Australian Competition and Consumer Commission v Admiral Mechanical Services Pty Ltd - [2007] FCA 1085 - FCA 2007 case summary — Zoe

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Australian Competition and Consumer Commission v Admiral Mechanical Services Pty Ltd

[2007] FCA 1085

Federal Court of Australia|2007-07-01|Before: Commission J

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Court

Federal Court of Australia

Decision date

2007-07-01

Before

Commission J

Source

Original judgment source is linked above.

Judgment (270 paragraphs)

[1]

Australian Competition and Consumer Commission v Admiral Mechanical Services Pty Ltd [2007] FCA 1085 TRADE PRACTICES - price fixing arrangements - pecuniary penalties - injunctions - declarations - trade practice compliance program - contraventions admitted - pecuniary penalty - penalty agreed - some penalties contested - totality principle - reduction of pecuniary penalty due to co-operation - relevant factors to assessing pecuniary penalty

[2]

Federal Court of Australia 1976 (Cth) ss 21, 43(1) Trade Practices Act 1974 (Cth) ss 4D, 45(2), 45(2)(a)(i), 45(2)(a)(ii), 45(2)(b)(i), 45(2)(b)(ii), 45A, 76, 76(1), 77(2), 80, 80(1), 80(4), 80(5), 155(1)(a), 155(1)(b), 155(1)(c) Fiss, 'Against Settlement'(1984) 93 Yale Law Journal 1073 Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 Australian Competition and Consumer Commission v 4WD Systems Pty Ltd (2003) 200 ALR 491 Australian Competition and Consumer Commission v ABB Power Transmission Pty Ltd (2004) ATPR 42-011 Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 75 FCR 238 Australian Competition and Consumer Commission v Fila Sport Oceania Pty Ltd (2004) ATPR 41-983 Australian Competition and Consumer Commission v Foamlite (Australia) Pty Ltd (1998) ATPR 41-615 Australian Competition and Consumer Commission v George Weston Foods Ltd (2000) ATPR 41-763 Australian Competition and Consumer Commission v Goldy Motors Pty Ltd (2001) ATPR 41-801 Australian Competition and Consumer Commission v Gullyside Pty Ltd (2006) ATPR 42-097 Australian Competition and Consumer Commission v High Adventure Pty Ltd [2006] ATPR 42-091 Australian Competition and Consumer Commission v Ithaca Ice Works Pty Ltd(2001) ATPR 41-816 Australian Competition and Consumer Commission v Ithaca Iceworks Pty Ltd (2002) ATPR 41-851 Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 2) (2005) 215 ALR 281 Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 3) (2005) 215 ALR 301 Australian Competition and Consumer Commission v McMahon Services Pty Ltd (No 1) [2004] ATPR 42-022 Australian Competition and Consumer Commission v McMahon Services Pty Ltd [2004] ATPR 42-031 Australian Competition and Consumer Commission v Midland Brick Co Pty Ltd (2004) 207 ALR 329 Australian Competition and Consumer Commission v NW Frozen Foods Pty Ltd (1996) ATPR 41-515 Australian Competition and Consumer Commission v Real Estate Institute (WA) Inc (1999) 161 ALR 79 Australian Competition and Consumer Commission v Real Estate Institute (WA) Inc (1999) 95 FCR 114 Australian Competition and Consumer Commission v Roche Vitamins Australia Pty Ltd (2001) ATPR 41-809 Australian Competition and Consumer Commission v SIP Australia Pty Ltd (1999) ATPR 41-072 Australian Competition and Consumer Commission v Tubemakers of Australia Limited [2000] FCA 227 Australian Competition and Consumer Commission v Tyco Australia Pty Ltd (2000) ATPR 41-740 Australian Competition and Consumer Commission v Tyco Australia Pty Ltd (2000) ATPR 41-788 Australian Competition and Consumer Commission v Tyco Australia Pty Ltd (2000) ATPR 41-789 Australian Competition and Consumer Commission v Tyco Australia Pty Ltd (2001) ATPR 41-796 Australian Competition and Consumer Commission v Tyco Australia Pty Ltd (2000) ATPR 41-760 Australian Competition and Consumer Commission v Tyco Australia Pty Ltd (2000) ATPR 41-772 Australian Competition and Consumer Commission v Tyco Australia Pty Ltd (2001) ATPR 41-810 Australian Competition and Consumer Commission v Tyco Australia Pty Ltd (2001) ATPR 41-797 Australian Competition and Consumer Commission v Tyco Australia Pty Ltd (2001) ATPR 41-798 Australian Competition and Consumer Commission v Vales Wine Co Pty Ltd (1996) ATPR 41-528 Australian Competition and Consumer Commission v Z-Tek Computer Pty Ltd (1997) 78 FCR 197 Forster v Jododex Australia Aust Pty Limited (1972) 127 CLR 421 Gardner v Dairy Industry Authority of NSW (1977) 138 CLR 646 (Note) ICI Australia Operations Pty Limited v Trade Practices Commission (1992) 38 FCR 248 Melway Publishing Pty Ltd v Robert Hicks Pty Ltd (2001) 205 CLR 1 Minister for Industry, Tourism and Resources v Mobile Oil Australia Pty Ltd (2004) ATPR 41-993 NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 RAIA Insurance Brokers Limited v FAI General Insurance Co Limited (1993) 41 FCR 164 Tobacco Institute of Australia Limited v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89 Trade Practices Commission v CC (NSW) Pty Ltd (No 3) (1994) ATPR 41-363 Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 Trade Practices Commission v ICI Australia Operations Pty Ltd (1991) 105 ALR 115 Trade Practices Commission v Mobil Oil Australia (1985) 4 FCR 296 Trade Practices commission v Pioneer Concrete (Vic) Pty Ltd (1985) ATPR 40-590 Trade Practices Commission v Santos Ltd (1993) ATPR 41-221 Trade Practices Commission v Stihl Chainsaws (Aust) Pty Limited (1978) ATPR 40-091 Trade Practices commission v TNT Australia Pty Ltd (1995) ATPR 41-375

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Penalties 3 In assessing the appropriate penalty, s 76(1) of the Act provides: '(1) if the Court is satisfied that a person: (a) has contravened any of the following provisions: (i) a provision of Part IV; (ii) … (b) has attempted to contravene such a provision; (c) has aided, abetted, counselled or procured a person contravene such a provision; (d) has induced, or attempted to induce, a person, whether by threats or promises or otherwise, to contravene such a provision; (e) has been in any way, directly or indirectly or knowingly concerned in, or party to, the contravention by a person of such a provision; or (f) has conspired with others to contravene such a provision; the Court may order the person to pay the Commonwealth such pecuniary penalty, in respect of each act or omission by the person to which this section applies, as the Court determines to be appropriate having regard to all relevant matters including the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission, the circumstances in which the act or omission took place and whether the person has previously been found by the Court in proceedings under this Part or Part XIB to have engaged in any similar conduct.' 4 In Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 at 52, 152-153, French J referred to a number of factors relevant to the fixing of penalty that have been canvassed in the cases: '1. the nature and extent of the contravening conduct; 2. the amount of loss or damage caused; 3. the circumstances in which the conduct took place; 4. the size of the contravening company; 5. the degree of power it has, as evidenced by its market share and ease of entry into the market; 6. the deliberateness of the contravention and the period over which it extended; 7. whether the contravention arose out of the conduct of senior management or at a lower level; 8. whether the company has a corporate culture conducive to compliance with the Act as evidenced by educational programs and disciplinary or other corrective measure in response to an acknowledged contravention; and 9. whether the company has shown disposition to co-operate with the authorities responsible for the enforcement of the Act in relation to the contravention.' In Australian Competition and Consumer Commission v NW Frozen Foods Pty Ltd (1996) ATPR 41-515, Heerey J at 42,444-42,445 added the following further considerations: 1. similar conduct in the past; 2. the financial position of the respondents; and 3. the deterrent effect of the proposed penalty. These items are not exhaustive: Trade Practices Commission v CC (NSW) Pty Ltd (No 3) (1994) ATPR 41-363 at 42, 723. Other factors may be relevant in a particular case. 5 In fixing the penalty, there is authority that the Court should have in mind the totality principle, the parity principle, general and specific deterrence and, to a lesser extent, the issue of capacity to pay. 6 The maximum penalty for each contravention (or involvement in contravention) is $10m for a corporation (s 76(1A)(b)) and $500 000 for an individual (s 76(1B). The parties have in each case had regard to these provisions in agreeing, subject to the concurrence of the Court, any quantum of penalty.

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COURT'S APPROACH TO AGREEMENTS ON PECUNIARY PENALTIES 13 There are numerous decisions of this Court accepting that penalties agreed between the applicant and various respondents, when found by the Court to be within the range which it would consider appropriate, ought to be imposed. Although pecuniary penalties may be agreed they cannot be so imposed because they are defined and conferred by public law: Fiss, 'Against Settlement'(1984) 93 Yale Law Journal 1073 cited by French J in Australian Competition and Consumer Commission v Real Estate Institute (WA) Inc (1999) 161 ALR 79 at 86. 14 In Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd (2004) ATPR 41-993 at 48-626, the Full Court (Branson, Sackville and Gyles JJ) accepted the following propositions in the reasoning in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285: '(i) It is the responsibility of the Court to determine the appropriate penalty to be imposed under s 76 of the TP Act in respect of a contravention of the TP Act. (ii) Determining the quantum of a penalty is not an exact science. Within a permissible range, the courts have acknowledged that a particular figure cannot necessarily be said to be more appropriate than another. (iii) There is a public interest in promoting settlement of litigation, particularly where it is likely to be lengthy. Accordingly, when the regulator and contravenor have reached agreement, they may present to the Court a statement of their facts and opinions as to the effect of those facts, together with joint submissions as to the appropriate penalty to be imposed. (iv) The view of the regulator, as a specialist body, is a relevant, but not determinative consideration on the question of penalty. In particular, the views of the regulator on matters within the expertise (such as the ACCC's views as to the deterrent effect of a proposed penalty in a given market) will usually be given greater weight than its views on more "subjective" matters. (v) In determining whether the proposed penalty is appropriate, the Court examines all the circumstances of the case. Where the parties have put forward an agreed statement of facts, the Court may act on that statement if it is appropriate to do so. (vi) Where the parties have jointly proposed a penalty, it will be not useful to investigate whether the Court would have arrived at that precise figure in the absence of agreement. The question is whether that figure is, in the Court's view, appropriate in the circumstances of the case. In answering that question, the Court will not reject the agreed figure simply because it would have been disposed to select some other figure. It will be appropriate if within the permissible range.' Additionally, the Full Court in Mobil Oil (2004) ATPR 41-993 added the following points: (a) The rationale for giving weight to a joint submission on penalty is the savings and resources for the regulator and the Court as well as the likelihood that a negotiated resolution will include measures designed to promote competition. (b) It is open to a court, consistently with the reasoning in NW Frozen Foods71 FCR 285, first to address the appropriate range of penalties independently of the parties' proposed figure and then, having made that judgement, determine whether the prepared penalty falls within the range. (c) Such an approach is appropriate where there has been no suggestion that admissions or an agreed statement of facts had been tailored or modified to reflect the difficulties faced by the Australian Competition and Consumer Commission improving its case. (d) It is necessary for the regulator always to explain to the Court the process of reasoning that justifies a discounted penalty: Australian Competition and Consumer Commission v Ithaca Iceworks Pty Ltd (2002) ATPR 41-851. (e) There is nothing in the above statement of principles from NW Frozen Foods 71 FCR 285 which precludes the Court from requesting additional evidence or information or verifying the information provided. Further, if the absence of a contradictor inhibits the Court it may seek the assistance of an amicus curae or an intervenor. If the Court is disposed not to impose a penalty proposed by the parties it may, depending on the circumstances, be appropriate for each of them to be given the opportunity to withdraw consent to the proposed orders and for the matter to proceed as a contested hearing. 15 Additionally it is accepted in respect of each respondent that a principal object of a penalty under s 76 of the Act is deterrence, both general and specific: Trade Practices Commission v Stihl Chainsaws (Aust) Pty Limited (1978) ATPR 40-091 at 17,896; Trade Practices Commission v Mobil Oil Australia (1985) 4 FCR 296 at 298; Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 3) (2005) 215 ALR 301; CSR Ltd (1991) ATPR 41-076 at 52,152. 16 An issue arises on whether incapacity to pay should limit the attainment of deterrence. In Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 2) (2005) 215 ALR 281 at [10] and [11] Merkel J said that giving significant weight to capacity to pay would not only produce anomalous outcomes but would also reward companies for carrying on business in a manner that resulted in them having few, if any, assets available to pay a penalty when it is imposed. However he also accepted that the issue of capacity to pay is of less relevance when balanced against the necessity of imposing a penalty that satisfies the objective of general deterrence. In Australian Competition and Consumer Commission v High Adventure Pty Ltd [2006] ATPR 42-091 at [11] the Full Court stated that in some cases the penalty may be so high that the offender will become insolvent but that such possibility should not deter the Court from doing its duty for otherwise the important object of general deterrence will be undermined. 17 Unless otherwise stated, the Court has been presented with an uncontroverted outline of legal principles, an agreed form of consent orders, an agreed statement of facts and joint submissions. These documents have been prepared and each of the matters approached with complete cognisance of the principles to which I have just referred. 18 It is against this background of general principle that I will approach each of the applications in relation to specific respondents.

