Apco Service Stations Pty Ltd v Australian Competition and Consumer Commission

Federal Court of Australia (Full Court)|2005-08-17|Before: Gyles JJ

REASONS FOR JUDGMENT THE COURT: CONTENTS Par 1.0 INTRODUCTION....................................................................................................... [1] 2.0 THE RETAIL PETROL MARKET IN BALLARAT.................................................... [4] 2.1 The price cycle...................................................................................................... [4] 2.2 The participants..................................................................................................... [6] 3.0 ARRANGEMENTS BEFORE JUNE 1999................................................................ [15] 4.0 CONDUCT DURING THE RELEVANT PERIOD................................................... [19] 4.1 The June 1999 meeting........................................................................................ [19] 4.2 The competitors' view of Apco............................................................................ [21] 4.3 Communications between Zala and Anderson...................................................... [22] 4.4 Communications between Bentley and Anderson.................................................. [24] 4.5 Communications between Palmer, Carmichael and Anderson............................... [26] 4.6 Findings as to Anderson's conversations with Bentley and Carmichael.................. [28] 5.0 THE ACCC'S CASE................................................................................................. [32] 5.1 Circumstantial evidence....................................................................................... [32] 5.2 Direct evidence................................................................................................... [37] 5.3 Hearsay evidence................................................................................................ [38] 6.0 FINDINGS OF THE PRIMARY JUDGE.................................................................. [39] 6.1 The understanding............................................................................................... [39] 6.2 Apco and Anderson participation......................................................................... [40] 7.0 THE STATUTE.......................................................................................................... [41] 8.0 CONCLUSION ON THE APPEAL.......................................................................... [43] 9.0 PENALTIES.............................................................................................................. [58]

1.0 INTRODUCTION 1 In proceedings brought by the respondent Australian Competition and Consumer Commission (ACCC) the appellant Apco Service Stations Pty Ltd (Apco) was found by the primary judge (Merkel J) to have arrived at a price-fixing understanding with a number of other companies and to have given effect to that understanding on 29 occasions between June 1999 and December 2000 (the relevant period), contrary to s 45(2)(a)(ii) and (b)(ii) and s 45A(1) of the Trade Practices Act 1974 (Cth) (the Act): Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (2004) ATPR (Digest) 46-260. The appellant Peter Joseph Anderson (Anderson), Apco's Managing Director, was found to have been knowingly concerned in and a party to the contraventions by Apco (s 75B(c)). 2 His Honour imposed penalties of $3 million on Apco and $200,000 on Anderson: Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No2) (2005) 215 ALR 281. The parties other than Apco and Anderson who were the subject of declarations and penalties made by Merkel J either did not appeal or have abandoned their appeals. Other companies and individuals admitted liability and were the subject of penalties imposed by Goldberg J: Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 3) (2005) 215 ALR 301. 3 Apco and Anderson contend that they were not a party to any price-fixing understanding because they did not, as between themselves and the other parties to the alleged understanding, commit themselves to Apco's charging the same prices or any particular prices or to increasing prices being charged by it. We accept this contention and uphold their appeals.

2.1 The price cycle 4 The contraventions were found to have occurred in the retail petrol market in Ballarat. As is usual throughout Australia, the operators of service stations in Ballarat posted the retail price per litre of petrol on large boards outside their service stations. The service stations in question were in the city of Ballarat or its approaches and within an area of approximately one square kilometre. 5 Over the relevant period, and for some years prior thereto, prices fell and rose in a cyclical fashion. Petrol is a highly price-sensitive commodity. Even a price differential of less than one cent per litre could significantly influence the volume sold at a particular outlet. Prices would fall by gradual incremental steps but at the end of the cycle prices would increase sharply, sometimes by as much as ten cents per litre. Obviously enough, if one trader raised its price in this fashion and the others did not follow, that trader would find its volume sharply reduced and the increased price would be unsustainable. Therefore it was in the interests of operators that as many as possible moved their prices together and that the prices moved up quickly. This case is concerned with the process by which that increase was achieved.

