Australian Competition and Consumer Commission v ABB Transmission and... [2002] FCA 559 | Case summary

REASONS FOR JUDGMENT 1 In this proceeding I must impose penalties and grant other relief for contraventions of the Trade Practices Act 1974 (Cth). The Commission alleges, and it is not denied, that certain corporations, including Wilson Transformer Company Pty Ltd (the third respondent), Schneider Electric (Australia) Pty Ltd (the fourth respondent), and AW Tyree Transformers Pty Ltd (the fifth respondent) have contravened ss 45 and 45A of the Trade Practices Act by making, and giving effect to, an arrangement by which they would maintain their respective shares in the market for distribution transformers. The Commission further alleges, and this is also not denied, that executives of these corporations, including the managing director of WTC, Mr Wilson (the tenth respondent), the former managing director and chairman of Schneider, Mr Stocker (the eleventh respondent), and the managing director of AW Tyree, Mr Boyce (the fourteenth respondent), were knowingly involved in those contraventions. The parties have filed statements of agreed facts, supplemented in some cases by sworn evidence, to place before me the material which will form the basis for the determination of the appropriate penalties to be imposed. 2 This is not the first occasion upon which I have had to deal with this proceeding. Earlier I imposed penalties on Alstom Australia Limited (the sixth respondent) and two of its managers, Mr Grabham and Mr James (respectively the fifteenth and sixteenth respondents), for their role in the contraventions. Those parties had put forward what they and the Commission suggested were appropriate penalties. I was persuaded that they were appropriate and I made the orders sought: see Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (2001) ATPR 41-839; see also the related proceeding Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (2001) ATPR 41-815. 3 On this occasion the approach is slightly different. The respondents whose cases will now be considered have admitted the facts that establish their contraventions of ss 45 and 45A, but they have not reached agreement with the Commission on penalties. Indeed the Commission and the respondents have strongly opposing views on what should be done. My task is not to choose between the competing positions, but I will take them into account in deciding what is appropriate. 4 Concern for the proper disposition of penalties is to some extent evidenced by the fact that counsel devoted three days to the issues involved in this case. The contraventions are not trivial and determining the amount of the penalties is a matter for serious consideration. Before I turn to the facts, I propose to make some preliminary observations. 5 There are a variety of legal theories that explain why sanctions are imposed for violations of the criminal law. Some can be adapted and applied to contraventions of antitrust legislation. After all, monopolists and oligopolists who have the capacity to earn excessive profits by anti-competitive behaviour such as false bidding, market rigging and the like are not dissimilar in kind to those who commit crimes such as theft, fraud or embezzlement. Of course, there are important differences, though some of them are more perceived than real. First, antitrust violations in Australia are not criminal in nature. Both the corporation and the individual who offends against the Trade Practices Act can only be fined or subjected to restraining orders. But the penalties are steep. For each contravention the maximum penalty is, in the case of a corporation, $10,000,000, and for an individual, $500,000. Second, the individual who contravenes, or assists a corporation in the contravention of, the antitrust provisions is in some circles regarded as a "white collar" offender who has engaged in conduct that should not be frowned upon. Before I attempt to resolve this inconsistency (that is the inconsistency between high penalties and low moral culpability) it is appropriate to consider the position of a corporation that breaks the law. 6 The notion of a corporation as a law-breaker is not without its difficulties. These difficulties give rise to the question whether a corporation should be treated differently from an individual who offends against the law. Although corporations can be traced back to at least the end of the 14th century (by which time corporations created by Crown grant or by special act of parliament had been firmly established), by the 19th century they assumed a predominant role in the growth of commerce: A Dubois, The English Business Company After the Bubble Act 1720-1800 (1938) at 10. At least for this reason there was a need to reassess the criminal responsibility of the corporation: L Hall, "The Substantive Law of Crimes 1867-1936" 50 Harvard L Rev 616 (1937). The old view was that because a corporation was an artificial entity, the common law would not accept that it had any criminal responsibility. "[Corporations aggregate] cannot commit treason, nor be outlawed, nor excommunicate, for they have no souls, neither can they appear in person, but by attorney": Re Suttons Hospital Case (1612) 10 Co Rep 23a; 77 ER 960, 973. Corporations "could commit neither sin nor crime … [nor] tort - truly suitable representatives for saints and churches": W Holdsworth, A History of English Law, 5th ed (1942) vol III at 474. 7 The possibility that a corporation could commit a wrong was dependent upon the concept of vicarious liability, and the distinction between misfeasance and nonfeasance. The early liability of a corporation for nonfeasance can be dated to the 17th century when counties could be prosecuted to abate a public nuisance, for which a writ of mandamus would go: R v Severn & Wye Railway Company (1819) 2 B & ALD 646; 106 ER 501. Actual criminal liability (by way of fine) was imposed on a corporation for failing to remove a bridge which it had erected over a road in R v Birmingham & Gloucester Railway Co (1842) 3 QB 223; 114 ER 492. Only a few years later it was decided that a corporation could be indicted for an affirmative act. In R v Great North of England Railway Co (1846) 9 QB 315; 115 ER 1294, the railway company was indicted for a nuisance by constructing a railway line over a road. The corporation argued that it could only be liable for nonfeasance. The court disagreed. Lord Denman said that the corporate misfeasance at issue was legally indistinguishable from previously considered cases involving nonfeasance since it is "as easy to charge [a] person, or a body corporate, with erecting a bar across a public road as with the non-repair of it; and they may as well be compelled to pay a fine for the act as for the omission": 115 ER at 1298. However, Lord Denman noted that his ruling did not extend to "acts of immorality". 