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NATURE OF THE ARRANGEMENTS AND UNDERSTANDINGS 21 The corporate respondents are Western Australian air conditioning and mechanical services contractors. The personal respondents are directors or employees of some of those corporate respondents. The allegations made by the applicant, and accepted by the respondents without trial, was that each of the corporate respondents, through such of the personal respondents associated with or employed by those corporate respondents, contravened the Act by making arrangements and arriving at understandings with other Western Australian contractors in the industry. This is said to have occurred in relation to a number of projects put to tender by the owners and builders, including building developers, of commercial and industrial buildings in Western Australia. These included high rise buildings, offices, hospitals, schools, shopping centres, cinemas, retail outlets and public buildings. 22 The most common form of arrangement or understanding reached were 'Designated Tenderer Arrangements and Understandings.' These were designed to ensure that the contractor who obtained the support or agreement of all other tenderers on a particular job would put in the lowest tender and therefore would win the job. These arrangements operated as follows: 1. the tenderers for a particular project would meet or otherwise discuss a forthcoming tender with a view to selecting a 'designated tenderer' from amongst themselves. Various arguments were advanced in favour of a particular firm being selected as the designated tenderer, including prior Designated Tenderer Arrangements or Understandings that had been made, the 'need' a tenderer had for a particular job and how well suited a tenderer was to a job; 2. if a tenderer was selected as the 'designated tenderer', it would then provide each of the other tenderers with a 'cover price'. The cover price was the minimum price at which each of the other tenderers was to submit a tender; 3. the cover price meant that the designated tenderer was able to submit a tender price for itself that it knew to be lower than that of all of the other tenderers who were party to the Designated Tenderer Arrangement or Understanding. Given the fact that the assessment of tenders was usually very price sensitive, this greatly increased the likelihood of the designated tenderer 'winning' the project; 4. when formulating the cover prices, the designated tenderer was able to ensure that its own price was both the lowest and gave it a 'reasonable profit margin' for the job. Generally, the tenderers were aware of the 'budget' for a project and part of the understanding was that the designated tenderer's own tender price would not exceed the budget. If it did exceed the budget, the other tenderers might refuse to participate, as this would mean the owners and builders might be suspicious of the unusually high tender process received; and 5. the tenderers would also agree not to reduce their tender prices during post-tender negotiations with the builders and owners, or at least not reduce their tender price below the designated tenderer's tender price. 23 The Miscellaneous Arrangements or Understandings were made with other contractors in respect of particular projects. 24 The AMCA Members Arrangements and Understandings were made with a number of mechanical services contractors who were members of the Airconditioning and Mechanical Contractors Association through meetings held to discuss upcoming tenders for the supply of commercial and industrial air conditioning services at which there was agreement upon allocating forthcoming projects or endeavouring to do so. 25 Table Arrangements or Understandings were the result of agreements or understandings to allocate projects pursuant to the AMCA Members Arrangements or Understandings. 26 The HJ/KFC Group Arrangements or Understanding gave effect to an arrangement or understanding with a number of mechanical services contractors to discuss upcoming tenders and agree or endeavour to agree upon allocating forthcoming projects. HJ/KFC Arrangements or Understandings were the resulting agreements for designation of a tenderer. 27 The Harbour Town Arrangement or Understanding and the ABC Perth Arrangement or Understanding were agreements and understandings of the same character in relation to projects of those names. 28 The conduct of the respondents was deliberate and undertaken voluntarily with the understanding that it was illegal. They intentionally kept the conduct secret from the owners and builders who put the projects to tender.

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Relative Ranking in terms of all Arrangements or Understandings made or arrived at (ie Miscellaneous, Table, HJ/KFC, DSA, Bottom Line and Floreat Forum) during the penalty period. Relative Ranking in terms of total Value of All Arrangements or Understandings made or arrived at (ie Miscellaneous, Table, HJ/KFC, DSA, Bottom Line and Floreat Forum) during the penalty period. Ranking Respondent Resp No. Total No. of Collusive Jobs Ranking Respondent Resp No Total Value of Collusive Jobs 1 Centigrade 5th 59 1 HVAC 10th $69 925 870 2 Envar 8th 41 2 Envar 8th $57 237 837 3 HVAC 10th 40 3 Centigrade 5th $56 282 449 3 MPM 13th 40 4 DES 7th $48 088 600 4 Jako 11th 30 5 MPM 13th $42 379 515 4 DES 7th 30 6 Jako 11th $29 767 565 5 CMS 6th 20 7 Haden 9th $21 983 754 6 Scott Mechanical 16th 14 8 Tyco / T O'Connor 17th $21 733 176 7 Haden 9th 12 9 Tyco / Designair 17th $20 420 589 8 Tyco/ T O'Connor 17th 11 10 AMEC Engineering 3rd $6 662 760 8 Tyco / Designair 17th 11 11 CMS 6th $6 311 532 9 LL Noms/Mech Const 12th 10 12 LL Noms/ 12th $6 295 603 Mech Const 10 Ralie 15th 6 13 Scott Mechanical 16th $3 063 161 11 Admiral Mechanical 1st 5 14 Admiral Mechanical 1st $1 977 850 12 AMEC Engineering 3rd 2 15 Ralie 15th $1 288 568

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Relative Ranking in terms of all Arrangements or Understandings made or arrived at (ie Miscellaneous, Table, HJ/KFC, DSA, Bottom Line and Floreat Forum) during the penalty period. Ranking Respondent 1 Smith 2 Healey 2 Burmaz 3 Ferguson 3 Pierce 4 Jakovich 5 Redfern 6 Allen 7 Scott 8 Blinco 9 Albonico* 10 Jones 11 Broadley 12 Cygulis* 13 Roche 13 Henny 14 Moore 15 Nelson 16 Barrie 16 Lewis 16 McLeod 16 Ballantyne Relative Ranking in terms of total Value of All Arrangements or Understandings made or arrived at (ie Miscellaneous, Table, HJ/KFC, DSA, Bottom Line and Floreat Forum) during the penalty period. Resp No Total No. of Collusive Jobs Ranking Respondent Resp No Total Value of Collusive Jobs 23rd 59 1 Healey 23rd $57 237 837 29th 41 2 Smith 29th $56 282 449 28th 41 2 Burmaz 28th $57 237 837 36th 40 3 Ferguson 36th $42 379 515 35th 40 3 Pierce 35th $42 379 515 34th 30 4 Jakovich 34th $29 767 565 25th 25 5 Henny 27th $29 472 717 26th 21 6 Redfern 25th $23 320 036 39th 14 7 Albonico* 21st $20 420 589 20th 12 8 Cygulis* 22nd $19 610 010 21st 11 9 Roche 30th $17 730 538 24th 10 10 Allen 26th $15 595 218 38th 9 11 Blinco 20th $12 958 363 22nd 8 12 Barrie 19th $6 229 760 30th 7 12 Lewis 32nd $6 229 760 27th 7 13 Jones 24th $3 799 955 37th 6 14 Scott 39th $3 063 161 18th 5 15 Broadley 38th $2 515 605 19th 1 16 Nelson 18th $1 977 850 32nd 1 17 Moore 37th $1 288 568 33rd 1 18 McLeod 33rd $447 750 31st 1 19 Ballantyne 31st $154 250

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RESPONDENTS 1 AND 18: ADMIRAL MECHANICAL SERVICES PTY LTD (ADMIRAL) AND MR NELSON 42 To the authorities cited above Admiral and Mr Nelson add a reference to Australian Competition and Consumer Commission v Foamlite (Australia) Pty Ltd (1998) ATPR 41-615 at 47, 45 per Finkelstein J and Australian Competition and Consumer Commission v McMahon Services Pty Ltd (No 1) [2004] ATPR 42-022 at [115] per Lander J. These authorities are cited with respect to the proposition that an objective bench mark that has previously been used in the case of offending corporations to weigh up the severity of any penalty is the average after tax, annual profit of the trading corporation. 43 Admiral currently and at all relevant times, carried on the business of the design, manufacture, installation, commissioning and maintenance of heating, ventilating and air conditioning systems principally in the Perth metropolitan area. 44 Mr Nelson is the founder and managing director of Admiral. Mr Nelson was at all material times from 26 June 1996 a director of Admiral; he acted within the scope of his actual or apparent authority as a director, servant or agent of Admiral in respect of his conduct alleged herein. 45 Pursuant to the DSA Group Arrangement or Understanding, from about October 2000 to approximately October 2002, Admiral made and gave effect to five arrangements or understandings with the DSA Group Members, to allocate projects for the supply of commercial and industrial air conditioning services (the DSA Arrangements or Understandings). 46 The background for these offences is similar to that set out in relation to foregoing respondents. The precise involvement of these respondents is the subject of particular attention in the agreed statement of facts and the joint submissions. 47 During the period from October 2000 and continuing up to about October 2002, Admiral made: 1. the DSA Group Arrangement or Understanding and gave effect to it each time it made one of the five DSA Arrangements or Understandings to which it was a party; and 2. five DSA Arrangements or Understandings and gave effect to a provision or provisions of each of them. 48 Admiral's commercial and industrial air conditioning installation services business' turnover, net profit and net asset position is summarised in the table below: Year Turnover Net profit Net Assets 2000/2001 $2.84m ($67 000) $48 941 2001/2002 $3 208 574 $49 501 $98 442 2002/2003 $2 279 036 $13 885 $119 626 2003/2004 $2 099 473 ($13 420) $71 206

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57 Mr Nelson owns a vacant block of land, jointly with his wife in Mt Pleasant. The land was purchased for $560 000 in 1997 and is currently valued at approximately $900 000. The land is security for $470 000 in loans in Admiral's and Mr Nelson and his wife's names. 58 Mr Nelson has superannuation of $72 186 in the Nelson Superannuation Fund and a half interest with his wife in a one week time share at Busselton Beach valued at $10 000. 59 Mr Nelson has not been the subject of previous proceedings in respect of Pt IV of the Act. He has never been charged with, or convicted of, a criminal offence. He has not otherwise been prosecuted by any regulatory authority or otherwise ordered to pay any civil penalty. 60 An affidavit filed by Mr Nelson, with which the applicant takes no exception, describes the circumstances in which he entered into the arrangements and understandings. Those circumstances included that one of Admiral's major debtors had gone into administration owing Admiral $67 000. Further, he had been told that AMCA members wanted to keep him out of certain tender lists so that they could undercut him. 61 By the time he entered into the agreement in October 2000 he had been diagnosed with depression and was receiving counselling. He considers that the depression was a contributing factor to his involvement. Neither he nor Admiral received any benefit from his contravening conduct, Admiral not being awarded any of the contracts in question. 62 He said that Admiral has an overdraft facility which is invariably close to or fully drawn. The company is not in a position to increase its overdraft to meet any penalty. It pays a modest income for him and his wife. They consider that having their own business is important to them. 63 Mr Nelson referred to the fact that of his five children, four are quadruplets. He rents his home. He is also an elder of a church, that being the hub of his life. 64 As mentioned, consent orders between the applicant and this set of respondents were made on 29 August 2005. In relation to Admiral, orders were made relating to declarations, injunctions, a compliance program and costs. In relation to Mr Nelson, orders were made relating to declarations, injunctions and costs.