2.2 The participants 6 Apco operated some fourteen service stations throughout Victoria. It had two in Ballarat, at respectively Main Road and Skipton Street, which it operated through franchisees who received a commission on petrol sold. Anderson was the Managing Director of Apco. He was based in Geelong. 7 Leahy Petroleum Pty Ltd and Leahy Petroleum Retail Pty Ltd (together referred to as Leahy) supplied BP branded petrol as a wholesale distributor to independent retail outlets and sold such petrol to the public at sites that it owned and operated as well as consignment sites. It controlled the retail price of petrol at both the latter sites and the ones it owned. Its General Manager was Mr Robin Palmer (Palmer). Under him was the Operations Manager Mr Ian Carmichael (Carmichael). 8 Triton 2001 Pty Ltd (Triton) was a wholesale distributor which supplied Shell brand petrol to five independent Shell retailers. Although the retailers determined retail prices the ACCC contended that Triton could and did effectively determine those prices. The Ballarat area manager of Triton was Mr Brian Rosenow (Rosenow). 9 J Chisholm Pty Ltd (Chisholm) was a wholesaler distributor of petrol to Caltex and Ampol branded service stations. It also retailed such petrol to the public at sites that it owned and operated as well as consignment sites that it did not operate. Chisholm had direct control over the retail price of petrol at both its company-owned and consignment sites. Mr Brendan Zala (Zala) was the Ballarat manager for Chisholm. 10 Justco Pty Ltd (Justco) sold Swift petrol. Its General Manager was Mr Justin Bentley (Bentley). 11 Brumar Vic Pty Ltd (Brumar) sold Shell petrol. Its Retail Area General Manager was Mr Gary Dalton (Dalton). 12 Balgee Oil Pty Ltd (Balgee) sold Mobil petrol. Mr John Gourley (Gourley) was its General Manager. Mr Peter Muller (Muller) was its Ballarat Operations Manager and Mr Robert Levick (Levick) its Ballarat Area Sales Representative. 13 In the proceeding at first instance Leahy, Chisholm, Justco and the individual respondents Palmer, Bentley, Gourley, Levick and Moller admitted contraventions. Balgee did not admit but did not contest the ACCC's claims. The remaining corporate respondents (Triton, Brumar and Apco) and the individuals who acted on their behalf (Rosenow, Dalton and Anderson) contested the ACCC's claims. His Honour referred to them as "the contesting respondents". Leahy, Chisholm, Justco and Balgee were found by his Honour to have initiated the understanding. His Honour referred to them as "the initiating respondents" (see judgment at [25]). 14 There were other participants in the market and in particular a company called United Petroleum Pty Ltd (United). It was the entry of United into the Ballarat market in March 1999 which provoked the alleged understanding and the conduct the subject of these proceedings. However, for reasons which are not in evidence, the ACCC did not proceed against United. United and Apco were the aggressive discounters in the market.

3.0 ARRANGEMENTS BEFORE JUNE 1999 15 From the early 1990s up until June 1999 a number of the parties, including Apco's parent Anderson Petroleum Pty Ltd (Anderson Petroleum), communicated with each other regularly for the purpose of initiating and maintaining co-ordinated price increases in the Ballarat retail petrol market. 16 An operator that wished to raise its prices would, by what his Honour referred to as "price-increase calls", telephone one or more of the others and communicate the amount and time of the proposed increase or the fact that a proposed increase was in progress. In the latter case the message might take a cryptic form such as "Go for a drive" or "The market has started to change". 17 If one of the parties did not increase its prices the operator best placed to communicate with the delinquent would telephone it and endeavour to have it implement the change. His Honour referred to these calls as "follow-up calls". 18 His Honour found these arrangements constituted a price fixing understanding which was arrived at and given effect to. The arrangements successfully achieved the objective of co-ordinated price increases to bring a discount cycle to an end. Anderson, along with Rosenow, was well aware of the existing arrangement and of the purpose of the price-increase and follow-up calls that were made to them. His Honour found that Anderson's involvement was not as direct as that of Rosenow. However, Anderson was the recipient of price-increase information from Zala and, both before and during the relevant period, from Bentley and Carmichael. When he received the price-increase information from Bentley and Carmichael, Anderson was aware that the purpose of that information was to "induce or persuade" him to cause Apco to match the increases that had occurred or were in progress in Ballarat.

4.1 The June 1999 meeting 19 In about June 1999 Gourley and Levick (Balgee), Zala (Chisholm) and Bentley (Justco) met at Gourley's house. The catalyst for this meeting was United's entry into the Ballarat market in February 1999 which had the effect of significantly increasing the frequency of the discount cycle by driving petrol prices down and increasing the level of competition in Ballarat. Someone suggested that Bentley speak with Frank Jacobson of United regarding the price-fixing understanding. Subsequently Bentley did contact Jacobson. 20 Anderson did not attend this meeting and was not told of it. His Honour found that the evidence of this meeting, and later face to face meetings, did not advance the ACCC's case in relation to Apco or Anderson.