8 Although corporations could now suffer criminal liability for both action and inaction, it was still unclear whether they could be guilty of wrongdoing that required a criminal intent. On one view a corporation could never be liable for offences which derive their criminality from evil intent (Pearks, Gunston and Tee Ltd v Ward [1902] 2 KB 1), not only because it is an entity that has no soul, but also because according to the 19th century corporate lawyer, to commit such a crime would be ultra vires its constitution. 9 In due course, however, the courts came to accept that it was possible to impute criminal intent to a corporation. After all, a corporation could be made liable for the so-called intentional torts by imputing to it the intention of its agents. So it did not take a great shift to impute to a corporation the criminal intent of its agents. This step was taken in the early part of the 20th century in Mousell Brothers Ltd v London and North-Western Railway [1917] 2 KB 836, 845, a case of a strict liability offence where it was said that "there is nothing to distinguish a limited company from any other principal". See more generally, Director of Public Prosecutions v Kent & Sussex Contractors Ltd [1944] 1 KB 146. 10 Although a corporation may now be punished for most crimes by reason of having the conduct of its agents imputed to it, the question still remains whether the corporation has a lesser responsibility for those crimes than the responsibility of the individuals for whose actions it has become liable. One cannot lose sight of the fact that a corporation is an artificial entity which has "no soul to damn, no pants to kick": (J Coffee, "Making the Punishment Fit the Corporation: The Problems of Finding an Optimal Corporation Criminal Sanction" 1 Nth Ill. L Rev 3, 4 (1980); see also J Coffee "No Soul to Damn, No Body to Kick: An Unscandalized Inquiry into the Problem of Corporate Punishment", 79 Mich L Rev 386 (1981): (Professor Coffee has taken his aphorism from Baron Thurlow who said that "corporations have neither bodies to be punished, nor souls to be condemned": see Oxford Dictionary of Quotations (3rd ed) 1983 at 550). According to this view, it is more appropriate to visit the punishment for criminal conduct upon the individuals who have engaged in that conduct, albeit as agents for the corporation, rather than on the corporation itself. 11 However, this is a view that has been rejected by both courts and parliaments. It was rejected by the courts when they found that a corporation could contravene the criminal law. A corporation could be convicted of a criminal offence even if it was not possible to identify all the individuals whose conduct made up the criminal act. The courts recognised that if a corporation was immune from prosecution it would often stand to gain from the commission of crime. It would also be relatively easy in many instances for individuals to avoid punishment for crimes by interposing a company. This was an unsupportable position and the courts refused to accept it, though it did take some time to overcome. 12 Parliaments (state and federal, Australian and overseas) have rejected the view by their many enactments which expressly recognise that there can be corporate criminal wrongdoing. Although it is not possible for corporations to commit all crimes, for example they cannot be guilty of a crime of passion, it is now abundantly clear that they can and do commit criminal acts. So in many respects corporate criminality is not different from individual criminality. And there certainly should be no difference in a case where both the individual and the corporation engage in illegal conduct that is motivated by rational calculations of maximising self interest: see generally R Posner, "An Economic Theory of the Criminal Law" 85 Colum L Rev 1193, 1228 (1985). 13 Next I propose to say something about the seriousness of contraventions of antitrust legislation. Our economic system is based upon a philosophy of private enterprise and competition. Antitrust legislation has as its object the promotion of free competition by proscribing the misuse of monopoly or oligopoly power, and by making unlawful conduct such as market rigging, collusive tendering, price fixing, and other acts that inhibit the minimisation of production costs and the efficient allocation of resources. That is to say, antitrust legislation is founded on the underlying premise that free competition is essential for the welfare of the state. Conduct that affects the public, such as the anti-competitive behaviour that is outlawed by the Trade Practices Act, can never really be considered as anything other than serious. 14 Moreover, antitrust contraventions do not occur as a result of passion or accident. The agents of a corporation have the choice to engage or refrain from engaging in the anti-competitive behaviour. A contravention most often occurs when there is a belief that the financial gain that is anticipated to result from the anti-competitive behaviour will be considerable, and well worth the risk of detection and the cost of prosecution. In many cases the expected financial gain will be very large, and in some markets could be in the millions of dollars. The corresponding losses that are suffered will fall across a range of organisations including competitors. But ultimately the losses are borne by consumers who are usually economically weak and do not have meaningful power to obtain redress. 15 In addition, it is necessary to recognise the fact, for it is a fact, that many breaches of antitrust laws will be carried out over several months, if not years, before they are detected. To be effective, when engaged in by cartels, they require at least a minimum degree of co-ordination and planning. When imposing a sentence in a criminal case it is always said that regard should be had to the deliberateness of the actions which constitute offence. With few exceptions, conduct that results in a contravention of antitrust legislation is necessarily deliberate and usually with full knowledge that the conduct is unlawful. 