumar and Dalton were jointly represented at trial. Dalton elected not to give evidence at trial. I made a number of adverse findings in relation to Dalton, including findings that he had made false statements denying any price discussions with any of the other respondents. Dalton's tender of the Brumar memorandum confirms the falsity of those statements. As with Brumar, Dalton took his chances at the hearing knowing that there was documentary evidence that incriminated him. Although Dalton was not required to discover the memorandum his possession and knowledge of it, and his active collusion with Rosenow about pricing, sit uncomfortably with the evidence he gave at his s 155 examination. 44 Dalton, however, has taken a different approach to penalty to that taken by Brumar. He explained his contravening conduct as well-intentioned in the sense that he only colluded with Rosenow who he did not see as a competitor but, rather, as another part of the Shell network. He also claims that he had no Pt IV training and was not aware that his communications with Rosenow were capable of involving unlawful conduct on his part. He regrets the contraventions, made no personal gain from them and claims he has already paid a high price for them because he was effectively dismissed from his present employment with Coles Express after he had been found to have contravened the Act. He has a family, is presently unemployed and has net assets of only $90,000. Senior counsel appearing for Dalton claimed that, in those circumstances, the Court ought not to impose a "crushing penalty" on Dalton. 45 While I accept that, unlike Brumar, Dalton has expressed remorse and contrition in respect of his contraventions, the lenient approach sought by senior counsel on his behalf fails to give due weight to the senior position occupied by Dalton within Brumar and the findings I made concerning Dalton's conduct at [254]-[256], [375]-[382] and [384] of my reasons for judgment. In particular, I found Dalton was aware that his involvement in the understanding was important "if the collusive process was to achieve its purpose". 46 I accept, however, that Dalton did not instigate price increases and made his own decision on whether Brumar would follow the market's increased prices. I also accept that he did not profit from his role in relation to the understanding. 47 In all the circumstances, the penalty that I have determined to be appropriate in respect of Dalton is $100,000. Triton 48 Although I found (at [364]-[367] of the reasons for judgment) that the ACCC's case against Triton and Rosenow was "compelling", Triton stands in a different position to Balgee, Brumar and Apco in a number of important respects: · it was a wholesaler, rather than a retailer; · although Rosenow, acting on Triton's behalf, implemented the price-fixing understanding by using price support to increase retail prices at the sites of its independent retailers, those sites were not high visibility or high turnover sites of the kind operated by Brumar, Balgee or Apco; and · the senior management of Triton were not aware of, and were not given any specific reason to suspect, Rosenow's price collusion activities. 49 Senior counsel for Triton pointed to a number of additional mitigating factors: · due to Triton's arrangements with Shell it was unlikely that it made any profit from the contraventions; · Rosenow's salary arrangements offered him no inducement to engage in the contravening conduct; · upon becoming aware of Rosenow's conduct Triton implemented a trade practices compliance program and instructed Rosenow to cease having any price conversations with competitors; and · Triton sold its petroleum business in July 2001 in circumstances that were unrelated to the ACCC's investigation into the price-fixing understanding. 50 It was contended that when all of the above factors are taken into account there is "no public benefit in punishing Triton for an activity about which the controlling minds, Triton's senior management, … did not know and could not have known was occurring". In particular, it was submitted that the Court "cannot deter future conduct by heavily punishing a company in Triton's circumstances that neither knew nor could have known of [Rosenow's] unlawful conduct". 51 While there is some substance in Triton's submissions they fail to take account of the fact that Triton's senior management effectively delegated to Rosenow, as its Ballarat Area Manger, the task of determining price support, and therefore retail pricing, in respect of Triton's resellers (see [111]-[117] of the reasons for judgment), without providing him with any Pt IV instruction or training in relation to those matters. Also, while I accept that Triton's senior management may have had no specific reason to suspect the nature and extent of Rosenow's price collusion activities, I do not accept that that absolves senior management from responsibility for Rosenow's conduct, whose role was critical to the price-fixing understanding achieving its objectives. The price competition and volatility in the Ballarat market during the relevant period, which resulted in sharp price increases that brought discount cycles to an end, were matters that ought to have put senior management of a substantial petroleum supplier on notice that such a market may be particularly prone or vulnerable to collusive pricing by some of the participants in the market. In my view members of Triton's senior management were aware, or ought to have been aware, of the risks of price-fixing in the markets in which they were participating. Thus, had Triton taken appropriate steps to ensure Rosenow was not engaged in any collusive activities its submissions about the absence of blameworthiness may have been persuasive. Triton, however, took no steps in that regard. 