4.2 The competitors' view of Apco 21 It was generally accepted by Apco's competitors that if the Apco sites did not increase their prices to generally match (albeit usually with some discount) the prices at the other high visibility sites in Ballarat, the price increase would not stick. It was critical to the success of the price-fixing understanding that Anderson at Apco be "made aware of and participate in co-ordinated price-fixing increases".

4.3 Communications between Zala and Anderson 22 Prior to January 1997 Zala was employed by Anderson Petroleum. Anderson received price-increase calls from Zala. Anderson said that this information had no bearing on decisions he made about Apco's prices because it was information he already knew since his own franchisees regularly kept him informed of what was happening in the Ballarat market. Prior to January 1997 Anderson believed he was entitled to know, in his capacity as a director of Anderson Petroleum as well as Apco, about Anderson Petroleum's proposed prices. His Honour accepted Zala's evidence, contrary to that of Anderson, that he mentioned to Anderson that he was talking to competitors about the prices. 23 After Zala left Anderson Petroleum and started working for Chisholm in January 1997 Anderson told Zala that he would no longer take his calls. As a result the initiating respondents needed a new means of communicating their proposed price increases to Anderson. Anderson was independent and regarded as "difficult to deal with". The initiating respondents therefore sought to channel prices-increase communications through persons that Anderson trusted. It was in this context that Bentley and Carmichael became linked to Anderson.

4.4 Communications between Bentley and Anderson 24 Anderson and Bentley were family friends. Their fathers had been friends for the last twenty or thirty years. Bentley was thankful to Anderson for the guidance which he provided when Justco was establishing its business. He frequently spoke with Anderson regarding business matters unconnected with prices but also passed on market information to Anderson. He said that he passed on to Anderson information regarding competitors' current prices and past movements but not information about future prices. Bentley realised that there was "some risk involved" in communicating information to Anderson. He took the risk because he wanted prices to go up. He noted that he was careful not to "cross the line" with Anderson because he feared that Anderson would become agitated and would cease providing him with business advice which he greatly valued. Thus Bentley usually "slipped information into the conversation" rather than stating it directly and used coded language like "Go for a drive" to indicate to Anderson (who was in Geelong) that prices in Ballarat were on the rise. Bentley said that Anderson did not react to this information and never solicited price information. Bentley was not able to predict whether Anderson on any given occasion would follow the rise. 25 Anderson did not dispute that he received calls from Bentley in which Bentley gave "hints" that the Ballarat petrol market was moving. Anderson confirmed that when Bentley said things like "Go for a drive" he understood it to mean that prices in Ballarat were on the rise. Anderson said in evidence that he was reluctant to receive this type of information from Bentley but admitted he never asked Bentley to stop giving it to him. Anderson conceded in cross-examination that the information he received from Bentley was useful because it helped him to know precisely when to tell his franchisees to check prices which helped him to ascertain the appropriate time to raise Apco's prices. It also was helpful in that it allowed him to confirm that his franchisees were providing him with price-increase information in a timely and accurate fashion. Anderson was aware that if he raised his prices to generally match the price increase that it would probably prevent the price increase from collapsing. Anderson knew that Bentley's purpose in sharing the information was to get him to increase his price and he understood that unless Apco went up the price would not stick.

4.5 Communications between Palmer, Carmichael and Anderson 26 Carmichael had known Anderson for fifteen to twenty years and had an established relationship with him. On behalf of Leahy, Carmichael had very frequent, almost daily, contact with Anderson about matters unrelated to retail petrol pricing and in particular about the supply of diesel fuel and cartage. Palmer had no such relationship with Anderson and when Palmer received price-increase calls from Levick, Palmer would request Carmichael to pass the information onto Anderson. He "always" used words to the effect of "Ian, can you ring Anderson, Ballarat is moving to X cents at Y o'clock". However, according to Carmichael, he would make calls to Anderson along the following lines "We have moved in Ballarat, what are you going to do?" or "The market has moved in Ballarat, what are you going to do?" and Anderson would say "I will look at it". He also made follow-up calls to Anderson along the lines "You haven't moved yet Peter, what are you going to do?" to which Anderson replied "I will look at it". Sometimes Anderson added "Anyway Shell (or Swift or Bentley) has not moved yet". 27 Carmichael said that most of the retail price information he communicated to Anderson regarded changes that had taken place within the market as opposed to proposed changes. He also stated that while he may have relayed information about future prices he had no specific recollection of ever having done so. Carmichael said that Anderson never made price-increase or market information calls to him and was always non-committal about whether he would increase Apco's prices.