16 There are various reasons why crime (by which I mean to include contraventions of the law which only attract civil penalties) should not go unpunished. It is generally accepted that protection of society is the ultimate end of punishment. Traditionally this end is sought to be achieved by the imposition of punishment that serves four functions: deterrence, retribution, reformation and incapacitation. By deterrence I mean both specific deterrence, where the punishment imposed is sufficiently unpleasant to deter the person from committing further breaches of the law, and general deterrence where the punishment is set to deter potential offenders from committing that offence. The object of general deterrence is to prevent future harmful conduct and should be seen as a fundamental goal of sentencing. For that reason general deterrence justifies the imposition of what might otherwise be regarded as a harsh penalty (that is a penalty that takes into account not only the offender's conduct, but the criminal propensity of others) for the individual concerned, to bring about a greater benefit for society as a whole. In a very real sense competition depends upon voluntary compliance with the law, because the regulatory agencies do not have the capacity to monitor the behaviour of every company in every industry, and so the risk of detection is not high. For this reason alone "sentencing in each antitrust case must be used to the maximum advantage to deter other violations": M Kerns, "Criminal Sentencing in Antitrust Cases" Loy Uni L J 985, 992 (1982). 17 In antitrust cases retribution has no real role to play. Nor does rehabilitation, but for different reasons. Those who view retribution as an appropriate theory of punishment hold that the offender must be given some punishment because he "ought" to be punished: the "an eye for an eye, a tooth for a tooth" approach to criminality. The proponents of this view see some social satisfaction in a "just" punishment, perhaps because it can be regarded as repayment to society for the violation. It might also be justified as suppressing acts of private vengeance. However, society is moving away from using a punishment for retribution even in purely criminal cases and, to my mind, it has no role to play in relation to the punishment of a corporation. One difficulty is that if punishment is to be regarded as an exercise of morality, presumably there must be some relationship between the harm intended by the criminal act and the harm inflicted on the offender. But as there is no measurable relationship between the two types of harm, there is no reasonable basis for choosing a particular penalty. Rehabilitation is a concept that has no useful role to play regarding corporations for one cannot rehabilitate a legal fiction. So, if the purpose of antitrust laws is to define certain socially intolerable conduct, deterrence must be the means by which a corporation is to be hindered from engaging in that conduct. 18 It follows that the penalty must be set at a meaningful level, that is it must be sufficiently large to be an effective deterrent. Because antitrust violations are, or are intended to be, profitable, the penalty must be so great that the corporation will perceive no hope of gain: R Blair, "Antitrust Penalties: Deterrence and Compensation" 1980 Utah L Rev 57, 66. The penalty may be up to $10,000,000 for each contravention in the case of a corporation and up to $500,000 in the case of an individual. As most antitrust violations result in many contraventions, the court has ample opportunity to impose a penalty that is adequate. Whether it has done so in the past is, of course, a different matter. 19 Antitrust law is dominated by economists, so it is worthwhile considering their views about sentencing. There is a body of economic opinion that is opposed to general deterrence as the most appropriate theory of punishment. It favours the so-called "optimal penalty theory", first developed by G Becker in his article, "Crime and Punishment: An Economic Approach" 76 J Pol Econ 169 (1968). The theory holds that fines should be set at a level which fully reflects the cost to society of the illegal activity, for otherwise society would bear the cost of the harm. The optimal fine then is the sum of the illegal gains from the unlawful conduct, the cost of detecting the offence multiplied by a factor which represents the probability that the violation will escape detection, and the cost of prosecuting the offence. One aspect of this model is that its proponents also argue it should be the corporation and not the individual directors or managers who have committed the contravention on its behalf that should bear the penalty. Professor (now Judge) Posner has written extensively on the topic. In an article, "Optimal Sentences for White-Collar Criminals" 17 Am Crim L Rev 409 (1980) he explains the reason why it is preferable to fine rather than imprison a white collar criminal (by which he means a criminal who is either a well to do individual or an association such as a business corporation or a union and who commits a non-violent crime). Professor Posner says that in a "social cost-benefit analysis" of the choice between a fine and imprisonment, the cost side of the analysis favours a fine because the cost of collecting the fine is lower than the cost of imprisonment, and on the benefit side there is no difference in principle between the sanctions. In his well known textbook Antitrust Law: An Economic Perspective at 225-226 (1976) Professor Posner explains why, at least in the antitrust context, the imposition of penalties should be confined to corporations. He says that corporations have adequate means of preventing its employees from violating the law. If an employee causes a corporation to incur a massive penalty, Professor Posner predicts that the market itself will punish the employee by limiting his prospects of future employment. 20 So far as I have been able to discover, the optimum penalty theory has not been adopted by any court as an appropriate theory of punishment. It is a theory that has come under sustained attack by many commentators: see eg J Coffee, "Corporate Crime and Punishment: A Non-Chicago View of the Economics of Criminal Sanctions" 17 Am Crim L Rev 419 (1980). See also M Block and R Lind, "Crime and Punishment Reconsidered" 4 J of Legal Stud 241 (1975). 