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Pecuniary Penalty 65 The applicant proposes a pre-discount penalty of $70 000 in respect of Admiral and $7500 in respect of Mr Nelson. The discounted figures would be $49 000 and $5250 respectively. This represents a 30 per cent discount. 66 Counsel for Admiral and Mr Nelson submitted that these respondents are at the lowest level. While the proposed penalty in respect of Mr Nelson is not in dispute, it is said by the respondents that the penalty in relation to Admiral is not appropriate when true regard is had to the principle of parity. 67 In the course of his submissions, counsel for these respondents also stressed the degree of their co-operation, the circumstances of the commission of the offence including the health of Mr Nelson and the quality of his character as attested to by various references. 68 In relation to the issues concerning capacity to pay, reliance was placed on Foamlite (1998) ATPR 41-615 and McMahon [2004] ATPR 42-022. 69 Additionally, reference was made to the fact that the market share of Admiral was in the order of 1.6 per cent and that the period of the offending was only over two years with only one respondent being for a shorter period. Further, Admiral never secured a tender by its contravening conduct. In this context, it contends its past exemplary conduct had particular weight. I note in contra to this submission that although Admiral may not have secured a tender personally it was involved in the collusive behaviour and that it was only by all of the respondents' involvement that the collusive behaviour could be successful. 70 In response, the applicant stressed the need for a significant general penalty. It submitted that a minimum in a price fixing case was that proposed in relation to Admiral. 71 In supplementary submissions the respondents here said there was no foundation upon which the Court should 'fix the bottom end of that range at an arbitrary figure of $49 000'. I agree with the applicant that no such approach is inherent in the applicant's submissions. Rather the applicant has sought to apply the relevant factors and principles to arrive at a figure which in its view reflects application of them. 72 The respondents also suggest that the applicant's submission submits that the applicant is contending the legislation compels the Court to submit itself to a uniform regime of pecuniary penalties for nothing more than the sake of uniformity. I do not understand the applicant's submissions as taking that approach. 73 Regard must also be had to the parities in relation to Admiral, namely that it is the second last in relation to total number of arrangements and in relation to total value of arrangements. The parities in respect of Mr Nelson are 15 of 16 of all arrangements and 16 of 19 for the total value.

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Determination of pecuniary penalty 105 The applicant submits that the appropriate pecuniary penalties to be paid by each of the Ralie respondents are as follows: 1. Ralie - $70 000; 2. Mr Moore - $7000; and 3. Mr Broadley - $7000. 106 The respondents submit that the penalty range proposed by the applicant is so onerous as likely to have the effect of forcing Ralie into liquidation. 107 The respondent submits that as it is accepted by the applicant that Ralie and its operators were very minor players in the overall conduct, it is appropriate that penalties for them be at the lower end. Furthermore, as Ralie has a smaller turnover compared to its competitors and operates with tight profit margins, a moderate penalty is likely to have a significant deterrent effect on it engaging in similar conduct in the future. In this regard a penalty in the vicinity of $20 000 is both significant in light of Ralie's circumstances as a deterrent and as an actual penalty. 108 It is submitted that due consideration should also be given to the financial impositions of Ralie's significant legal costs as well as its obligation by way of agreement to pay the applicant's legal costs to be taxed if not agreed. 109 Both Messrs Moore and Broadley have been remorseful and cognisant of their wrongdoing. They have been fully cooperative with the applicant and have made a considerable financial commitment to the implementation of a detailed compliance program. Both Messrs Moore and Broadley earn a modest income of $60 000 before tax. It is therefore submitted by the respondents that a penalty of $5000 as against each respondent (when viewed together with monies spent on legal representation and payment of the applicant's costs) is a significant imposition and weighty deterrent. 110 Ralie is a notch above Admiral in the relative rankings. The Ralie starting point of $70 000 is favourable in that equates to the starting point for Admiral. However, the discounts offered to Admiral for co-operation are not proposed by the applicant in relation to Ralie and there is no evidence of a foundation for them. 111 I do not consider that the parity principle or the deterrence principle would permit of the starting point for Ralie being $20 000 or the penalties proposed for Messrs Moore and Broadley being reduced. 112 However, the parity principle would permit Ralie to have the same opportunities to pay by instalments as have been applied in the case of Admiral. This would assist in addressing the issue of financial hardship argued for Ralie. 113 Accordingly I find the pecuniary penalty against Ralie should be $70 000 and against each of Messrs Moore and Broadley the sum of $7000. These pecuniary penalties should be paid together with agreed costs in four annual instalments.

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RESPONDENTS 16 AND 39: SCOTT MECHANICAL SERVICES PTY LTD (SCOTT MECHANICAL) AND MR SCOTT 114 In respect of these respondents, consent orders have been reached in relation to declarations and injunctions, a compliance program and costs. The respondents oppose the quantum of the pecuniary penalty proposed. 115 Scott Mechanical has admitted that the making of the arrangements or understandings and the giving effect to them is contrary to the provisions of ss 45(2)(a)(i) and (ii) and ss 45(2)(b)(i) and (ii) of the Act. 116 Mr Scott has admitted that he was directly or indirectly knowingly concerned in, or party to, the contraventions by Scott Mechanical of the Act. 117 For the purpose of these reasons the conduct in which Scott Mechanical and Mr Scott engaged may be described as similar to that previously set out in relation to DES. The exact conduct is set out in detail in the agreed statement of facts. 118 Scott Mechanical currently and at all material times carried on the business of the supply, installation, commissioning and maintenance of heating, ventilating and air conditioning systems principally in Western Australia. 119 It employs only one employee, being Mr Scott. From June 1988 he was a founding director of Scott Mechanical together with his wife. He acted within the scope of his actual or apparent authority as a director, servant or agent of Scott Mechanical in respect of his conduct. 120 The size of the company in terms of operating profit is currently nil. The company's net asset position is $111 000. The total amount of invoices last financial year was $1 073 476.29. The monthly invoice records for June 2004 to date total $399 613.25. The balance still to be claimed on two current jobs is $25 113. There is money still owing to it in the amount of $52 154.76. 121 Below is a schedule showing income, profit before tax, assets and liabilities from the year ending 30 June 1999 to the year ending 30 June 2003. Year ending Total Income* Total Profit/loss* Assets Liabilities Net Assets 30 June 1999 $340 180 $27 288 (L) $535 378 $150 994 $384 384 30 June 2000 $141 499 $38 005 (L) $458 334 $143 358 $314 976 30 June 2001 $168 115 $21 066 (L) $350 382 $118 804 $213 578 30 June 2002 $164 833 $44 024 (L) $441 856 $166 256 $275 600 30 June 2003 $128 959 $17 223 $341 501 $48 677 $292 824

[58]

Nature and extent of conduct 129 From 1999 to May 2003, Scott Mechanical, through the conduct of Mr Scott, made or arrived at: 1. two Miscellaneous Arrangements or Understandings and gave effect to each of them; 2. the DSA Group Arrangement or Understanding and gave effect to it; 3. seven DSA Arrangements or Understandings and gave effect to each of them; 4. two HJ/KFC Group Arrangements or Understandings and gave effect to each of them; and 5. five HJ/KFC Arrangements or Understandings and gave effect to each of them. 130 In about October 2000 Scott Mechanical became a party to the DSA Group Arrangement or Understanding. The meetings for the DSA Group were held at Mr Scott's premises in Midvale. As a member of the DSA Group, Scott Mechanical was a party to seven DSA Arrangements or Understandings during the period from November 2000 to about February 2002. 131 In July 2001, Scott Mechanical became a party to the first HJ/KFC Group Arrangement or Understanding, and remained so when Centigrade joined in approximately September 2001. During the period from July 2001 to about January 2003, Scott Mechanical was a party to five HJ/KFC Arrangements or Understandings. 132 The Designated Tenderer Arrangements or Understandings were highly organised and frequent, following an established pattern of conduct that had been ongoing in the industry for a considerable period of time. The development of the DSA Group Arrangement or Understanding and HJ/KFC Group Arrangement or Understanding resulted in an increase in the regularity of the conduct and the development of methods to best identify the projects for which Designated Tenderer Arrangements or Understandings could be made. 133 The following table sets out the Designated Tenderer Arrangements or Understandings that Scott Mechanical made and/or gave effect to through Mr Scott. Total Projects Arrangement or Understanding Type Made Gave effect Total value Won as the DT Total value of projects won Misc 2 2 $365 621 Nil Nil DSA 7 5 (1 project halted) $2 250 253 1 $1 065 185 HJ/KFC 5 4 $447 287 1 $85 140 Total 14 11 $3 063 161 2 $1 150 325

[78]

The size of the contravening company 174 Between 1990 and 1996, AMEC Australia was a multi-disciplined building services company operating nationally, undertaking mainly design and installation of air conditioning systems, electrical, light and power systems, and communications, plumbing and fire protection services in all types of commercial buildings. 175 In mid 1998, the structure of AMEC Australia's business activities changed, so that all of the business of the Western Australian division was transferred so that it fell under the management control of AMEC Engineering. This included a transfer of AMEC Australia's air conditioning business unit in Western Australia to AMEC Engineering. 176 This restructure occurred a few months prior to Mr Barrie's appointment as general manager of AMEC Engineering. Mr Barrie's involvement with the commercial air conditioning services of AMEC Engineering ceased in July 1999 when AMEC Engineering commenced the business. 177 AMEC Engineering continued to carry out work in the commercial air conditioning industry until November 1999, when it exited the industry. Neither AMEC Engineering nor any of its subsidiaries have had any involvement in the commercial air conditioning industry since November 1999. 178 The current principal activities of AMEC Engineering are in the off-shore oil and gas industries to which it provides front-end design, procurement services, engineering and project management, hook-up and commissioning operations and maintenance support. 179 AMEC Australia's air conditioning division employed around twenty people at its peak period in the early 1990s and employed as few as seven people in the later years when it was scaling down. These estimates do not include support people in areas such as accounting. The bulk of the employees in the air conditioning division were project managers, engineers, design engineers and construction supervisors. 180 AMEC Australia/AMEC Engineering generally focused on medium to large scale rather than small projects, as their business structure was more geared to larger and medium sized jobs. Projects valued at $1m or more were considered medium projects. 181 However, as time passed AMEC Australia/AMEC Engineering began to compete for smaller projects and became more of a medium to small player in the air conditioning industry. This was because the volume of work in the industry decreased throughout the 1990s and the number of participants in the industry remained fairly constant, thus making it more difficult to secure work. Additionally, there were fewer large scale projects available.