4.6 Findings as to Anderson's conversations with Bentley and Carmichael 28 The evidence was to the effect that Anderson was usually called when the increase had been made by one or another of the initiating respondents and had been matched or was in the process of being matched by other respondents. His Honour found it was therefore unlikely that Anderson was told of a future increase that had not been made at any of the Ballarat sites. 29 His Honour was satisfied that Anderson was the recipient of price-increase calls from Bentley and Carmichael and follow-up calls from Carmichael and that he acted on those calls by instructing his franchisees to check and inform him of the price increases by Apco's main competitors so that he could determine whether and, if so, when to match the increases, albeit with some discount. It was likely that on some occasions when Anderson was being asked by Carmichael (albeit indirectly) to look at price increases, Anderson said that he "would look at it" or that others in the market "had not yet gone up". 30 Anderson was aware that the purpose of the price-increase and follow-up calls was to persuade or influence him to match the increase and that if he did not do so the price increase would collapse. He was aware that the process of securing the price increase was long standing and included Leahy and Justco and probably Chisholm. 31 However, the initiating respondents did not know whether Apco would match any increase until it did so. His Honour accepted Anderson's evidence that he made his own decision on price increases based on his commercial interest. (This finding is of particular significance given that generally his Honour preferred the evidence of other witnesses to that of Anderson when there was a conflict.) His Honour said (at [174], emphasis in original): "…the fact that Anderson was prepared to receive and did receive price increase calls did notjustify any expectation on Carmichael's or Bentley's part that Apco wouldincrease its prices. However, the fact that Anderson was prepared to receive, received and acted on the calls (eg by instructing franchisees to obtain price information and by making observations about other sites not rising from time to time) was likely to have led Anderson, and the parties to the price fixing understanding who are linked to him, to conclude that: s the calls to Anderson were a significant aspect of any price fixing arrangement; s the calls increased the likelihood of Apco increasing its prices in that they enabled Anderson to be confident that if he matched an increase it was likely to stick; s the calls made it more likely that the price increase would be taken up by Apco and would therefore 'stick', than if the calls had not been made; s if Apco matched the increase it was likely that it would stick."

5.1 Circumstantial evidence 32 Central to the ACCC's case was a detailed analysis of telephone calls between the respondents and the timing of those calls in relation to price movements. 33 Annexure A to the statement of claim was a chart showing telephone traffic, represented diagrammatically, and price increases, represented on a bar chart over the time scale of the day, on 69 non-consecutive days between 22 June 1999 and 8 December 2000 on which prices increased. However, save for the period 1 February to 30 April 2000 the telephone records were incomplete. Also the timing of price increases was sometimes not available and the bar chart would only show that by the end of the day a number of operators had increased to a given price. Amongst other things, apparently there was little in the way of information on the timing of price increases available from United. 34 Exhibit DA-13 is a complete record and graphic representation of telephone traffic between the respondents for each day in the period 1 February to 30 April 2000. It records all telephone calls on every day, although again the timing of price increases was sometimes not available. 35 The ACCC relied on these documents (and an audio-visual presentation of them in which the calls were marked by a telephone call signal and price rises by a cash register bell) as supporting the inference that there was a correlation between telephone calls and increases. On days when prices did not change there were few or no calls but on price-increase days there was an established pattern of increased calls. It was put that the only reasonable inference was that the latter calls were price-increase or follow-up calls. 36 However, Apco's calls did not fit this pattern. Its exhibit APCO-7, which analysed the February-April 2000 period, showed that:

· Of the total Apco calls in that period the average was 3.85 calls per day;

· Of the 10 days in that period on which a finding of giving effect to the understanding was made against Apco, the average number was 3.9;

· Of the 14 days originally alleged to be giving effect to days the average was 3.6;

· Of the 26 days that were not price-increase days, and thus never alleged to be giving effect to days, the average was 3.96.