21 I wish to mention some criticisms that can be made of the optimal penalty theory to show why it should not be accepted here. The first and most important requires reference to the antitrust legislation. Typically, and this case is no exception, the legislation proscribes both the making of, and the giving effect to, an anti-competitive arrangement. If the optimal penalty theory were to be applied to a prosecution that is only concerned with the making of an anti-competitive arrangement, the penalty would be confined to the cost of detection and the cost of prosecution, for there would be no other social costs to recover, and the potential effect of the anti-competitive arrangement would have to be ignored. In such a case the penalty would be very small indeed, and would certainly be insufficient to have effect as a deterrent. In any event, s 76 of the Trade Practices Act requires the court to take into account a number of matters including the circumstances in which the contravention took place and whether the person has previously been found to have engaged in similar conduct. Those factors are ignored under the optimal penalty theory. 22 The second criticism is that the optimal penalty theory assumes that the corporation is a rational actor and will choose from among all available options the course of action that would maximise its profits. This is not always so, and may be an unrealistic view of corporate behaviour. The decisions which guide corporations are made by individuals, and profit maximisation is not the only consideration taken into account. Sometimes individuals may be driven by a personal desire to succeed. Fines or other liabilities imposed against their corporation may have little effect on the agents who are responsible for the conduct in question. 23 Thirdly, the model is far too rigid because in many cases it is impossible to calculate, or it may be far too costly to calculate, the damage that has been caused by the contravention. In addition, although it would be useful information to have, it may be impossible to calculate the cost of apprehension. Further, determining the factor to represent the probability that a violation will be detected will always be little more than an arbitrary exercise. 24 A fourth criticism is that the effect of a fine imposed on a corporation will often be passed on to the consumer, rather than the individual actor who was responsible for the conduct. So the suggestion that the corporation alone and not its agents should bear the fine is not without its difficulties. 25 Finally, optimal fines "depend only on the marginal harm and cost and not at all on the economic positions of the offenders": G Becker, The Economic Approach to Human Behaviour at 65 (1976). According to this theory, large and small corporations alike would pay the same fine (or at least a fine that is proportionately the same) as it must be based on an objective determination of the social cost of their wrongdoing. The adoption of such a principle would undermine both the specific deterrence that a penalty may have and as its general deterrent effect. When sentencing with specific deterrence in mind, a large penalty is often imposed to ensure that future decisions whether to violate the law are not made on the same cost benefit analysis as past contraventions. For example, repeating or continuing the same offence should be met with an increased penalty, though its social cost remains constant. Optimal penalty theory pays no regard to general deterrence and may cause the penalty to be little more than a "licence fee" for engaging in the proscribed conduct. 26 It will be observed that I have not said anything about incapacitation as a function of punishment. The omission is deliberate. Incapacitation refers to the idea that if an individual offender is imprisoned he will not be able to commit other offences until he is released. It is, I suppose, necessary to leave out of account the possibility that the individual may commit an offence while in jail. Because incapacitation involves imprisonment, it cannot be a function of the punishment of a corporation, for obvious reasons. That is to say, a corporation cannot be incapacitated in the ordinary sense. There is the possibility of an incapacitation of sorts, by use of the injunction power. Although I have not seen it done, there is no reason in principle why the court could not enjoin a corporation from future participation in a particular market. That would be a kind of incapacitation in an antitrust case. Presumably relief of this sort would only be available in an extreme case, such as where the corporation is a multiple repeat offender, and there is a likelihood of future contraventions. While the possibility of incapacitation cannot be disregarded altogether, it is a remedy that is unlikely to be of much practical utility. 27 It is now convenient to consider the particular position of the individuals for whose conduct the corporation has become responsible, that is to say, the individuals who have been concerned in the contravention. The Trade Practices Act permits these individuals to be penalised up to $500,000 for each contravention. Yet an examination of past decisions show that very small penalties have been imposed; the highest being $150,000 in a case which involved twenty-five contraventions. My own experience suggests that the penalties on individuals have not had significant deterrent effect. This indicates that the quantum of those penalties should be re-examined. 28 Generally the corporate agent is a top executive, who has an unblemished reputation, and in all other respects is a pillar of the community. These people often do not see antitrust violations as law breaking, and certainly not conduct that involves moral turpitude, an attitude that is prevalent in relation to many so-called white collar crimes. There are, however, important matters of which the sentencing judge should not lose sight. The first is the gravity of an antitrust contravention. It is not unusual for antitrust violations to involve far greater sums than those that may be taken by thieves and fraudsters, and the violations can have a far greater impact upon the welfare of society, albeit with less public resentment. Secondly, there is a great danger of allowing too great an emphasis to be placed on the "respectability" of the offender and insufficient attention being given to the character of the offence. It is easy to forget that these individuals have a clear option whether or not to engage in unlawful activity, and have made their choice to do so. Thirdly, there are limits on how far one can take the "good citizen" plea in mitigation. If one accepts, as I do, that general deterrence is the most important element of sentencing antitrust offenders, "the character of the offence, rather than that of the offender [is] the central determinant in the sentencing decision": D Baker and B Reeves, "The Paper Label Sentences: Critiques" 86 Yale L J 619, 622 (1977). While I do not accept, as Baker and Reeves assert, that the individual offender's characteristics are irrelevant, they should be relegated in importance in light of the goal to be achieved; that goal being to deter future