[87]

RESPONDENTS 12 AND 20: LL NOMINEES PTY LTD AND MR BLINCO 192 The proceeding against LL Nominees Pty Ltd (LL Nominees) and Mr Blinco relates to their involvement between 1997 and 2003 in the making of or arriving at and giving effect to anti-competitive arrangements or understandings with other competing commercial and industrial air conditioning and mechanical services contractors. Similar to other respondent groups this related to tender prices to be submitted by them for the supply of those services in relation to particular projects in Western Australia. 193 The precise involvement and facts as they relate to LL Nominees and Mr Blinco is the subject of attention in the agreed statement of facts and joint submissions filed with the Court. 194 Mr Blinco admits that through his conduct as an officer of LL Nominees, the third respondent (AMEC Engineering) and the second respondent (AMEC Australia), at various times from February 1997 to May 2003 he was directly or indirectly knowingly concerned in, or party to, the contraventions by LL Nominees, AMEC Engineering and AMEC Australia at various times. 195 During the period from October 2001 to March 2003, LL Nominees: 1. made or arrived at two AMCA Members Arrangements or Understandings and Subsequent AMCA Members Arrangements or Understandings and gave effect to them by making 10 Table Arrangements or Understandings; and 2. made or arrived at 10 Table Arrangements or Understandings and gave effect to a provision or provisions of each of them. 196 During the period from February 1997 to March 2003 Mr Blinco: 1. on behalf of LL Nominees made or arrived at two AMCA Members Arrangements or Understandings and Subsequent AMCA Members Arrangements or Understandings and gave effect to them by making 10 Table Arrangements or Understandings; and 2. on behalf of LL Nominees, made or arrived at 10 Table Arrangements or Understandings and gave effect to a provision or provisions of each of them; and 3. on behalf of AMEC Australia, made or arrived at five Table Arrangements or Understandings and gave effect to a provision or provisions of each of them; and 4. on behalf of AMEC Engineering, made or arrived at one Miscellaneous Arrangement or Understanding and gave effect to a provision or provisions of them; and 5. on behalf of AMEC Engineering, made or arrived at two AMCA Members Arrangements or Understandings and Subsequent AMCA Members Arrangements or Understandings and gave effect to them by making two Table Arrangements or Understandings; and 6. on behalf of AMEC Engineering, made or arrived at two Table Arrangements or Understandings and gave effect to a provision or provisions of each of them. 7. LL Nominees has admitted that the conduct of Mr Blinco on its behalf in relation to the above arrangements or understandings constituted conduct by LL Nominees in contravention of s 45(2) of the Act. Specifically, it has also admitted that the making of or arriving at and giving effect to the AMCA Members Arrangements or Understandings and the Table Arrangements or Understandings was in contravention of ss 45(2)(a)(i) and (ii) and 45(2)(b)(i) and (ii) of the Act; 8. Mr Blinco has admitted that from February 1997 he was directly or indirectly knowingly concerned in, or party to, the contraventions at various times of the Act by AMEC Australia, AMEC Engineering and LL Nominees. 197 The joint submissions state that the contraventions of this respondent group must be seen as amongst the most serious of the non-criminal contraventions of the Act. 198 The joint submissions refer to the fact that the designated tenderer arrangements or understandings occurred frequently, and once the AMCA Members Arrangements or Understandings were made or arrived at, they became more organised. The making of designated tenderer arrangements or understandings followed an established pattern of conduct that had been ongoing in the industry for a considerable period of time. The advent of the AMCA Members Arrangements or Understandings underlined how entrenched this conduct had become in the air conditioning industry. 199 The development of the AMCA Members Arrangements or Understandings resulted in an increase in the regularity of the conduct and the development of methods to best identify the projects for which designated tenderer arrangements or understandings could be made. Through Mr Blinco, LL Nominees, AMEC Engineering and AMEC Australia, at the relevant times, attended the Unofficial AMCA meetings pursuant to the AMCA Members Arrangements or Understandings. 200 Projects falling outside the scope of the AMCA Members Arrangements or Understandings were, from time to time, the subject of Miscellaneous Arrangements or Understandings. 201 LL Nominees currently and at all relevant times carried on the business of the design, manufacture, installation, commissioning and maintenance of heating, ventilating and air conditioning systems principally in Western Australia. It is no longer trading. 202 Mr Blinco was at all material times a principal shareholder in LL Nominees from 26 February 1998 to the present date; a director of LL Nominees from February 1998 until the present date; and acting within the scope of his actual or apparent authority as a director, servant or agent of LL Nominees in respect of his alleged conduct. 203 In relation to Mr Blinco and AMEC Australia, Mr Blinco was at all material times employed by AMEC Australia as the mechanical services division manager from April 1997 to June 1998; and acting within the scope of his actual or apparent authority as a servant or agent of AMEC Australia in respect of his alleged conduct. 204 In relation to Mr Blinco and AMEC Engineering, Mr Blinco was at all material times: employed by AMEC Engineering as the mechanical services division manager from June 1998 to November 1999; and acting within the scope of his actual or apparent authority as a servant or agent of AMEC Engineering in respect of his alleged conduct.

[102]

RESPONDENTS 6 AND 24: CMS ENGINEERING AND MR JONES 226 CMS currently and at all relevant times carried on the business of the supply, installation, commissioning and maintenance of heating, ventilating and air conditioning systems principally in Western Australia. 227 Mr Jones was the managing director of CMS from November 1999 to the present date and was acting within the scope of his actual or apparent authority as a director, servant or agent of CMS in respect of his conduct. 228 During the period from June 1997 and continuing up to May 2003, CMS: 1. made or arrived at six (6) Miscellaneous Arrangements or Understandings and gave effect to a provision or provisions of five (5) of them; 2. made or arrived at five(5) Table Arrangements or Understandings and gave effect to a provision or provisions of each of them; 3. made or arrived at the PMH Paediatric Wards Arrangement or Understanding; 4. made or arrived at the DSA Group Arrangement or Understanding and gave effect to it each time it made or arrived at one of the five (5) DSA Arrangements or Understandings to which it was a party; 5. made or arrived at five (5) DSA Arrangements or Understandings and gave effect to a provision or provisions of each of them; 6. made or arrived at the HJ/KFC Group Arrangements or Understanding and gave effect to them each time it made or arrived at one of the five (5) HJ/KFC Arrangements or Understandings to which it was a party; and 7. made or arrived at five (5) HJ/KFC Arrangements or Understandings and gave effect to a provision or provisions of each of them. 229 In the instance of the PMH Paediatric Wards Project, the relevant provision of the agreement to which CMS was a party was that in the event that the owner or builder tried to negotiate a lower price after the close of the tenders, the contractors would refuse to lower their tender price. The value of this particular project was $872 320. This value is included within the 'Total Value' of 'Table' and 'Collusive' projects indicated in pars 45 and 47 tables. 230 Mr Jones: 1. was directly or indirectly, knowingly concerned in or party to, CMS making or arriving at four (4) Miscellaneous Arrangements or Understandings and gave effect to a provision or provisions of three (3) of them; 2. allowed Mr Redfern on behalf of CMS to make or arrive at two (2) Miscellaneous Arrangements or Understandings , and give effect to, one (1) Miscellaneous Arrangements or Understandings; 3. allowed Mr Redfern on behalf of CMS to make or arrive at, and give effect to, five (5) Table Arrangements or Understandings; and 4. allowed Mr Redfern on behalf of CMS to make or arrive at the PMH Paediatric Wards Arrangement or Understanding. 231 Since 1992 Mr Jones has been a director and shareholder of CMS. In recent years (since 1999) Mr Jones has been managing director of the company but this title did not give him additional remuneration or authority within the company, save for a casting vote which has never been exercised. 232 Mr Jones' conduct consisted of participating in telephone calls, attending a meeting and committing CMS to make or arrive at and give effect to some but not all of the above arrangements or understandings as well as allowing Mr Redfern to make or arrive at and give effect to a number of the arrangements or understandings. Mr Jones' involvement in the alleged conduct began from June 1997 and lasted until about May 2003. 233 The minute of consent proposes that the Court made the following orders: 1. declarations; 2. injunctions; 3. a pecuniary penalty; and 4. an order for costs against each of the CMS respondents, and 5. the maintenance of a compliance program by way of probation order, against CMS only. 234 I am satisfied that the requirements for the making of the declaratory and injunctive relief have been met so that those orders may be made together with the order for costs.

[107]

The size of the contravening company and financial position of the contravening company 240 CMS currently and at all relevant times carried on a business which engineers and project manages the installation and construction of mechanical services projects. This generally involves work in relation to air conditioning systems but also includes the installation of ventilation, toilet exhaust systems and stairwell pressurization. CMS also undertake extensive design and construct work, often employing external consultants to supplement their internal resources. Design and construct work make up a significant proportion of the company turnover, although this would be less than 50 per cent in a normal year. No manufacturing work is undertaken by CMS. 241 CMS operates primarily in Western Australia, with the majority of work being located in the Perth metropolitan area. 242 These proceedings relate only to that part of CMS' business involving the commercial and industrial air conditioning installation business in Western Australia. Unless otherwise stated, the information provided below relates to CMS' commercial and industrial air conditioning installation business in Western Australia. 243 Between November 1999 and January 2007 CMS had 4 directors - Messrs Jones, Redfern, Phil Field and Ken Mesure, who were all equal shareholders. Since January 2007 CMS has had 3 directors, Mr Jones, Phil Field and Ken Mesure, who are all equal shareholders. Mr Jones is the managing director, but the position, as outlined above, confers no additional remuneration or authority, save for a casting vote which has never been exercised. 244 The projects CMS works on can range in value from a couple of hundred dollars to multi million dollar jobs. 245 CMS' turnover in the penalty period ranged from $1.1m to $11.7m, of which the vast majority was derived from the design, manufacture and installation of commercial and industrial air conditioning systems. 246 CMS' turnover for the financial year ended 30 June 2004 was approximately $12.1m in gross terms. 247 In October 2004 CMS had 15 employees, including project managers, engineers, estimators, draughtsmen and administration staff.

[117]

RESPONDENTS 11 AND 34: JAKO INDUSTRIES PTY LTD AND MR JAKOVICH 259 Jako Industries currently and at all relevant times carried on the business of the design, manufacture, installation, commissioning and maintenance of heating, ventilating and air conditioning systems principally in Western Australia. It is and was a family company built up by Mr Jakovich and his brother since its inception in 1972. 260 Since at least 1990 Mr Jakovich has been the managing director of and principal shareholder of Jako Industries Pty Ltd (Jako Industries). He effectively controls and at all material times controlled the company. All of the arrangements or understandings to which Jako Industries was a party were made or arrived at, or given effect to, by Mr Jakovich on behalf of Jako Industries. 261 In the penalty period Jako Industries tendered an average of about 250 projects per year that ranged from small jobs to multi million dollar jobs. 262 In June 2004 Jako Industries had 48 employees and a wages bill of $256 423. Jako Industries employed an average of 46 people per month in the 3 financial years from 2001/2002 to 2003/2004. Jako Industries employed on average 10 people in installation, 12 people in manufacturing, 11 people in its service department and 13 people in its administration. 263 At all material times Jako Industries has carried on its business in WA working on projects predominantly in the wider metropolitan area (excluding the Central Business District) and occasionally in regional areas (subject to suitability and human resources). Jako Industries generally did not operate in the Central Business District. 264 Jako Industries focuses on medium sized commercial and industrial projects, and generally does not work on residential projects (unless the project has substantial complexity associated with the construction of the air conditioning systems and has a certain threshold value so it can meet minimum mobilisation costs). 265 The average annual turnover of Jako Industries in the penalty period was about $8 900 000, of which approximately $8 200 000 per year on average was derived from the design, manufacture and installation of commercial and industrial air conditioning systems. 266 Turnover and employee figures for Jako Industries compared with figures for some other corporate respondents are influenced by the fact that some other respondents do not design and manufacture but rather only install commercial and industrial air conditioning systems, and their figures only relate to installation services, not design and manufacture work. 267 The net asset position for Jako Industries was as follows: Year Value ($) 1995/1996 378 989 1996/1997 841 672 1997/1998 1 075 607 1998/1999 1 031 749 1999/2000 711 298 2000/2001 752 203 2001/2002 688 033 2002/2003 593 422

[127]