5.2 Direct evidence 37 As against Apco and Anderson the ACCC relied on the evidence of Zala, Bentley and Carmichael already discussed, and evidence given by Anderson himself both at the trial and in his s 155 examination. As might have been expected, evidence about telephone calls was in general terms and not as to the content of particular calls.

5.3 Hearsay evidence 38 The ACCC relied on evidence said to be admissible against Apco and Anderson on the basis of s 87(1)(c) of the Evidence Act 1995 (Cth) which relevantly provides: '(1) For the purpose of determining whether a previous representation made by a person is also taken to be an admission by a party, the court is to admit the representation if it is reasonably open to find that: … (c) the representation was made by the person in furtherance of a common purpose (whether lawful or not) that the person had with the person or one or more persons including the party." See also Tripodi v The Queen (1961) 104 CLR 1, Ahern v The Queen (1988) 165 CLR 87.

6.1 The understanding 39 His Honour found: "330. The parties to the alleged understanding are the corporate respondents. As explained above, the preferable way to view the evidence adduced by the ACCC is to regard the understanding as evolving from the existing arrangements being adapted from time to time to changes in personnel and market forces. On that basis the evidence at trial established that the price-fixing understanding involved a consensus on the part of the participants as to the following course of conduct: s when one or more of the initiating respondents intended to bring a discount cycle in Ballarat to an end by effecting a sudden and significant price increase, those respondents were to make, or cause to be made, price-increase calls to the other participating corporate respondents; s at or about the same time, the initiating respondents intending to effect the price increase were to increase their price to the targeted or proposed price; s price-increase calls, which communicate the proposed or targeted price increase, were to be made to the participating respondents who had not initiated or made the price increases; s the participating respondents were to observe each others´ board prices in order to determine which of those respondents had not substantially matched the price increase; s follow-up calls were to be made to those respondents that had not matched the increase in an endeavour to have them do so quickly in order to prevent the price increase from collapsing; s in the case of a respondent that supplies to independent retailers, the making or matching of a price increase was to be achieved by the withdrawal of, or reduction in, price support; s in the event that the price increase had not been expeditiously matched by the high visibility sites in Ballarat, the targeted or proposed increase would not take effect, with the consequence that the retail increases of the participating corporate respondents may return to the discounted levels they were at prior to the price increase. 331. For present purposes it may not matter if the steps outlined above are framed in terms of an expectation, rather than a commitment, as to what was to be done. However, if it matters I am satisfied that the evidence establishes that the first three steps involved a commitment on the part of each of the initiating respondents who intended to bring the discount cycle to an end and who gave effect to that intention by implementing the understanding."

6.2 Apco and Anderson participation 40 His Honour found: "335. I am satisfied that there is reasonable evidence, and that it is reasonably open to find, that Anderson, acting on behalf of Apco, was a party to the price-fixing understanding described in [330] above. The evidence can be summarised as follows: s as at June 1999, Anderson was aware of the existing arrangements, and of the purpose of price-increase and follow-up calls, which were an essential aspect of those arrangements (see [139]-[140]); s the typical pattern of communication for Apco during the relevant period was Levick (Balgee) - Palmer (the Leahy Companies) - Carmichael (the Leahy Companies) - Anderson (Apco) (see [131]; [157]; [283]) or Levick (Balgee) - Zala (Chisholm) - Bentley (Justco) - Anderson (Apco) ([134]-[135]; [150]-[154]; [283]); s Anderson, being aware of the purpose of price-increase and follow-up calls from Carmichael and Bentley, received and acted upon those calls by closely monitoring the price increases in Ballarat and then determining whether to substantially match them (see [171]-[174]); s Annexure A and Exhibit DA 13 establish a pattern of calls on price-increase days which is generally corroborative of the evidence that the calls were used by Carmichael and Bentley, amongst other things, to inform Anderson of the fact of the price increase that was proposed or in progress (see [282]-[286]); s Anderson was aware that the price-increase and follow-up calls were part of a longstanding and collusive process, involving a number of the corporate respondents, for coordinating price increases in order to bring to an end a discount cycle in the Ballarat retail market (see [173]); s on some occasions when he was being informed of a price increase, Anderson would mention to Carmichael that "he will look at it" or that others in the market had not yet gone up (see [171]); s Annexure A also reveals a probable correlation between the calls to Anderson and the price increases by Apco that occurred on 29 price-increase days during the relevant period (see [286]-[287]; [315]); s on the 29 price-increase days it is likely that Anderson was aware that Apco´s increase was part of a coordinated and collusive increase in petrol prices in Ballarat (see [171]-[175]). … 368. The position of Apco is more difficult because, unlike Triton, its involvement was primarily limited to receiving price-increase or follow-up calls from Bentley and Carmichael. It did not initiate such calls nor did it initiate price increases. Also, unlike Triton, there was no expectation by any of the respondents that Apco´s preparedness to receive calls from Bentley and Carmichael meant that Apco would substantially match the increased prices. Some of the witnesses could go no further than stating that it was their "hope" that Apco would increase its prices. 369. Nonetheless, I have found that there is reasonable evidence that Anderson, acting on behalf of Apco, was aware that: · The purpose of the price-increase and follow-up calls was to influence or persuade him to substantially match the increase; · Those calls were part of a longstanding and collusive process involving a number of the corporate respondents coordinating price increases to bring to an end a discount cycle in the Ballarat retail petrol market. With this awareness, Anderson continued to receive such calls during the relevant period and acted upon the calls by closely monitoring the price increases and then determining whether to match them. 370. In my view Anderson´s preparedness to receive the price-increase and follow-up calls in the above circumstances, his occasional responses to Carmichael that other outlets had not yet increased their prices and that he was "looking" at whether he would increase his prices, together with his decision from time to time to increase his prices to match the market increase by the other corporate respondents, aroused an expectation in at least Bentley (Justco) and Palmer and Carmichael (the Leahy Companies) that during the relevant period:

· Anderson would continue to act upon the calls by closely monitoring the prices of the other corporate respondents in Ballarat and decide whether to participate in the coordinated increases being sought;

· Anderson´s receipt of the calls made it more likely that he would substantially match an increase than if he did not receive the calls.

Importantly, Anderson was aware that, in the usual course, his decision was likely to be determinative of whether the coordinated price increase being sought by the other participants would 'stick' so that on each occasion that he made the decision to increase his prices after the receipt of price-increase or follow-up calls he was aware that his increase was likely to ensure that the collusive process achieved its purpose on that occasion. In the circumstances I am prepared to infer that Anderson expected that the participants in the collusive process would maintain their price increases while Apco was deciding whether to match the increases.
The above matters amount to participation in, and adoption of, the understanding by Anderson. I would add that Anderson´s responses to follow-up calls from Carmichael, when Anderson said that certain sites had not yet increased their prices or that he was looking at whether to increase his prices, constitute evidence that is confirmatory of his adoption of, and participation in, the understanding.
Accordingly, I have concluded that the matters set out above constitute the requisite meeting of minds and consensus in so far as Anderson is concerned with at least Bentley (Chisholm) and the Leahy Companies (Carmichael) as to what was to be done by the various parties to the understanding.
The finding that Apco was a party to the price-fixing understanding during the relevant period affords persuasive evidence in support of the conclusion I have formed that Apco's role in increasing prices on the 29 price-increase days during the relevant period resulted in it, acting through Anderson, giving effect to the understanding on 29 price-increase days during the relevant period. I am satisfied that my findings on the evidence upon which I have relied satisfy the Briginshaw [v Briginshaw (1938) 60 CLR 336] standard."

7.0 THE STATUTE 41 Section 45(2) of the Act relevantly provides: "A corporation shall not: (a) make a contract or arrangement, or arrive at an understanding if: (i) … (ii) a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or (b) give effect to a provision of a contract, arrangement, or understanding… if that provison: (i) … (ii) has the purpose, or has or is likely to have the effect, of substantially lessening competition." 42 By s 45A(1) provisions for the fixing of prices are conclusively deemed to have the effect of substantially lessening competition. Relevantly the subsection provides: "Without limiting the generality of section 45, a provision of a contract, arrangement or understanding … shall be deemed for the purposes of that section to have the purpose, or to have or to be likely to have the effect, of substantially lessening competition if the provision has the purpose, or has or is likely to have the effect, as the case may be, of fixing, controlling or maintaining, or providing for the fixing controlling or maintaining of, the price for … goods or services supplied … by the parties to the contract, arrangement or understanding …"