52 For the above reasons, although specific deterrence may not be a significant factor in relation to penalty in respect of Triton, the objective of general deterrence requires that a substantial penalty be imposed. 53 In all the circumstances, which include the central role of Rosenow as a conduit for price increases at Brumar and Triton's Shell sites pursuant to the price-fixing understanding, and Triton giving effect to that understanding on 48 occasions during the relevant period, the appropriate penalty for Triton is $1 million. In imposing that penalty I have also taken into account the evidence that Triton's net assets as at February 2005 were $573,655.75 and the need to ensure that the penalty imposed is not oppressive. However, after taking into account the mitigating factors to which I have referred, including senior management's lack of awareness of Rosenow's contravening conduct, I am satisfied that, as general deterrence requires the penalty I have imposed, that penalty is not oppressive. Rosenow 54 Rosenow is in a difficult position. He was represented at the hearing by senior and junior counsel and elected not to give evidence. I concluded that the ACCC's case against Triton and Rosenow was "compelling". In particular, I found that Triton's contraventions were constituted solely by Rosenow's conduct which was systematic, deliberate and covert. At the penalty hearing, Rosenow was no longer represented although written submissions were prepared on his behalf by his former solicitors. 55 In substance, Rosenow now claims he was unaware that his conduct was wrongful or unlawful because exchanging information with Dalton "did not strike him as something [he] should not do as [Dalton] too was selling Shell products and, in that sense [Rosenow] did not see him, in any way, as a competitor". Although Rosenow was not part of Triton's senior management and did not receive any Pt IV training or education I do not accept that he did not know or suspect that his conduct was wrongful or unlawful. My finding (at [257]-[259] of the reasons for judgment) that Rosenow's false statement to Dow about the Olive Grove Café meeting sprang from a consciousness of guilt on Rosenow's part directly contradicts the position of ignorance and innocence now being put by Rosenow. 56 I also do not accept that Rosenow saw nothing wrong in colluding with Dalton and Brumar about prices because they were also Shell outlets. Rosenow had been in the petrol retailing business long enough to be aware that sites of the same brand in a different ownership in the same market can compete with each other just as sites carrying other brands also compete in that market. Rosenow's current position is also inconsistent with my findings that he participated in the meetings with Shell's competitors at Zala's office and the Olive Grove Café and was an active and willing participant in price-increase and follow-up calls with Zala (Chisholm) and Bentley (Justco), who were also Shell competitors. 57 Nonetheless, I accept that during the 1990's there was an anti-competitive culture in the market in which Rosenow was operating and that led him to regard price discussions between competitions in the market as "part and parcel of the job". Rosenow's modest level of general education, the fact he received no particular financial benefit from his contraventions and the absence of any Pt IV training and education are factors in Rosenow's favour on the issue of mitigation. I also take into account his personal circumstances, including his recent redundancy (which has resulted in him presently being unemployed), his family responsibilities and Rosenow having few, if any, assets available to pay a penalty. 58 In their written submission Rosenow's former solicitors suggested that, in all the circumstances, a penalty in the range of $80,000 to $100,000 is appropriate. I am satisfied that the prospect of Rosenow re-offending is low and that he is genuinely regretful about the role he played, albeit that he is seeking to place upon that role an innocence that I have not accepted. Having regard to all the circumstances I am prepared to accept the range of penalties suggested on Rosenow's behalf but have concluded that the penalty should be $100,000. Apco and Anderson 59 Apco and Anderson were jointly represented. Apco, which is an established and substantial petroleum retailer in Victoria, is owned and operated by the Anderson family. The business was established by Anderson's father in the late 1970s. At all material times Anderson, as Apco's director and general manager, acted on its behalf in relation to all aspects of retail pricing. 