contraventions: Blair at 67. The last point, and perhaps the most important, is the need to avoid the erosion of public confidence in the administration of justice that would occur if it is perceived that the law will be applied discriminatorily as regards white collar and blue collar offenders. The court must be vigilant to ensure that there is absolutely no justification for the view, which often finds expression in the popular press, that there is one law for the rich and another for the poor. 29 Having completed this rather lengthy introduction I now turn to the facts. I will begin by introducing the cast. WTC is a private company that was established in 1933. Mr Wilson, the son of the company's founder, is its managing director and chairman. All of the capital in WTC is owned by a family company of which Mr Wilson is the principal shareholder. WTC operates two transformer manufacturing plants in Victoria, and is a joint venturer in a similar project in Malaysia. It has approximately 295 employees in its Victorian operations. Schneider is a wholly owned subsidiary of Schneider Electric SA, a French company that carries on the business of manufacturing and supplying electrical distribution, industrial control and automation equipment around the world. The parent company has more than 60,000 employees, and its annual sales in Europe exceed €9.7 billion. The Australian subsidiary became involved in the manufacture and sale of distribution transformers in 1993 following the acquisition of an existing operation. Mr Stocker was the general manager of Schneider's distribution transformer business until late 1996. In January 1997 he was appointed its managing director and held that position until mid 2000 when he took charge of a Chinese subsidiary of Schneider Electric. Tyree is another Australian owned private company with about fifty-two employees. It manufactures a limited range of distribution transformers from two plants, one in New South Wales and one in Victoria. Mr Boyce is its managing director, a position which he has held since 1993. 30 A transformer is a piece of equipment used for transforming the voltage of electricity between the voltage at which it is generated or used and the voltage at which it is transmitted. There are, in Australia, two markets for the supply of transformers. One is a market for the supply of what the industry refers to as "power transformers" and the other is for the supply of "distribution transformers". The difference between these transformers lies in the rating. Speaking generally, a transformer that has a rating of up to 10 MVA (megavolt ampere) and a primary voltage of 11, 22 or 37 kV (kilovolt) is in the distribution transformer market, and those with higher ratings are in the power transformer market. This case is concerned with the distribution transformer market. 31 Distribution transformers are manufactured with various power ratings and may be mounted on poles, on pads or located in compact substations. Distribution transformers are typically produced in batches, and are of standard form and design. They are sold principally to electricity distribution utilities and other industrial users, usually after a tendering process. The total annual value of sales of distribution transformers in Australia is around $100 million. 32 During the relevant period, the corporate respondents, together with Alstom and, until its liquidation, ABB Power Transmission Pty Ltd (the second respondent), manufactured most of the distribution transformers that are sold in the Australian market. Few had the capacity to produce the entire range of transformers, so each tended to specialise in the manufacture of transformers with a particular rating. Although the figures are necessarily imprecise, in the period with which we are concerned, namely 1993 to 1999, the corporate respondents held the following shares of the distribution transformer market: WTC, 17 per cent to 25 per cent; Tyree, 15 per cent to 23 per cent; and Schneider, after its entry into the market in 1993, 16 per cent to 22 per cent. When the corporate respondents operated as a cartel their power was much like that of a monopolist. But individually none of the corporate respondents had a significant degree of power in the distribution transformer market. 33 In the early 1990s there was a downturn in the demand for distribution transformers, probably because of the recession in the Australian economy and the fact that State utilities no longer gave preference to local manufacturers. Business began to suffer. Competition could erode existing market shares. Representatives from a number of the manufacturers met or spoke by telephone to discuss what could be done. The discussions were probably instigated by ABB, but Mr Wilson on behalf of WTC, Mr Boyce on behalf of Tyree and, when his company became involved in the market, Mr Stocker for Schneider, were willing participants. Their solution was simple, but illegal. In mid 1993 at least ABB and Tyree (through Mr Boyce) made an arrangement to the effect that they would discuss future tenders for the supply of distribution transformers with a view that neither would compete, or legitimately compete, for a contract with a utility that was traditionally supplied by the other. It was agreed that each corporation would keep its own customers, either by the other corporation refraining from tendering for a particular contract, or by submitting a tender at a price higher than that which would be submitted by the corporation that was to win the tender. Later (if it was indeed later), when Mr Wilson was asked whether WTC would become party to the arrangement, he agreed. According to WTC, Mr Stocker was spoken to in March or April 1994 to see whether Schneider would join the arrangement. Mr Stocker disputes the date and says the discussion occurred in 1995. In any event, Mr Stocker agreed that Schneider would also participate in the arrangement. 34 As a result of the privatisation of electricity utilities in Victoria, WTC and Schneider entered into a side arrangement to deal with the situation. Under this arrangement WTC was to win all tenders for the supply of distribution transformers rated above 100 kVA from two utilities and Schneider was to win these tenders from another utility. It was also agreed that Tyree would win tenders for all transformers rated below 100 kVA, it and ABB being the only manufacturers of these low rated transformers. 