8.0 CONCLUSION ON THE APPEAL 43 The declaration made by his Honour states that in and between June 1999 and December 2000 Triton, Apco, Brumar and Balgee "arrived at the price-fixing understanding outlined in [330] of the reasons for judgment". The terms of [330] are set out above. In [331] his Honour says that while it "may not matter" if the understanding he has found involves an expectation, rather than a commitment, as to what was to be done, the evidence did establish a commitment on the part of the initiating respondents. Thus his Honour in explicit terms declined to make a finding that Apco (not being an initiating respondent) became committed to any price increase agreed on by the initiating respondents. This is consistent with the later passage at [368] in which his Honour found that there was no expectation by the other respondents that Anderson's readiness to receive calls from Bentley and Carmichael meant that Apco would substantially match the increased prices. The ACCC did not seek to attack these findings by way of notice of contention. 44 These findings lead to the unavoidable conclusion that Apco was not a party to any understanding that it would fix its prices at the same level as the other respondents or at any particular level or even that it would increase its prices at all. "Fixing" is not used in s 45A in any technical sense. The primary meaning of the verb fix is "to make fast, firm, or stable" (Macquarie Dictionary) or "to fasten, make firm or stable; to set or place and secure against displacement" (Shorter Oxford). Certainly Apco received information about price increases (albeit the fact of an increase rather than the amount) from Bentley and Carmichael, as it did from other sources such as its franchisees, but it reserved to itself the decision, as a matter of commercial judgment, whether to follow those prices up. More often than not (40 occasions out of 69) it did not, or at the very least, there is no evidence that it did. 45 Whilst the appellants attacked the factual finding that the parties arrived at the price-fixing understanding outlined in [330] of the reasons for judgment, they did not dispute that the primary judge had enunciated the correct legal principles which are applicable in determining whether parties have entered into an understanding. In particular, the primary judge referred to the following observations of Lindgren J in Australian Competition and Consumer Commission v CC (NSW) Pty Ltd (1999) 92 FCR 375 at [141] (emphasis in original) which were specifically endorsed by the Full Court in Rural Press Ltd v Australian Competition and Consumer Commission (2002) 118 FCR 236 at [79]: "The cases require that at least one party 'assume an obligation' or give an 'assurance' or 'undertaking' that it will act in a certain way. A mere expectation that as a matter of fact a party will act in a certain way is not enough, even if it has been engendered by that party. In the present case, for example, each individual who attending the Meeting may have expected that as a matter of fact the others would return to their respective offices by car, or, to express the matter differently, each may have been expected by the others to act in that way. Each may even have 'aroused' that expectation by things he said at the Meeting. But these factual expectations do not found an 'understanding' in the sense in which the word is used in ss 45 and 45A. The conjunction of the word 'understanding' with the words 'agreement' and 'arrangement' and the nature of the provisions show that something more is required." 46 The primary judge's inference at [371] that Anderson expected that his competitors would hold their increased price for a time whilst he was deciding whether or not to match their prices represents Anderson's assessment of what was likely to occur, without any assurance being given to him that the competitors would act in that way. It is no more than what Lindgren J described as a "factual expectation" which falls short of an "understanding". 47 A practical illustration of the proposition that a mere hope or expectation that a party will act in a particular way is insufficient to constitute an "understanding" for relevant purposes is furnished by the judgment of Lockhart J in Trade Practices Commission v Email Ltd (1980) 31 ALR 53. That was a case in which the Commission placed considerable reliance on the fact that the parties to an alleged price-fixing understanding exchanged price lists after each change of price or product, although one of the parties, Warburton Franki, monitored the prices of the other party, Email, by means other than the receipt of prices, because it did not altogether trust Email. The case is very much a decision on its own facts, but it is of significance for present purposes inasmuch as Lockhart J held (at 58) that by sending the price lists to Warburton Franki, Email helped Warburton Franki to follow the Email prices if it chose to do so, and to do so more quickly than might otherwise be the case, but in the absence of any commitment such communications were not sufficient to give rise to the meeting of minds essential to an arrangement or understanding. Thus, returning to the present case, although the information conveyed by Bentley and Carmichael may have been useful to Anderson because it helped him to know when to tell his franchisees to check competitor's prices and when to raise Apco's prices if he chose to do so, the primary judge specifically found at [368] that there was no expectation by any of the respondents that Apco's preparedness to receive calls from Bentley and Carmichael meant that Apco would substantially match the increased prices. 