60 At [368]-[374] of my reasons for judgment I summarised the findings that led me to conclude that Apco, acting through Anderson, was a party to the price-fixing understanding and gave effect to it on 29 occasions. I also found that Apco did not initiate price increase calls or price increases and that its involvement in the price-fixing understanding was primarily limited to receiving price increase or follow up calls. However, I found that Anderson, acting on behalf of Apco, received and acted upon the price increase calls during the relevant period, being aware that their purpose was to influence or persuade him to substantially match the increases, and also being aware that the calls were part of a longstanding and collusive process involving a number of the corporate respondents co-ordinating their price increases to bring to an end a discount cycle in the Ballarat retail petrol market. Because of Apco's high volume and high visibility sites and its role as a leading discounter in the market, its involvement in the understanding was plainly regarded by the other parties to it as critical to the understanding achieving its objectives. I am satisfied that Anderson was well aware of that. 61 I am also satisfied that during the relevant period Anderson was also well aware of the requirement that he not be engaged in collusive conduct with any of his competitors in the Ballarat market but was nonetheless prepared to engage in the conduct that resulted in Apco's contraventions because he saw that as being beneficial to the family business. 62 Anderson did not give evidence at the penalty hearing. Rather, the evidence put forward related to Apco's financial circumstances. Apco's balance sheet as at 31 December 2004 stated that it had total assets of $12,859,359.19, total liabilities of $8,101,474.46 and net assets of $4,757,884.73. It was contended on behalf of Apco that the balance sheet does not reflect its true financial position because, if a penalty of the order being sought by the ACCC ($9-$11 million) were imposed, Apco's business should be valued on a liquidation basis, which would result in Apco having insufficient assets to pay the penalty. I do not regard the liquidation basis approach as helpful for four reasons. First, it is premised on the imposition of a penalty of a magnitude that I do not regard as appropriate. Second, it is based on highly speculative outcomes. Third, it is based on the value of a number of Apco's assets being severely discounted because Apco does not have security of tenure of its sites, notwithstanding the sites are owned by Anderson family interests. I regard that approach as an unrealistic and unhelpful way to approach the question of capacity to pay a penalty. Fourth, for the reasons given earlier, I do not regard capacity to pay as a significant consideration in relation the issue of general deterrence in respect of the corporate respondents. 63 Notwithstanding the importance of Apco's involvement in the price-fixing understanding, I am prepared to accept that there are a number of mitigating factors upon which it is entitled to rely in relation to penalty. Those factors are: · Apco did not initiate price increase calls or price increases; · Apco's involvement primarily related to receiving information in circumstances in which Apco did not communicate whether it would be increasing its prices as a result of the receipt of the information in question; · Apco's decision to increase prices was made on the basis of its commercial interests at the time and, as a consequence, it gave effect to the understanding on significantly fewer occasions than the other parties. 64 Senior counsel acting for Apco and Anderson submitted that there were a number of other matters in mitigation. It was suggested that the profit from the conduct was very modest. I do not regard the question of profit made as a result of the conduct as an accurate reflection of the benefit Apco derived from participating in the price-fixing understanding. The more relevant question is whether Apco's participation in the price-fixing understanding resulted in it being able to achieve higher prices in respect of its petrol than would have been the case had there been no such understanding. As I have already explained in these reasons, and in my earlier reasons for judgment, the primary benefit to the parties of the price-fixing understanding was that it enabled discount periods to be brought to an end thereby bringing to an end, or minimising, the losses the parties were incurring during the discounting period. Thus, the question is not so much how much profit was made but, rather, whether higher prices were able to be achieved, and therefore fewer losses incurred, by reason of the price-fixing understanding. I have already indicated that engaging in a quantification of the losses suffered by the public (and therefore of the benefits enjoyed by the corporate respondents) is highly speculative and unhelpful as the real loss brought about by the understanding was that consumers of petrol in Ballarat were deprived of the competitive market to which they were entitled. 65 It was also put that the fact that Apco was a key driver of discounting in the market was somehow a factor in mitigation. I have some difficulty with that argument. As I have already explained, the price-fixing arrangement enabled Apco to commence its discounting from a higher base price than would have otherwise been the case. Further, it was because Apco was a market leader in discounting that its involvement in the price-fixing understanding was critical to the parties to the understanding being able to achieve their objectives. 66 Apco was also presented as "a relatively small participant in the Victoria retail petrol market" and that was put forward as a mitigating factor. I have already discussed the role of size in a case such as the present. However, I regard Apco as a substantial operator in the Victoria retail petrol market and therefore do not accept the premise upon which the submission is based. 67 Next, it was submitted that the proceeding has already adversely affected Apco's sales in Ballarat. I also do not accept the premise upon which the submission is based because there could be many reasons why Apco's sales in Ballarat have decreased. In any event, I do not regard this factor as significant to the penalty that is appropriate. 