35 The arrangements (that is, the principal arrangement and the side arrangement) were put into effect until early 1999, though not with respect to all tenders for transformers. On some occasions there was a failure to agree on which corporation was to be the successful tenderer for a particular contract. On other occasions there was agreement on who was to win a tender, but some of the parties did not submit tenders in accordance with the arrangement with the consequence that the contract was let to a corporation other than the one which was to be the successful tenderer. All in all, however, the rigged bidding proved to be quite successful. WTC gave effect to the arrangement in relation to twenty-four tenders, that have a total estimated value of approximately $350 million, although some cannot be taken into account because they are beyond the limitation period. Sales generated for WTC as a result of the arrangement were approximately $74 million and it expects to receive a further $13 million in future sales under existing contracts. Tyree gave effect to the arrangement on eighteen occasions, in respect of contracts with an aggregate value of at least $318 million. It obtained $52 million in sales, and expects to receive a further $1 million. Although Schneider was involved for a much shorter period than the others, it gave effect to the arrangement on fourteen occasions for contracts worth at least $226 million. Schneider received approximately $25.8 million from the contracts awarded to it, and expects to receive a further $20 to $25 million in future sales. 36 There is another contravention that has not so far been mentioned but is relevant to the assessment of penalties. Alstom imported into Australia distribution transformers that were manufactured in New Zealand. Mr Boyce perceived this to be a threat to Tyree. He spoke to executives at Alstom and, after threatening retaliation in the market place, attempted to make an agreement that Alstom would not acquire the New Zealand transformers for the purpose of resupply in Australia. Tyree accepts that this constitutes an attempt to make an arrangement that contained an exclusionary provision in contravention of s 45(2)(a)(i). 37 All arrangements came to an end in circumstances reminiscent of "the strangest case ever decided", being R E Megarry's description of the Highwayman's Case: R E Megarry, Miscellany-at-law : A Diversion for Lawyers and Others (1955) 76-77. In 1998 and early 1999 there were discussions about how the parties would tender for a particular contract in Queensland. It was a very large tender, and it was anticipated that parts of it would go to the three corporate respondents and ABB. In the end, ABB took the whole tender. As a result, the other parties were no longer prepared to proceed with the arrangement. In any event, in mid 1999 the Commission had begun its investigation into the contraventions, and within a short time the parties were approached and admitted their involvement in them. Indeed each of the present three corporate respondents and each officer involved has provided the Commission with important information about the arrangements, and made available documents that were in his or its possession. The Commission received enough information to initiate this proceeding. Thereafter, the discussions, through solicitors, continued with the result that the parties were able to reach agreement on the facts that would dispose of the case. 38 It is necessary to consider a number of matters that arise from the fact that we have several offenders, each having committed a number of contraventions of the Trade Practices Act. One is whether it is appropriate to impose a single penalty against each respondent for all contraventions committed by that respondent. Two things may be said in favour of that approach. The first is that for many years this has been the common (but not universal) practice. I myself have made such orders in the past. The second thing is that there is authority which says that this is a permitted course. The authority is Australian Competition and Consumer Commission v Rural Press Limited (2001) ATPR 41-833. I intend to follow Rural Press Ltd although there are decisions to the contrary effect. These decisions include Trade Practices Commission v Madad Pty Ltd (1979) 40 FLR 453 and Trade Practices Commission v Simpson Pope Ltd (1980) ATPR 40-169. On the other side of the ledger, there are cases which suggest the existence of exceptions to the general rule that a separate penalty should be imposed for each offence. In R v Edirimanasingham [1961] AC 454, Lord Tucker (at 460) noticed cases where a general sentence (that is, one intended to cover more than one count) had been imposed: See also Ryan v R (1982) 149 CLR 1 and R v Jolly (1994) 1 VR 446. This is not the occasion upon which to resolve this difficult question, if only because there has been no argument on it. 39 The second matter is the totality principle. The principle is that where a penalty is being imposed for a number of offences, it is necessary to ensure that the penalties in aggregate are just and appropriate: Mill v R (1988) 166 CLR 59, 63. One approach is to determine the appropriate total penalty and then divide that penalty by the number of offences to produce a penalty for each separate offence. The problem with this approach is that it may result in inappropriate individual penalties. In a criminal case, when sentencing an offender to a term of imprisonment, the problem is avoided by cumulation or concurrency orders. If the penalty is pecuniary, it is not possible to manipulate the sentence in this way. In CPSU, the Community and Public Sector Union v Telstra Corporation Ltd (2001) 108 IR 228, I said that in such a case it was permissible to use the division method, even if it produced inappropriate individual penalties. 