48 The ACCC sought to meet this problem by reliance on that part of s 45A which speaks of "providing for" the fixing etc. Senior counsel said that the understanding was something which set up a process to enable notice of price rises to get around quickly so that the increased price would stick and not collapse. 49 We were not referred to any authority on the term "providing for" in s 45A. In this context the term, coming from the Latin providere, to see before, suggests arranging for or stipulating beforehand (Macquarie) or to make preparation for, get ready (Shorter Oxford). What is it that is to happen in the future as a result of these arrangements or preparations? It must be price fixing, that is to say competitors agreeing on prices they will charge consumers for good or services. 50 Examples of "providing for" price fixing in this sense would be an arrangement that prices would increase by a particular formula, or an agreement that if one competitor increases prices the others will follow. In short, "providing for" must be a means to the end of price fixing. 51 In the present case, as his Honour found, the "process" never involved the commitment of Apco to fixing its prices at the same level as the others or at any particular level or even raising its prices to any level. At most, the initiating respondents hoped that Apco would, in the light of the timely information they were providing, reach a decision that it was in its own interests to go along with the increase. Sometimes that happened, sometimes it did not. The reality was that the independent stands of the two discounters, Apco and United, was a problem that the initiating respondents confronted in giving effect to their understanding. 52 The ACCC's case against all respondents depended heavily on circumstantial evidence of the coincidence of telephone conversations between the parties and sharp price increases. This provided a powerful case against the initiating respondents. However, in the case of Apco it rather pointed the other way. For example, in the case of the other respondents, there was a marked increase in telephone traffic on price-increase days. As has already been mentioned however, with Apco there was, if anything, a slight decrease. And despite the provision of information by Bentley and Carmichael, the desired increase by Apco only occurred on 29 out of the 69 occasions when, on the theory of the ACCC's case, it should have. Further, on some days prices were increased by Apco when there was no evidence of calls between Apco and any of its competitors and sometimes the only calls involving Apco were made after it had increased its prices. And it was not disputed that Bentley and Anderson had legitimate reasons for frequent, almost daily, telephone contact. 53 Thus, the circumstantial evidence was consistent with the finding that Apco and Anderson were not committed to increasing prices and Anderson made decisions whether or not to increase prices on the basis of his assessment of the market. 54 The direct evidence against Apco and his Honour's preference in credibility terms for other witnesses as against Anderson do not take the matter any further. It does not matter how useful Anderson found the information received from Bentley and Carmichael if he was in no way committed to follow it. 55 Likewise evidence of others put against Apco and Anderson on the s 87(1)(c) basis do not assist if there is no prima facie ground for including them in a collusive agreement to act together to fix prices. His Honour held this evidence "does not greatly advance" the ACCC case. In our view, that evidence, if admissible, does not assist in establishing that Apco was a party to a price-fixing understanding. 56 Senior counsel for the ACCC suggested that the case could be considered on the alternative basis that on each of the 29 occasions where Apco was found by his Honour to have arrived at and given effect to the understanding there was a separate, ad hoc understanding. In our view this would be a quite unreal and artificial view of the evidence. Amongst other things, it would mean ignoring the circumstantial evidence which, as we have said, pointed in favour of Apco and Anderson, however effective it might have been against the other respondents. If Apco and Anderson were not committed to increase prices, the fact that sometimes they did so is consistent with them exercising their own judgment on those occasions. Unilaterally taking advantage of a commercial opportunity presented is not to arrive at or give effect to an understanding in breach of the Act. 57 The appeals of Apco and Anderson will be allowed and the orders and declarations made against them set aside. There will be orders that the ACCC pay the appellants' costs of the appeal and at first instance, including reserved costs.

9.0 PENALTIES 58 The appellants also appealed against the penalties imposed. In particular, they argued that there was a lack of parity with penalties imposed on other respondents. Since we uphold the appeals on liability, it is not appropriate for us to deal with the question of penalties on the hypothetical basis of a finding that the appellants committed the alleged contraventions. I certify that the preceding fifty-eight (58) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Heerey, Hely and Gyles

Associate: Dated: 17 August 2005 Counsel for the Appellants: A J Sullivan QC and S O'Bryan SC

Counsel for the Respondent: J W K Burnside QC and E A Strong SC

Solicitor for the Respondent: Australian Government Solicitor

Trade Practices Act 1974(Cth)ss 45(2)(a)(ii), 45(2)(b)(ii), 45A(1), 75B(c)

Evidence Act 1995(Cth)s 87(1)(c)

At a glance

Court

Decision date

Before

Source

Judgment (29 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (8)