Parity 285 The tables of relative ranking show Jako as 4 out of 12 for all arrangements and 6 out of 15 for total value. They show Mr Jakovich as 4 out of 16 for all arrangements and 4 out of 19 for total value. 286 Jako Industries submits that the base penalty sought by the applicant was disproportional to the other respondents. In particular they point to HVAC, Centigrade, DES and MPM. And submit that a more appropriate 'base penalty' would be $1m prior to any considerations of ameliorating circumstances. Reliance is placed on the following table (adjusted to reflect the final relative ranking tables): Respondent Ranking for Total Number of Arrangements made or arrived at Total Number of Collusive Jobs Respondent Ranking for Total Value of Arrangements made or arrived at Total Value of Collusive Jobs Respondent Ranking for Pecuniary Penalty Pre-discount Pecuniary Penalty Sought Centigrade 59 HVAC $69 925 870 HVAC $2 740 000 HVAC 40 Centigrade $56 282 449 DES $2 500 000 MPM 40 DES $48 088 600 MPM $2 130 000 Jako Industries 30 MPM $42 379 515 Centigrade $1 710 000 DES 30 Jako Industries $29 767 565 Jako Industries $1 500 000 CMS 25 CMS $6 311 532 CMS $645 000

[130]

RESPONDENTS 5 AND 23: CENTIGRADE WA PTY LTD (CENTIGRADE) AND MR SMITH 296 These respondents rely upon the affidavits of Mr Smith sworn on 6 December 2005 and 2 February 2006; of Mr Northend sworn on 7 and 12 December 2005; and an affidavit of Ms Fang sworn on 24 November 2005. 297 Centigrade is a company wholly owned by Cedarwood Holdings Pty Ltd (Cedarwood). It does not now employ anyone. However, Cedarwood employs nine people, including the directors. Centigrade engaged in the collusive conduct between 1999 and 2003. 298 Mr Smith commenced as a labourer, working his way to Marketing Manager. From March 1995 he was employed by Cedarwood as a Contracts Manager for Centigrade and from 1996 to 1997 this role included that of Quality Manager. From 1998 he was employed as the General Manager of Centigrade. From December 2000 he was a director of Cedarwood and Centigrade. Relevantly the applicant relies upon Mr Smith having acted within the scope of his actual or apparent authority as a director, servant or agent of Centigrade in respect of his conduct as alleged. 299 At the time of the application Mr Smith was aged 47 years. He is married with two children, sons aged 20 and 22. 300 From August 1996 to May 2003, Centigrade, through the conduct of Mr Smith, made or arrived at: 1. 25 Miscellaneous Arrangements or understandings and gave effect to each of them; 2. five AMCA Members Arrangements or Understandings and gave effect to each of them; 3. 45 Table Arrangements or Understandings and gave effect to each of them; 4. the DSA Group Arrangement or Understanding and gave effect to it; 5. seven DSA Arrangements or Understandings and gave effect to each of them; 6. the HJ/KFC Group Arrangement or Understanding and gave effect to each of them; and 7. four HJ/KFC Arrangements or Understandings and gave effect to each of them; 8. the Harbour Town Arrangement or Understanding; 9. the ABC Perth Arrangement or Understanding. 301 Consent orders between the applicant and this set of respondents were made on 16 December 2005. In relation to Centigrade five orders were made relating to declarations, injunctions and costs; in relation to Mr Smith, 23 orders were made relating to declarations, injunctions and costs. These were amended by a consent order made on 13 July 2007 which had the effect of fixing costs in respect of Centigrade and Mr Smith.

[138]

309 Another director of Centigrade, Mr Northend, filed an affidavit in which he stated that Centigrade is not presently in a financial position to pay a pecuniary penalty in the amount sought against it or in the vicinity of that amount. His evidence is that the deterioration in Centigrade's position since 2004 has been due to its inability to recover debts of $653 046 and $287 569 and a decision by the directors to wind down its business to avoid claims of trading while insolvent. 310 It is this latter decision which the applicant claims is explicative of the sharp fall off in profits in the 2005 financial year. It maintains that when regard is had to the accounts, there is a strong inference open that the decision was not taken as a consequence of the bad debts but rather to avoid the consequences of the imposition of a pecuniary penalty. Reference to the accounts also shows that in the 2005 year Centigrade paid off unsecured loans due to Cedarwood, which is owned by the directors of Centigrade and their families. In addition management fees of $193 000 were paid out to an unidentified party. The applicant therefore contends Centigrade could have continued to trade as in the past and so be in the position to borrow to pay a substantial pecuniary penalty. It invites the Court to disregard the incapacity evidenced in 2005 in fixing the pecuniary penalty. 311 The respondents contend that no adverse inference can be drawn from the steps taken by Centigrade to wind down its business. This is because the directors did what any prudent directors would have done when faced by an impending financial crisis. They accept that determinative findings on such an allegation are beyond this proceeding and submit that, if there is any submission of wrongdoing, the appropriate time for it to be determined is on a winding up following insolvency. I agree with this submission. 312 Centigrade, in submitting that it does not have the capacity to pay a pecuniary penalty in the amount sought or any penalty approaching that amount, accepts that the fact a corporate respondent is insolvent should not affect the Court's assessment and imposition of a penalty, even though the penalty may never be paid: Australian Competition and Consumer Commission v Vales Wine Co Pty Ltd (1996) ATPR 41-528 at 42-776; Australian Competition and Consumer Commission v Fila Sport Oceania Pty Ltd (2004) ATPR 41-983. 313 Mr Smith's gross income is $90 000 pa. His wife and younger son are financially dependent upon him. He owns the family home valued at around $300 000. It is subject to a mortgage of $62 000. He also has a business loan of $77 618. His other assets include a car valued at $10 000 and superannuation valued at $60 000. 314 Mr Smith's income net of tax on an annual basis is $64 000. His monthly surplus is $648 equating to annual savings of $7782. 315 Mr Smith derives his salary from Cedarwood. Why this is so is unexplained. The applicant submits that his circumstances show he has a clear and substantial capacity to pay the proposed pecuniary penalty. Mr Smith submits that if the applicant's penalty were imposed upon him it would take him some 9 years to pay the money to the applicant.

[148]

Determination of pecuniary penalty 326 The applicant submits that the penalty it proposes of $1.2m is within appropriate range because higher penalties, particularly of $2m and more, have only been set against companies in situations of blatant cartelisation of a market. Here the offence is a first offence. It relies upon the penalties imposed in Australian Competition and Consumer Commission v Tyco Australia Pty Limited (2000) ATPR 41-740 and associated Tyco cases (the Queensland Fire Protection Case); Australian Competition and Consumer Commission v Midland Brick Co Pty Ltd (2004) 207 ALR 329 as well as Australian Competition and Consumer Commission v Tubemakers of Australia Limited [2000] FCA 227; Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 75 FCR 238 and Australian Competition and Consumer Commission v George Weston Foods Ltd (2000) ATPR 41-763. 327 The applicant also contends that its proposed penalty for Mr Smith is within appropriate range. It contends that the relevant conduct in Australian Competition and Consumer Commission v Gullyside Pty Ltd (2006) ATPR 42-097 where a penalty of $50 000 was imposed, the conduct was of lesser significance than here, involving only two competitors, extending over a shorter period and put into effect on fewer occasions. Here it is said that regard should be had to the serious nature of Mr Smith's involvement in the contraventions of the Act by Centigrade considered in light of the following: 1. he has cooperated with the applicant from the outset of its investigation, by complying with all of its requests which has simplified the proceedings for the applicant; 2. he is a director and general manager of Centigrade and has an indirect ownership interest in Centigrade through his wife; 3. he was an active participant in the arrangements; 4. his conduct applied to a large number and value of projects and continued over the entire penalty period; 5. he received, or stood to receive, any benefit from the conduct through his interest in Centigrade; and 6. he is providing ongoing cooperation to the applicant. 328 The applicant maintains that the conduct by the Centigrade respondents has been widespread and entrenched so that it is important that significant penalties need to be awarded. 329 The respondents contend that their conduct should be viewed against the broad panorama of 'the commercial landscape' in which the contraventions occurred. These have partly been covered above. 330 Centigrade has not opposed the discounted penalty proposed in respect of it. Having considered the circumstances set out above, I consider the discounted penalty is well within range. 331 A penalty of $15 000 as proposed by Mr Smith is clearly way outside the appropriate range. In making that proposal he was considering proportionality to his earnings. That issue is better addressed by provision for payment in instalments. The proposed penalty for him is within the appropriate range. 332 These pecuniary penalties together with costs should be paid in four equal annual instalments.

[149]

RESPONDENTS 7, 26 AND 27: DIRECT ENGINEERING SERVICES PTY LTD (DES) AND MESSRS ALLEN AND HENNY 333 DES conducts a business involving commercial and industrial air conditioning installation in Western Australia as a distinct business division independent of other business streams within the company. It employs 12 people in its commercial and industrial air conditioning installation business out of a total workforce of 114 personnel in Western Australia. The number of employees of DES each year, between the years of 1999 to 2003 employed in the air conditioning business varied between 10 and 13. 334 Mr Allen was employed by DES as general manager from March 2000. In August 2001, he became a director and approximately in April 2002, company secretary. There is no dispute that he acted within the scope of his actual or apparent capacities in those roles. 335 Mr Henny was employed until 7 July 2000. He held various roles as engineering manager (from 1983); as contracts manager (from approximately 1985 to 1987); as general manager (from 1987 to 1993); and as a director from 1983 to 2000, including for 1995 to 1996 the position of managing director. 336 Mr Henny was involved from April 1991 to December 1999, but the penalty period only commences from December 1998. Mr Allen became involved in September 2001 after he was appointed general manager of DES in March of that year. 337 During the period from April 1991 and continuing up to about May 2003, DES made or arrived at: 1. 15 Miscellaneous Arrangements or Understandings and gave effect to a provision or provisions of them, but not all such provisions on all occasions; 2. AMCA Members Arrangements or Understandings and gave effect to them in making the Table Arrangements or Understandings to which it was a party; 3. 35 Table Arrangements or Understandings and gave effect to a provision or provisions of them but not all such provisions on all occasions; 4. the HJ/KFC Group Arrangement or Understanding and gave effect to it in making the HJ/KFC Arrangements or Understandings; 5. four HJ/KFC Arrangements or Understandings and gave effect to a provision or provisions of them but not all such provisions on all occasions; and 6. the Harbour Town Arrangement or Understanding and the ABC Perth Arrangement or Understanding. 338 These were in contravention of ss 45(2)(a)(i) and (ii) and ss 45(2)(b)(i) and (ii) of the Act. 339 Mr Allen has admitted that from September 2001 he was directly or indirectly knowingly concerned in, or party to, the contraventions by DES of the Act. 340 Mr Henny has admitted that from April 1991 to December 1991 he was directly or indirectly knowingly concerned in, or party to, the contraventions by DES of the Act. 341 By consent orders made on 2 September 2005, injunctive and declaratory relief was granted in appropriate terms against each of the seventh, twenty-sixth and twenty-seventh respondents. A costs order was made against the seventh respondent. The only issue remaining is with respect to pecuniary penalties.