40 Next there is the parity principle. The principle is that "[w]here other things are equal persons concerned in the same crime should receive the same punishment; and where other things are not equal a due discrimination should be made": R v Tiddy (1969) SASR 575, 577. The principle requires little explanation. Consistency in punishment is an attribute of a rational and fair system of justice. Inconsistency would erode the public confidence in the administration of justice: Postiglione v R (1997) 189 CLR 295, 335. The parity principle only applies in a case of offenders whose circumstances are comparable. In Lowe v R (1984) 154 CLR 606, 609 Gibbs CJ stated: "It is obviously desirable that persons who have been parties to the commission of the same offence should, if other things are equal, receive the same sentence, but other things are not always equal, and such matters as the age, background, previous criminal history and general character of the offender, and the part which he or she played in the commission of the offence, have to be taken into account." In the instant case a comparison of the corporate respondents discloses important differences. Most importantly, the offending corporations are different in their size and scale of operations. Two are private companies whose shares are tightly held. The third is a subsidiary of a large international public company. While I am not imposing a punishment on the parent, the size of the parent cannot be ignored when assessing the penalty that should be imposed upon its subsidiary. If the position were otherwise, corporations could easily organise their affairs so that if found guilty of criminal conduct, the penalty would be kept to a minimum. For example, there are many markets where the competitors are major public companies. If they combine to engage in anti-competitive behaviour, the penalties imposed upon them will be similar. Is it to be supposed that if one of these public companies establishes a small subsidiary that will trade in the market instead of the parent, it will attract a lesser penalty because it has a lower capital and a smaller turnover? Of course this would be intolerable. The approach I propose to follow was not taken by the Full Court in NW Frozen Foods v Australian Competition and Consumer Commission (1997) ATPR 41-546, but nothing said in that case denies its correctness. There are observations in NW Frozen Foods which, if taken at face value, deny the correctness of what I regard as the proper approach. However, I read those observations as confined to the particular facts there under consideration. Here it would not be right to impose the same penalty on each corporation, although there is not much in the conduct in which they engaged that distinguishes them. A penalty that would be quite significant for the two small corporations will be relatively inconsequential to the third. Put differently, the parity principle should not prevent the court from carefully assessing the significance of a particular penalty for a particular corporation. And in the case of a contravention of antitrust legislation where deterrence is the main object of the penalty, that object would not be achieved if a small penalty was imposed on a large corporation just because that penalty was imposed on a co-offender. It would be equally inappropriate to use the parity principle to impose a crushing penalty on a small corporation. 41 The parity principle does require me to have regard to the penalty that was imposed on Alstom. It will be remembered that its penalty had been suggested by the parties and because it was not a clearly inappropriate penalty, their suggestion was adopted. If the matter was at large, it is likely that I would have imposed a heavier penalty. While I will have regard to the Alstom penalty, I will also keep in mind that the penalty was on the low side. 42 In determining the appropriate penalty it is also necessary to have regard to the capacity of the parties to bear the penalty. Much of the evidence directed to this topic is subject to confidentiality orders as the parties are concerned that if their financial information is made public it may be used to their commercial disadvantage. I doubt whether this risk is real because so much of the information is out of date. In any event, I must mention some of the information so that the parties can understand my reasons for imposing particular penalties. I will attempt to keep public disclosure to a minimum. More precise figures in relation to WTC and Tyree will be set out in a schedule annexed to this judgment which will remain confidential until 31 December 2003. 43 WTC has net assets exceeding $23 million, with most employed in its business. It plans to make substantial capital expenditure by the end of this financial year. In the last ten years it has achieved an increase in annual sales from around $37 million in 1990 to more than $69 million in 2001, but this increase has not produced a corresponding increase in profits. Indeed, in some years the company has suffered an after tax trading loss. Even when the company made a profit, the ratio of profit after tax to sales was modest, ranging from 1.3 per cent to 9 per cent. In 2000, WTC made a profit before tax of several million dollars, but the forecast for the following year was much less: the 2001 accounts were unaudited as at the date of hearing. 44 Mr Winckworth, WTC's finance director, has given evidence that any substantial penalty will affect the company's ability to compete in the market, and may even lead to its ultimate closure. Mr Winckworth pointed out that much of the revenue that WTC derived from the sale of distribution transformers during the 1990's was generated from contracts which were not the subject of the cartel arrangement. In the 1999 and 2000 financial years, WTC declared dividends of about $4.1 million, which declarations substantially reduced the funds that could be applied in payment of any penalty. Mr Winckworth explained that most of the funds were used to effect a buy-back of shares in the company which controls WTC. Mr Winckworth said that it is likely WTC would need to borrow funds to pay any penalty that will be imposed in this proceeding, and the penalty that will be imposed in the related proceeding which concerns the power transformer market. 45 The relationship between Mr Wilson and his company is a matter that must be taken into account when assessing his penalty. I have already made clear the view that I hold of executives who make a deliberate decision to breach antitrust legislation. The position is worse when the executive is the managing director and chairman. Senior managers are often encouraged to become involved in antitrust violations in the belief that their conduct will not be frowned upon by the board. After all, it is the corporation that stands to benefit from the conduct. But when it is a board member, or worse still the managing director, who is responsible for the violation there is no incentive on other executives to abide by the law. It will only be with the imposition of very high penalties that this conduct will be stamped out. That said, I will not ignore the fact that Mr Wilson is the principal shareholder in WTC, and the diminution of its assets that will result from the imposition of a pecuniary penalty is a loss that will ultimately be borne by Mr Wilson. If I do not make allowance for this when assessing Mr Wilson's penalty he will, in effect, be punished twice over. 46 Schneider has not provided me with details of its assets and, not surprisingly, it has not suggested that it is unable to meet any penalty that may be imposed. Schneider's profit before tax from its Australian operation was around $10.5 million on a turnover of $108 million in 1994, increasing to approximately $23 million on a turnover of $169 million in 1998. Profits fell to approximately $12.3 million in 2000, if an allowance for the acquisition of a new business is added back. The penalty that will be imposed on Schneider may appear to be disproportionate to its annual earnings, but, on the information provided to me, it is not possible to say what proportion of its assets the penalty will be. Because Schneider is wholly owned by a very large corporation which has chosen to conduct its Australian operations through a local subsidiary, I do not regard the relationship between penalty and turnover or assets of the company to be of great relevance. Mr Stocker's current income is sufficiently high to bear the penalty to be imposed. I have no information about his personal assets. 