68 Finally, it was put that after publication of the reasons for judgment Apco commenced a Pt IV compliance program. While that is a factor that might indicate that Apco has finally accepted the seriousness of its conduct, I would have expected such a program to have been introduced at a much earlier stage given the importance that I have attached to operators in the petroleum market having such programs in place before, rather than after, being investigated by the ACCC for contraventions of the Act. 69 Having regard to the above matters and, in particular, because the contraventions were committed by Anderson in his capacity as a Director and General Manager of Apco, I have determined that the appropriate penalty in relation to Apco's conduct is $3 million. 70 The case presented on penalty on behalf of Anderson was largely based upon the case presented on behalf of Apco. It was suggested that Anderson should not be regarded as an owner of Apco. It is unnecessary for present purposes to determine Anderson's precise relationship to Apco. He was its director and general manager and was authorised to act on its behalf in those capacities in relation to all matters pertaining to pricing. He constituted Apco's senior management in that regard and was the person whose conduct resulted in Apco's contraventions. As explained above, Apco was an Anderson family company and I infer that Anderson engaged in the contravening conduct because he saw that it was in the best interests of Apco, and therefore of the Anderson family of which he was a member, to do so. Thus, his situation was one where he stood to benefit, either directly or through members of his family, from Apco's involvement in the price-fixing understanding. 71 Anderson has not filed any evidence putting forward his personal circumstances or suggesting that he was unaware or had no reason to believe that the conduct I have found he engaged in was unlawful. He has also not displayed any remorse or contrition in respect of his conduct. Thus, Anderson's case differs significantly from that of Dalton and Rosenow. 72 Having regard to the above circumstances I am satisfied that in Anderson's case the penalty that is appropriate is the sum of $200,000. Other relief 73 The ACCC sought declaratory relief and injunctive relief for a period of four years. There is some substance in the submissions put on behalf of Triton and Balgee that injunctions are unnecessary because there is no real likelihood of those entities engaging in contravening conduct in the future. However, s 80(4) of the Act provides that the power of the Court to grant an injunction restraining future contraventions of the TPA may be exercised whether or not it appears to the Court that the person intends to engage, or to continue to engage, in conduct of that kind. Thus, the fact that a company no longer has any assets and is in liquidation does not preclude the grant of injunctive relief: see for example, ABB Power. In my view, the present case is an appropriate one for injunctions to be granted when regard is had to the nature and extent of the contraventions that have occurred. But I do accept that the terms of the injunctions sought by the ACCC are wider than is appropriate and propose to grant injunctions in a more limited form. 74 The ACCC also sought an order under s 83 of the Act that the findings of fact contained in my reasons of judgment be findings of fact for the purposes of s 83. Section 83 provides that the findings of fact are prima facie evidence of the facts found and may be proved by a document under the seal of Court in which the findings appear. It is sufficient for the purposes of s 83 to order that a copy of the reasons for judgment be under the seal of the Court and be held in the Melbourne registry so that they may be accessed for any findings of fact contained in them for the purposes of s 83 of the Act. 75 Finally, there was a dispute about liability for the ACCC's costs. The ACCC sought an order that each of the contravening parties be liable to pay its costs of and incidental to the proceeding. Such a costs order is usual where the proceeding is brought against different respondents who have been found to be liable in respect of substantially the same transaction. For example, in ACCC v The Bio Enviro Plan Pty Ltd [2004] FCA 415 at [20]-[22] per Nicholson J observed that the usual approach is that where an order for payment of costs is made against two or more persons, the liability in respect of that order is joint and several and this should not be disturbed unless one respondent conducts a separate and distinct defence which incurs costs which cannot be attributed to the joint conduct by the respondents of their defence. 76 An exception is made in some cases where particular respondents have conducted defences that were entirely separate from or unrelated to the defences of other respondents. The exception is not applicable in the present case. The ACCC claimed, and established, that each of the contesting respondents was a party to, or was involved in, the price-fixing understanding and gave effect to that understanding on numerous occasions. As explained in my reasons for judgment the ACCC relied on the Ahern principle so that evidence admissible against one respondent was able to be relied upon against other respondents. The close interrelationship between all of the ACCC's claims, and the evidence required to establish those claims against all of the respondents, make the present case one in which it is not appropriate to regard any of the contesting respondents as having conducted a separate and distinct defence which is such as to warrant a discrete order for costs being made in relation to any of those respondents. 