[163]

Parity principle 360 The relative ranking tables show DES was 4 of 12 in all arrangements and 4 of 15 in total value. Mr Allen was 6 of 16 for all arrangements and 10 of 19 for value. Mr Henny was 13 of 16 of all arrangements and 5 of 19 for value. 361 On two of the projects that DES was selected as the preferred tenderer the net profit was in the range 4 per cent to 8 per cent and one incurred a loss of 3 per cent. The total value of jobs for which DES was selected as the preferred tenderer was approximately 3 per cent of the total value of jobs the subject of some arrangement in the relevant period and less than 0.5 per cent of the estimated value of all commercial and industrial air-conditioning jobs in the relevant period. 362 During the penalty period, the three projects for which DES was selected the preferred tenderer represented about 4 per cent of the total jobs in which a preferred tenderer was nominated. 363 However, I do not consider successful tendering is a correct criterion. The question is the extent to which a respondent engaged in the contravening conduct, successful or not. 364 The effect of supplementary submissions from the parties is that the parity principle is to be applied in regard to DES by reference to the fifth respondent (Centigrade) and the 13th respondent (MPM). In its penalty submissions for Centigrade, the applicant submitted that the following pecuniary penalties were appropriate to be imposed upon Centigrade and the twenty-third respondent (Mr Smith): Centigrade - $1.2m; and Mr Smith - $70 000. In its penalty submissions for MPM, the applicant submitted that the following pecuniary penalties were appropriate to be imposed upon MPM, the thirty-fifth respondent (Mr Pierce) and the thirty-sixth respondent (Mr Ferguson): MPM - $1.49m; Mr Pierce - $70 000; and Mr Ferguson - $70 000. The applicant submits these proposed penalties are 'broadly comparable'. 365 The respondents submit there is no basis why the penalty to be imposed on Centigrade and MPM should be lower than that to be imposed on DES. They say the two key criteria are the number and value of the tenders affected by agreements to which the respondents were a party. In relation to the number of tenders affected by agreements, DES was party to agreements affecting 31 tenders, as compared with MPM, which was party to agreements affecting 40 tenders, and Centigrade, who was party to agreements affecting 59 tenders. In relation to the value of affected tenders, the applicant's Parity Submissions state that: '… DES was a party to the arrangements or understandings in relation to projects having a combined value of over $48m, whereas the value of the projects in relation to MPM is just over $42m. This is substantially less than for DES. Accordingly, on this measure DES has a greater degree of culpability.' A combined tender value of $48m is approximately 14 per cent greater than a combined tender value of $42m, which difference the applicant has stated it considers to be 'substantial'. The respondents say that in contrast, the applicant has made no mention of the fact that the combined value of the tenders affected by an agreement to which Centigrade was a party was approximately $58m - i.e. approximately 21 per cent greater than the value of those to which DES was a party. 366 The applicant adheres to its submissions that the difference of $6m is substantial and that the proposed penalties are broadly comparable. If the Court is of a contrary view, the applicant submits that pecuniary penalties of a greater amount than those proposed in respect of MPM and Centigrade should be imposed rather than decreasing the amount of any pecuniary penalty against DES. The respondents submit the pecuniary penalty on DES should not be greater than that proposed in respect of Centigrade and MPM. 367 The applicant is of the view that level of co-operation of each of DES, Centigrade and MPM is approximately the same. This is not contested by the respondents. 368 The applicant submits there is no relevant distinction between any of the three comparators on the factors relating to loss and damage caused, deliberateness of the contravention; other contraventions by senior management or lower level or the company's corporate culture. 369 In relation to the size of the contravening companies, the applicant submits the fairest and most accurate indicator of size is turnover. On this test DES is significantly larger in size than both Centigrade and MPM. The applicant's submission states the pecuniary penalty proposed against DES represents 14.3 per cent of its average annual turnover from January 1999 to June 2003; the penalty proposed against Centigrade represents 22.5 per cent of its average annual turnover from July 1998 to June 2003; and the penalty proposed against MPM represents 19.1 per cent of its average annual turnover from July 1998 to June 2003. Measured by average annual turnover, DES is 229.2 per cent of Centigrade's size. However, DES' proposed penalty is only 145.8 per cent of the penalty proposed for Centigrade. Measured by average annual turnover, DES is 156.7 per cent of MPM's size. However, the proposed penalty for DES is only 117.5 per cent of the penalty proposed for MPM. 370 The DES respondents contend turnover is not a relevant parity factor but rather a proxy for estimating the relative capacities of respective respondents to benefit from the contravening conduct and to persist in it. Australian Competition and Consumer Commission v Ithaca Ice Works Pty Ltd (2001) ATPR 41-816 at [20] quoted with approval by the Full Court in Ithaca Iceworks (2002) ATPR 41-851 at [19]. Further the respondents contend the applicant's submissions pay no attention to the relative proportions of each of the companies' turnover likely to relate to the contravening conduct and so fail to establish any relationship between turnover and capacity to benefit from or persist in the contravening conduct. 371 The applicant contends the penalty proposed against DES gives effect to the principles of general and specific deterrence reflecting in a higher penalty DES' turnover.

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Determination on pecuniary penalties 372 The penalty of $1.75m in respect of DES is said by the applicant to be appropriate in this instance when the matters going to the seriousness of the conduct are considered in light of the following: 1. DES has cooperated fully with the applicant and has proposed ongoing cooperation; 2. DES has sought to settle this matter by way of admissions, prior to the institution of proceedings; 3. DES is a small-medium sized business and any significant penalty will have a substantial impact on the business. In this regard, it is noted a penalty of $1 750 000 would represent 17 times the annual profit of $101 000 on DES's commercial and industrial air conditioning installation services business for the financial year ending 30 June 2004 and almost three times the entire profit of $627 000 earned by the company in this business over the entire relevant penalty period. In other cases, penalties have been set at levels of only one or two times the annual profit; 4. DES's share of the market, being 6 per cent to 10 per cent, was comparable to that of a number of other participants involved in the conduct and much smaller than that of the ring leaders, such as Tyco, in the Queensland Fire Protection case; 5. DES was not a ring leader, 6. DES was selected as a preferred tenderer in very few jobs overall and only three in the relevant penalty period; 7. the conduct was limited to Western Australian tenders only, principally in Perth; 8. the conduct of Messrs Allen and Henny was not motivated necessarily by a desire to increase prices; 9. only a small proportion of total jobs (about 2 per cent) were involved in the arrangements or understandings; 10. there is no evidence of any significant benefit to DES in the projects that it won; 11. DES has undertaken a substantial review and reform of its compliance practices; and 12. DES has not breached the Act before. 373 I was referred to a large number of cases in support of the general proposition as to the appropriateness of the range. The joint submissions state that penalties higher than $1.75m, for example penalties of $2m and above, have only been set against companies in situations of blatant cartelisation of a market (for example, see Australian Competition and Consumer Commission v ABB Power Transmission Pty Ltd (2004) ATPR 42-011, Australian Competition and Consumer Commission v Roche Vitamins Australia Pty Ltd (2001) ATPR 41-809, CSR Ltd (1991) ATPR 41-076, Trade Practices Commission v Pioneer Concrete (Vic) Pty Ltd (1985) ATPR 40-590 and Trade Practices commission v TNT Australia Pty Ltd (1995) ATPR 41-375 and associated cases (known as the Transformers, Vitamins, Concrete and Express Freight cartels respectively), repeat contraventions, and where the company was otherwise a very large company which acted as a clear ring leader (eg Tyco (2000) ATPR 41-740 and associated Tyco cases (Australian Competition and Consumer Commission v Tyco Australia Pty Ltd (2001) ATPR 41-810, Australian Competition and Consumer Commission v Tyco Australia Pty Ltd (2001) ATPR 41-798, Australian Competition and Consumer Commission v Tyco Australia Pty Ltd (2001) ATPR 41-797, Australian Competition and Consumer Commission v Tyco Australia Pty Ltd (2000) ATPR 41-772, Australian Competition and Consumer Commission v Tyco Australia Pty Ltd (2001) ATPR 41-796, Australian Competition and Consumer Commission v Tyco Australia Pty Ltd (2000) ATPR 41-788, Australian Competition and Consumer Commission v Tyco Australia Pty Ltd (2000) ATPR 41-789 and Australian Competition and Consumer Commission v Tyco Australia Pty Ltd (2000) ATPR 41-760) (the Queensland Fire Protection Case). 374 The joint submissions urge upon the Court the appropriateness of a penalty of $25 000 against each of Messrs Henny and Allen as being within the appropriate penalty range. It is said the range is appropriate in light of the penalties imposed on company representatives involved in cartel cases such as the Tyco cases, Midland Brick Co 207 ALR 329 and ABB Power Transmission (2004) ATPR 42-011. 375 It is also submitted that in this case regard should be had to the serious nature of Messrs Allen and Henny's involvement in the contraventions of the Act by DES considered in light of the following: · Messrs Henny and Allen have both fully cooperated with the applicant from the outset of its investigation, by complying with all of its requests which has simplified the proceedings for the applicant. · Mr Allen's limited involvement in senior commercial roles meant that he did not appreciate the seriousness of the conduct; · While Mr Henny occupied a senior position in DES, DES is a relatively small Perth based company; · Neither Messrs Henny nor Allen was a ringleader or organiser in the arrangement; · The conduct of Messrs Allen and Henny was not motivated necessarily by a desire to increase prices; · In relation to Mr Henny, penalties apply to only a few contraventions (much fewer than most other individual respondents) as a number of the contraventions fall outside the penalty period; · Neither Messrs Henny or Allen have means to meet a very large penalty. In Mr Henny's case his primary source of income has ceased since his separation from DES. Mr Allen in particular has very substantial ongoing financial commitments and was without a job for a period of approximately four months. Mr Allen has been employed since April 2005, but at a lower salary than that previously earned at DES; and · Both Messrs Henny and Allen are providing ongoing cooperation to the applicant. 376 I do accept that the pecuniary penalty proposed for DES is correctly described as 'broadly comparable' to that proposed in relation to Centigrade and MPM. I also do not accept that the consequence of that conclusion is that DES should be subject to a higher pecuniary penalty than that proposed. When regard is had in particular to the number of tenders affected by the agreements and the value of affected tenders (and not only successful tenders) I consider the proposed penalty for DES is too high. That is not justified only by the size of DES. In my view the pecuniary penalty for DES should be the sum of $1.5m. 377 In the particular circumstances the agreed penalties in respect of Messrs Allen and Henny are within the appropriate range. 378 These pecuniary penalties should be paid in the instalments proposed, namely in four equal instalments commencing within 30 days of the order and the additional instalments due within six, twelve and eighteen months.