47 Tyree has provided me with the following information. As at 30 June 2000 it had net assets of $3.5 million, down substantially from the previous year following the declaration of a dividend from retained profits on 29 June 2000. Tyree earns modest profits before tax. Taking the figures from its annual report and not from the confidential exhibit where the figures are different, in 2000 its profit before tax and some abnormal items was slightly less than that of WTC. If abnormal items are included, the profit was much less. Mr Goodwin, the financial controller of the Tyree group, has given evidence about the capacity of Tyree to meet certain hypothetical penalties. Basing his opinion on limited information, and also assumptions that may not be justified, Mr Goodwin has estimated that it would take Tyree up to fourteen years to pay a penalty of $5 million, if the penalty was funded out of cash flow. As regards Mr Boyce, his current annual income is relatively modest. 48 The foregoing is but a brief summary of the very extensive facts that may be found in the statements of agreed facts and the other evidence. The summary is intended to highlight the most important aspects of what appears in the statements and evidence. While it may not be necessary for me to say so, I have also had regard to the detail. 49 At last I come to the real task at hand, which is to fix the penalties. Having given the matter anxious consideration I will impose the following penalties: · WTC $2.5 million (to be paid in three instalments) · Mr Wilson $125,000 · Tyree $3.5 million · Mr Boyce $150,000 (to be paid in two instalments) · Schneider $7.0 million · Mr Stocker $150,000 (to be paid in two instalments) 50 In arriving at these amounts, I have been particularly influenced by the following factors: (1) To begin with, the contraventions are exceptionally serious. The cartel operated for many years, committing a large number of offences, and the value of the affected commerce was great. So one must have in mind very large penalties before any discounting takes place. (2) The size of WTC and Tyree, and their profitability. I was particularly concerned to ensure the penalty would not affect WTC's ability to trade. It would certainly be incongruous if a penalty for an anti-trust violation had an anti-competitive effect. On the other hand, WTC's assets were significantly diminished by the dividends that were paid out of profits, and if the penalty requires Mr Wilson to return some of those funds, that will not be an unjust result. (3) Mr Wilson will bear the brunt of the penalty imposed on his company, so while his penalty is less than that imposed on the other individuals, in a very real sense it is significantly higher. (4) In the case of Schneider, having regard to the parity principle and that it was involved in the contraventions for a shorter period than the other corporate respondents, the penalty is lower than would otherwise be justified. (5) None of the corporate respondents has a significant degree of power in the distribution transformer market, although as I have said, when operating as a cartel they assumed that power. (6) While it has not been possible to determine the extent of losses suffered by consumers in a market that has an annual turnover of $100 million, those losses could be high. (7) The significant cooperation of these respondents with the Commission in its investigation of the contraventions, a factor which the Commission itself correctly regards as warranting a significant discount. (8) It is unlikely that the respondents will offend again, so specific deterrence is not a relevant consideration. (9) The corporate respondents have implemented a compliance program. These programs are not really there for the education of directors, but for managers and other executives. So, the implementation of such a program tends to minimise the risk of future contraventions. 51 In addition there will be declarations that the conduct engaged in has contravened the Trade Practices Act, and injunctions (including injunctions against two respondents not so far mentioned, Mr Smout (the twelfth respondent) and Ms Minnie (the thirteenth respondent)) will go restraining future contraventions. The Commission also asks me to make findings that may be used in other proceedings in accordance with s 83 which is what I have done in the earlier case. Now I am not so sure whether that was the proper course. I have disposed of this case on the formal admissions made by the respondents. The general rule is that formal admissions are only binding for the purpose of the particular case in which they are made: Dawson v Great Central Railway (1919) 88 LJKB 1177, 1181-1182. It is not clear whether a judge who acts on formal admissions is making findings of fact. I rather think he is not, because the purpose of an admission, such as may be made in a pleading, is to dispense with the need to prove the admitted fact. That is quite different from a case where the judge hears evidence and makes findings based on that evidence. At all events, I propose to do no more than record that I have resolved this case on the basis of the formal admissions. If that constitutes findings of fact for the purposes of s 83, an issue upon which I make no comment, so be it. 52 The Commission should bring in short minutes of orders to give effect to these reasons within fourteen days.

Australian Competition and Consumer Commission v ABB Transmission and Distribution Limited

At a glance

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Judgment (18 paragraphs)

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Legislation Cited (1)

Cases Cited (7)

Cited By (38)