77 Balgee stands in a different position in one respect. It submitted that it should only be liable for the ACCC's costs from the day it was joined as a party (20 December 2002) to the day on which its solicitors informed the ACCC that Balgee would not be disputing any of the allegations against it or leading any evidence (28 April 2004). It was submitted that the ACCC's case against Balgee took no more than 1-2 days. Counsel for the ACCC accepted that the case against Balgee was based essentially on Annexure A and the evidence given by a former employee of Balgee (Levick), who testified on the sixth day of the trial (10 May 2004), and that no significant additional expenses were incurred in preparing submissions in relation to Balgee. 78 I am prepared to treat Balgee as an exception to the usual rule as its failure to participate in the trial meant that, after Levick's evidence had been given, the ACCC had established its case on liability against Balgee. The remaining evidence related to the ACCC's case against the other parties, rather than to its case against Balgee. In all the circumstances, it is appropriate to order that Balgee pay the ACCC's costs of the proceeding up to and including 10 May 2004. Conclusion 79 I considered whether it was appropriate to await the publication of reasons for judgment in respect of the penalties to be imposed on the respondents that admitted liability, and to allow the parties to make submissions based on those reasons, but decided not to do so for several reasons. First, the ACCC and the contesting respondents were entitled to a decision based on the evidence and submissions before the Court in the present case, rather than on the agreed facts, and therefore the different and more limited evidence and submissions in relation to the penalties that were appropriate in respect of the respondents that admitted liability. Second, none of the parties requested that I do so. Third, after taking into account the extensive evidence before the Court and the differing circumstances in relation to each of the contesting respondents I formed a clear view as to the outcomes that are appropriate. In those circumstances I regarded it as appropriate to hand down my decision on those matters when the decision was ready to be handed down. 80 In the result, I propose to grant appropriate declaratory and injunctive relief, order the payment of costs by all of the contesting respondents and impose the following penalties: (a) $5 million in respect of Balgee; (b) $4 million in respect of Brumar; (c) $3 million in respect of Apco; (d) $1 million in respect of Triton; (e) $100,000 in respect of Dalton; (f) $100,000 in respect of Rosenow; (g) $200,000 in respect of Anderson. 81 I wish to make three further observations. 82 First, in Schneider at 623 [61], in reasons with which Black CJ and Sackville J generally agreed, I observed that there is some force in the observation by the primary judge, Finkelstein J, that current penalties in Pt IV prosecutions appear to be "on the low side". The facts of the present case demonstrate that such penalties provided little or no deterrence to the respondents. The penalties imposed in the present case should assist in addressing that issue. 83 Second, if any lesson is to be learned it should be that the best protection against contraventions and penalties arising from anti-competitive conduct is the elementary step of ensuring that directors and employees of substantial commercial enterprises are educated and properly instructed about the anti-competitive conduct that is proscribed by Pt IV of the Act. As the facts in the present case demonstrate the failure to do so can be a very costly exercise for those involved in such contraventions. 84 The third observation arises from the fact that some of the corporate respondents may have inadequate assets available to pay the penalties imposed, notwithstanding that during the relevant period those respondents conducted businesses with substantial turnovers and a large number of employees. This issue is of some importance as the fines or penalties imposed by a Court are not admissible to proof against a company in a winding up if the company is insolvent (see s 553B of the Corporations Act 2001 (Cth)). In order to ensure that the important object of general deterrence is not undermined by contravening companies ordering their affairs in a manner that minimises their exposure to the payment of penalties, it may be appropriate for the legislature to give consideration to whether the directors of such companies ought to be liable for unpaid penalties unless they can satisfy the Court that they had no reasonable grounds to suspect their company was contravening Pt IV of the Act and had taken reasonable steps to prevent such a contravention. Analogous laws have been passed in relation to insolvent trading (see s 588G of the Corporations Act 2001 (Cth)) and sex discrimination (see s 106 of the Sex Discrimination Act 1984 (Cth)). See also the laws concerning the liability of directors for non-payment of group tax (see s 222AOC of the Income Tax Assessment Act 1936 (Cth)). I certify that the preceding eighty-four (84) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Merkel.

ACCC v Leahy Petroleum

At a glance

Court

Decision date

Before

Source

Judgment (28 paragraphs)

Parties

Legislation Cited (4)

Cases Cited (7)

Cited By (47)