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RESPONDENTS 13, 35 AND 36: MECHANICAL PROJECT MANAGEMENT PTY LTD (MPM) AND MESSRS PIERCE AND FERGUSON 379 MPM is a private company established in or about April 1985 by Messrs Pierce and Ferguson, who have been its directors since the company's inception. 380 Mr Pierce was the initial Appointor, Guardian, Trustee and Class A beneficiary of the Pierce Family Trust. HW Pierce Pty Ltd is the present trustee of the Pierce Family Trust, and Mr Pierce is the sole director and shareholder of HW Pierce Pty Ltd. Mr Pierce effectively controls the distributions from the Pierce Family Trust. 381 Mr Ferguson was the initial Appointor, Guardian, Trustee and Class A beneficiary of the Ferguson Family Trust. IC Ferguson Pty Ltd is the present trustee of the Ferguson Family Trust, and Mr Ferguson and his spouse are the directors and shareholders of IC Ferguson Pty Ltd. Mr Ferguson effectively controls the distributions from the Ferguson Family Trust. MPM's principal shareholders are the IC Ferguson Family Trust and the HW Pierce Family Trust. 382 MPM as trustee of the MPM Unit Trust, currently and at all relevant times carried on the business of the design, installation, commissioning and maintenance of heating, ventilating and air conditioning systems principally in the wider Perth metropolitan area and occasionally in some regional areas in Western Australia. It focuses on medium to large sized commercial and industrial projects, and generally does not work on residential projects. MPM currently employs six people in a variety of roles including general office staff, construction and engineering managers, draughtsmen, project supervisors, duct installers and accounts clerks. In June 2004 MPM had 15 employees and had a total wages bill of $676 820. MPM employed an average of 12-15 people per month in the three financial years from 2001/2002 to 2003/2004. 383 At all material times the unit holders of the MPM Unit Trust have been IC Ferguson Pty Ltd as trustee for the Ferguson Family Trust and HW Pierce Pty Ltd as trustee for the Pierce Family Trust (50 Units each) and MPM as trustee for the MPM Employees Discretionary Trust (5 Special Par Units). 384 Since incorporation, the sole activity of MPM has been to act as the trustee for the MPM Unit Trust and the MPM Employee's Discretionary Trust. As MPM has never traded, held any assets or incurred any liabilities in its own right the net assets have always been $2.00, being the paid-up capital. MPM, as trustee distributes the total net profit each year to the unit-holders or beneficiaries. 385 Mechanical Project Services Pty Ltd ACN 009 116 081 (Mechanical Project Services) and Advanced Air Systems ACN 065 597 793 have been related companies to MPM since 1985 and 1994 respectively. Mechanical Project Services and Advanced Air Systems are owned by individuals in addition to Mr Pierce and Mr Ferguson and operate in different markets. Neither company was involved in the conduct the subject of this action. 386 The directors of Mechanical Project Services are currently Messrs Pierce and Ferguson and Purdon. Mechanical Project Services acts as trustee for the MPS Unit Trust. The unit holders in the MPS Unit Trust are IC Ferguson Pty Ltd as trustee for the Ferguson Family Trust (14 Ordinary Units), HW Pierce Pty Ltd as trustee for the Pierce Family Trust (14 Ordinary Units), Purdon Pty Ltd as trustee for the TE Purdon Trust (14 Ordinary Units) and Mechanical Project Management as trustee for the MPM Employees Discretionary Trust (5 Special Par Units). 387 Mechanical Project Services is a company which manages large maintenance contacts and service works for all types of business. Approximately 5 per cent of Mechanical Project Services' service and maintenance business is sourced from MPM, representing approximately 3 per cent of Mechanical Project Services' total business. Tom Purdon is the General Manager of Mechanical Project Services and is in charge of its day to day operations. 388 Advanced Air Systems acts as trustee for the AAS Unit Trust. The directors of Advanced Air Systems are currently Messrs Pierce, Ferguson and Rees. The unit holders of the AAS Unit Trust have been IC Ferguson Pty Ltd as trustee for the Ferguson Family Trust (7 Ordinary Units), HW Pierce Pty Ltd as trustee for the Pierce Family Trust (7 Ordinary Units), GW Rees Pty Ltd as trustee for the G.W. Rees Trust (7 Ordinary Units), and Mechanical Project Management as trustee for the MPM Employees Discretionary Trust (5 Special Par Units). Advanced Air Systems is a company which supplies, installs and commissions small commercial and multi-unit domestic air conditioners. 389 Each of MPM, Mechanical Project Services and Advanced Air Systems make distributions to the 'Pierce and Ferguson Family Trusts'. 390 The following table contains a summary of the annual revenue and profit of the MPM Unit Trust during the years indicated. The amounts include distributions received from Mechanical Project Services and Advanced Air Systems as reflected in the financial statements. YEAR Total Revenue Net profit (loss) before tax ($) 1997/1998 $6 773 238 $986 202 1998/1999 $7 511 760 $1 458 218 1999/2000 $7 400 636 $1 079 395 2000/2001 $10 010 826 $500 453 2001/2002 $7 577 368 $733 471 2002/2003 $7 710 495 ($34 193.59) 2003/2004 $10 084 464 $164 177 2004/2005 $8 386 400 $306 632.38

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393 Mr Pierce is an employee, director and shareholder of MPM, Mechanical Project Services and Advanced Air Systems. Mr Ferguson is an employee, director and shareholder of MPM, and a director and shareholder in Mechanical Project Services and Advanced Air Systems. 394 Messrs Pierce and Ferguson were at all material times a director of MPM acting within the scope of his actual or apparent authority as a director, servant or agent of MPM in respect of his alleged conduct. MPM, through the conduct of its directors made and gave effect to the arrangements or understandings admitted, and admits that such conduct contravened s 45(2) of the Act. Messrs Pierce and Ferguson admit that they were directly or indirectly knowingly concerned in, or party to, the contraventions by MPM. 395 In the penalty period the MPM Unit Trust of which MPM was the trustee tendered for an average of about 350 projects per year, ranging from small jobs to multi-million dollar jobs. During the period from June 1995 and continuing up to about May 2003, MPM made or arrived at: 1. 27 Miscellaneous Arrangements or Understandings and gave effect to a provision or provisions of each of them. However, 12 of the Miscellaneous Arrangements or Understandings were made or arrived at and given effect to more than six years prior to the MPM respondents being added as parties to the respondents (s 77(2) of the Act), and consequently no penalty may be imposed in respect of that conduct as it preceded December 1998; 2. five AMCA Members Arrangements or Understandings and Subsequent AMCA Members Arrangements or Understandings and gave effect to them by making 33 Table Arrangements or Understandings. However, three of the AMCA Members Arrangements or Understandings were made or arrived at and given effect to more than six years prior to the MPM respondents being added as parties to the respondents, and consequently no penalty may be imposed in respect of that conduct as it preceded December 1998; 3. 33 Table Arrangements or Understandings and gave effect to a provision or provisions of each of them. However, 12 of the Table Arrangements or Understandings were made or arrived at and given effect to more than six years prior to the MPM respondents being added as parties to the respondents, and consequently no penalty may be imposed in respect of that conduct as it preceded December 1998; 4. each of the Esplanade Hotel Convention Centre Arrangement or Understanding, the Harbour Town Arrangement or Understanding and the ABC Perth Arrangement or Understanding; and 5. the Floreat Forum Shopping Centre Arrangement or Understanding and gave effect to provisions of it. 396 The following table sets out the value of the designated tenderer arrangements or understandings that MPM made and/or gave effect to during the penalty period: Arrangement or Understanding Type Made Gave effect Total value Won as the Designated Tenderer Total value of projects won % of Projects tendered over 4.5 yrs - approx 120 per year Misc. and Table 36 36 $31 223 515 9 $5 741 505 6.7% (36/540)

[169]

Declarations 397 The MPM respondents accept that their conduct, constituting as it does contraventions (or involvement in contraventions) of s 45(2) read with ss 45A and 4D of the Act, was very serious. Such contraventions must be seen as amongst the most serious of the non-criminal contraventions of the Act. It is jointly submitted that the contraventions were deliberate and covert and involved senior management of MPM, it being one of the larger competitors in the relevant market. A minute of consent orders has been provided for consideration relating to injunctions and costs as against each of the MPM respondents, and as against MPM, the implementation of a compliance order. While it is agreed that orders relating to declarations and a pecuniary penalty should be made, the form of orders is not agreed. 398 The parties have each filed a minute of proposed orders in respect of the declarations that should be made. The applicant seeks to have included declarations that relate to conduct falling outside the penalty period and the respondents seek to restrict the declarations to contraventions that fall within the penalty period arising by virtue of s 77(2) of the Act. The applicant submits that, unlike with the ordering of pecuniary penalty, the Court is not limited by the terms of s 21 of the Federal Court Act to make declarations in respect to contraventions falling solely within the penalty period. 399 The applicant submits that the declarations sought are directed to the determination of a legal controversy and not to answering abstract or hypothetical questions by reason that: 1(a) in its amended statement of claim, the applicant identified the alleged conduct giving rise to liability under the Act, and asserted that by such conduct the MPM respondents had contravened the Act, or been directly or indirectly knowingly concerned in, or party to, such contraventions of the Act; and 1(b) the MPM respondents admit such contraventions and their subsequent liability under the Act; 2. the applicant, as a public body charged with enforcing the Act, has a real interest in seeking the relief (Australian Competition and Consumer Commission v Goldy Motors Pty Ltd (2001) ATPR 41-801 at [30])), and the MPM respondents are proper contradictors in that they have a true interest in opposing the declarations sought; and 3. as to the issue of whether declarations can produce any foreseeable consequences for the parties, this case is distinguishable from the circumstances of the Gardner 138 CLR 646 (Note) case where, as a consequence of the legislation in question having been repealed and replaced, there was patently no point in making the declaration sought (Goldy Motors Pty Ltd (2001) ATPR 41-801 at [31]). 400 The applicant submits that it is appropriate for the Court to exercise its discretion to make declarations because there are sufficient consequences flowing from the making of such declarations as this case involves the public interest such that declarations will serve to vindicate the applicant's claim that the MPM respondents contravened or were directly or indirectly knowingly concerned in, or party to, contraventions of the Act, and may be of some assistance to it in future in carrying out the duties which are conferred upon it by the Act; and declarations will serve to mark the Court's disapproval of particular conduct engaged in contravention of the Act (Tobacco Institute (No 2) 41 FCR 89 at 268). See also Lee J in Midland Brick Co 207 ALR 329 at [21]. 401 The applicant submits that the declarations it seeks reflect all the contraventions of the Act by MPM, and all the ancillary liability that has been alleged against and admitted by Messrs Pierce and Ferguson. In addition, it is submitted that the declarations sought by either the applicant or the MPM respondents do not overlap nor do they inflate the true extent of the contraventions and conduct. 402 The MPM respondents submit that the issue is whether it is appropriate for the Court to make declaratory relief in respect of an application for which there is no substantive relief sought, or able to be sought, due to the application of time limits. It is said that it is not proper for declarations to be made in such circumstances. The MPM respondents submit that the admissions for conduct older than six years prior to the commencement of the proceeding were made in circumstances where they were invited to do so by the applicant. 403 I do not consider the making of a declaration extending to conduct outside the conduct in respect of which the Court will make orders in this instance will result in the declaration producing any foreseeable consequences for the parties. Those consequences will be produced by a declaration in relation to conduct within time. While the present circumstances are distinguishable from those in Gardner138 CLR 646 (Note) reported in 52 ALJR 180, that is not a reason to decide this issue to the contrary. Gardner138 CLR 646 (Note) does not purport to limit the principle to the circumstances considered in it. The introduction of out of time circumstances into the pleadings is not a sufficient reason to support the exercise of the discretion in favour of making a declaration extending to those circumstances. The inclusion of the reference to out of time circumstances would in the present instance not direct the declaration to a determination of a controversy and would not involve a real question. These are not circumstances to support the exercise of the discretion in the way the applicant has contended. 404 That does not have the consequence that the admissions of conduct over a longer period than that referred to in the declarations is without point. The respondents accept that the conduct admitted may be taken into account in determining the duration of offending conduct for the purpose of fixing a pecuniary penalty.

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Amount of loss or damage caused 415 The applicant submits that as it is not known what the tender prices would have been in the absence of the arrangements or understandings, it is difficult to quantify the loss or damage caused by the Designated Tenderer Arrangements or Understandings. It is said it is nevertheless important that the conduct wholly undermines the competitive tender process. There is an indirect loss in the form of the costs borne by owners and builders in putting projects to tender, as opposed to simply negotiating directly with contractors. The amount of time and money spent on preparing tender documents for projects, assessing tenders and conducting negotiations is likely to be very significant and this conduct significantly undermined the benefits of engaging in such a process. In relation to the Arrangements or Understandings where MPM was not the designated tenderer, such arrangements or understandings could not have been given effect to without the tenderers (including MPM) being willing to accept (and in fact accepting) cover prices. It is submitted that the loss or damage to the relevant owner or builder therefore arises irrespective of whether MPM directly benefited from the conduct by being selected as the designated tenderer to a particular project. 416 In relation to the Esplanade Hotel Convention Centre, Harbour Town and ABC Perth Arrangements and Understandings, there is no evidence of any loss or damage as it appears the winning tenderer did not include the agreed amount in formulating its tender price. However, although the extent of any loss or damage is a factor to be taken into account in assessing penalty (s 76(1)), the absence of loss or damage is not a mitigating factor in the imposition of a penalty: ICI Australia 105 ALR 115 at 119. 417 While accepting that there was loss or damage by reason of their conduct, the MPM respondents submit that the pecuniary penalty should be assessed having regard to the extent of the conduct and the evidence of loss or damage caused (profit gained) which is confined by the number of contracts and the fact that the conduct was directed to limiting the extent of squeezing on margins rather than gouging profits by increasing margins.

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Deterrence 433 The parties agree that due to the conduct being widespread and entrenched, it is important that significant penalties are awarded to deter such conduct in the future: see Australian Competition and Consumer Commission v SIP Australia Pty Ltd (1999) ATPR 41-072 and Gullyside (2006) ATPR 42-097 at [34]-[46]. 434 It is submitted by the applicant that the maximum penalty provided by the Act reflects the need to establish fines that are sufficient to deter large public companies with annual turnovers in the hundreds of millions of dollars that are managed by individuals with no personal stake in the penalty payable by the corporation. In contrast, MPM is a private company and the profits are distributed to Messrs Pierce and Ferguson and their family members. Total earnings by way of salary, superannuation and distributions in any year from MPM's business have been in the order of $1m but have been much lower in some years, with no distributions in 2003. 435 The respondents submit it is significant that the turnover of MPM to which the contravening conduct relates was only a fraction of the total turnover, being $5 741 505 for the period from 1998 to 2003. Over the period, the contravening conduct related to 11.7 per cent of the annual turnover of MPM. It is said that the conduct of the MPM respondents was directed at maintaining rather than increasing profit margin. In such circumstances it is submitted that the financial returns to MPM from the conduct were relatively modest and any penalty will fall on the owners of the business rather than distributed over shareholders. 436 The respondents submit that a modest penalty is sufficient to deter MPM. That is not the only issue the Court must address. It must also consider general deterrence. 437 Nevertheless the respondents re-assert the facts set out above relating to the extent of their conduct in relation to their business and that the financial returns to MPM from the conduct were relatively modest. They argue that it is the larger businesses which should receive greater penalties because only then would it be a deterrent to those businesses. DES, Tyco and HVAC are again identified as among those businesses, having substantial net asset positions and public company structures. It is contended that MPM should be understood as having less employees, less assets, less overall turnover and as having secured smaller contracts from the arrangements. Support for these considerations was sought by the respondents in SIP Australia (1999) ATPR 41-702 at [9], [10], [26] and [27]. There at [27] Goldberg J accepted that it was appropriate for the Court to give weight to the fact that it is relatively small company and that the penalty proposed by the parties, albeit at the lower range of penalties available under the Act, would have a substantial effect on the company and its directors. Reliance was also placed by the respondents on the contrasting circumstances in Leahy Petroleum (No 2) 215 ALR 281considered by Kiefel J in Gullyside (2006) ATPR 42-097 at [38]. The respondents contend that this shows the range of penalties being sought by the applicant here are far higher than those that are necessary to deter the conduct and exceed what is necessary given the extent to which MPM benefited and the limited extent to which the conduct affected the price in the market place.

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Determination of pecuniary penalty 441 The applicant submits that the penalties proposed by it for MPM is within the appropriate range, particularly given the seriousness of the conduct. 442 With respect to Messrs Pierce and Ferguson it is submitted that regard should also be had to the serious nature of their involvement in the contraventions of the Act by MPM considered in light of the following: 1. They are directors and senior managers of MPM, and both have an ownership interest in MPM; 2. They were active participants in the arrangements; their conduct applied to a large number and value of projects and continued over the entire penalty period; and 3. They received, or stood to receive, any benefit from the conduct through their interest in MPM. 443 The starting point is consideration of the submission by the respondents that the appropriate range of pecuniary penalty is $350 000 to $500 000. This seeks to equate MPM's position to that of CMS and Jako. Jako had 30 collusive jobs and CMS had 20 whereas MPM had 40. The total value of MPM's arrangements was $42m as against Jako almost $30m and CMS $6m. On the face of these facts it is not the case that MPM is comparable to either of the alleged comparators in terms of the conduct attracting the pecuniary penalty. 444 The next point of reference is the starting point for the pecuniary penalty as proposed by the applicant. That is the figure of $2.13m. The one next above that figure is DES at $2.5m. Precisely why the starting point for MPM is an odd part of 100,000 is not apparent, although the same approach of the applicant appears in relation to HVAC where the starting point is $2.74m. The critical issue is whether MPM shares with HVAC and DES qualities of conduct which make appropriate the application of a starting point of over $2m. 445 HVAC engaged in 40 collusive jobs with a total value of $69m. DES engaged in 30 collusive jobs of a total value of $48m. MPM had more collusive jobs (40) but lesser value than either of these comparators (by a margin of $6m below DES). MPM was equal third in the number of offending jobs and fifth in total value. It was in the top third of offenders. 446 In the case of both DES and MPM, the effect of the discount is that the proposed penalty falls below the $2m mark. In the case of DES it falls to $1.75m and in the case of MPM would fall to $1.49m. So the true comparison of MPM with both DES and its nearest comparator below (Centigrade) lies with the discounted figure. Centigrade had 59 jobs with a total value of $56m. The pre-discount penalty in respect of it was $1.7m and the discounted penalty $1.2m. MPM had more jobs (40) but less total value ($42m). Centigrade's penalty also took into account circumstances of co-operation. 447 While I have reservations concerning the starting point for MPM, the discount penalty for it at $1.49m cannot be said to be out of range when compared to Centigrade. The difference monetarily between that figure and $1.2m is not of such a margin as to justify interference on the basis of being out of range, taking into account the circumstances relevant to each. 448 As to whether payment by MPM should be by instalments, I will allow an opportunity for it to make submissions on the issue, as has been requested. 449 The position in relation to Messrs Pierce and Ferguson is as follows. They were each involved in the arrangements of MPM and to the total value previously referred to. The applicant proposes a pre-discount starting point of $100 000 in relation to each of them. That is the same starting point advanced by the applicant in relation to Mr Smith in respect of his conduct with Centigrade. In respect of Messrs Pierce, Ferguson and Smith the post-discount penalty is the sum of $70 000. Mr Smith was involved in many more arrangements (59 compared to 40) for a much higher value ($56m compared to $42m). I consider that Messrs Pierce and Ferguson are not sufficiently demarked from the range in which Mr Smith was involved. I therefore consider that the post-discount penalty in the case of Messrs Pierce and Ferguson should be in the sum of $60 000. 450 In the case of Mr Smith, I have made provision for payment by instalments, particularly taking into account his personal family circumstances. There are personal circumstances to be weighed in the case of both Mr Pierce and Mr Ferguson. I consider that it is appropriate in the light of those circumstances that the pecuniary penalty should be paid in three equal annual instalments.

[194]

RESPONDENT 10: ACN 009 298 686 PTY LTD (FORMERLY HVAC CONSTRUCTION LIMITED) ('HVAC') 451 The tenth respondent ('HVAC') was a wholly owned subsidiary of HVAC Ltd ACN 074 619 266 ('HVAC Ltd'). HVAC Ltd was incorporated on 27 June 1996 and HVAC was registered as an unlisted public company limited by shares on 1 March 1998. 452 The directors of HVAC Ltd included Mr Glenn Tucker. 453 On 27 June 2003, Mr Tucker incorporated the company Tec Plus Ltd (ACN 105 311 662). 454 On 30 June 2003, Mr Tucker ceased to be a director of HVAC. 455 On 4 July 2003, HVAC sub-contracted its air conditioning and minor process construction contracts to Tec Plus Ltd. 456 HVAC maintain that once those contracts were sub-contracted to Tec Plus Ltd, HVAC ceased 'active' trading in air conditioning and minor process construction projects. All records and files (including historical) were transferred to Tec Plus Ltd and the associated employee positions were terminated. 457 On 7 July 2005, HVAC converted to a proprietary company limited by shares and its name was changed to 'HVAC Construction Pty Ltd'. 458 On 22 September 2005, HVAC changed its name to 'ACN 009 298 686 Pty Ltd'. 459 HVAC was placed into voluntary liquidation on 22 December 2005. 460 Messrs Francis and Ryan of Taylor Woodings, Accountants practicing in the area of insolvency and corporate recovery have been appointed as joint and several liquidators of the tenth respondent. 461 On 7 March 2006, the Court granted the applicant leave to proceed with the proceeding against the tenth respondent. 462 On 6 June 2006, the Court granted the applicant leave to change the name of the tenth respondent to ACN 009 298 686 Pty Ltd (formerly HVAC Construction Ltd). 463 By letter dated 22 September 2006 to the Court, Mr Francis advised that he was unable to enter a plea on behalf of the tenth respondent. The applicant was subsequently advised by Taylor Woodings that the liquidator would neither consent to nor oppose the orders sought by the applicant. It remains the situation that the liquidator does not consent nor oppose the orders sought by the applicant. 464 By letter dated 21 May 2007, the liquidator of the tenth respondent advised the solicitors for the applicant that he consented to the proceeding being conducted 'on the papers'. 465 By letter dated 23 May 2007, the liquidator of the tenth respondent advised the solicitors for the applicant that that respondent consented to the issues raised in point 7, 8 and 9 of a letter to the tenth respondent from the solicitors of the applicant dated 19 April 2007. Those points read as follows: '7 In addition, we consider that there are issues which should not on any view be contentious and which we suggest can appropriately be the subject of agreement. These matters, such as: · whether HVAC was a tenderer for a particular project, · who its representative was, · when the tender occurred, HVAC's tender price, · the identity of the other tenderers; and · whether HVAC was successful tenderer are 'ancillary' in nature and do not go to the heart of whether there was a contravention. 8 We have prepared a table, which is attached, which provides our evidence of some of these ancillary matters. This table was produced from the documents appearing in the List of Documents which were filed and served upon HVAC. This table also provides details as to whether the Court has made a declaration that a respondent made and/or gave effect to the arrangement for HVAC. 9 If agreement can be reached in relation to the above by way of such issues being the subject of admissions the Court's role can be limited to assessing whether arrangements or understandings existed, whether HVAC was a party, and if so, whether such arrangement or understanding gave rise to contraventions of s45 of the Trade Practices Act. Such agreement will also minimise (or potentially eliminate) the need for the making of orders in relation to discovery, which if such orders are made will give rise to both parties incurring legal costs in circumstances where such costs may be otherwise minimised or avoided.' 466 The applicant has brought to the Court the following: · Submissions filed 5 July 2007; · Outline of legal principles applicable to various forms of relief filed on 5 July 2007; · Minute of proposed orders with respect to the tenth respondent filed on 5 July 2007; · Affidavit of Mr Beigel sworn and filed on 5 July 2007; and · Affidavit of Mr Beigel sworn on 2 July 2007 (four volumes). 467 The tenth respondent, through its liquidator, has filed the affidavit of Mr Francis sworn on 28 June 2007 and filed on 29 June 2007.

[202]

The circumstances of the alleged contravention 475 The Designated Tenderer Arrangements or Understandings occurred frequently and once the AMCA Members Arrangements or Understandings were made or arrived at, they became more organised. The making of designated tenderer arrangements or understandings followed an established pattern of conduct that had been ongoing in the industry for a considerable period of time. The advent of the AMCA Members Arrangements or Understandings underlined how entrenched this conduct had become in the air conditioning industry. 476 The development of the AMCA Members Arrangements or Understandings resulted in an increase in the regularity of the conduct and the development of methods to best identify the projects for which designated tenderer arrangements or understandings could be made. Through its representatives, HVAC attended the Unofficial AMCA meetings pursuant to the AMCA Members Arrangements or Understandings from the inception of the AMCA Group in 1997 until meetings ceased in May 2003, following the intervention of the applicant. HVAC was a long standing and influential participant in these collusive arrangements. 477 Projects falling outside the scope of the AMCA Members Arrangements or Understandings were, from time to time, the subject of Miscellaneous Arrangements or Understandings. 478 Most if not all of the 'major players' (that is, larger contractors) in the market, were at one time or another, involved in the conduct. As a consequence, it was easier to make arrangements or understandings, as there were comparatively few situations where non-participating companies would be found on tender lists. HVAC was a 'major player' being one of the 'big six' participants. 479 The market was at all material times very price-sensitive. At this time, owners and builders were particularly aggressive in seeking reductions in tender prices. Consequently, this conduct was designed to directly circumvent those efforts and reduce the competitive pressures on price. 480 The conduct was widespread and entrenched in the industry, with all of the major contractors having been involved for some or all of the period.

[210]

The appropriate range 490 In this case, the applicant submits a penalty of $2 740 000 to the Court for its approval as being within an appropriate range for HVAC in all the circumstances. 491 Penalties over $2 million have been set against companies in situations of blatant cartelisation of a market (for example, see ABB Power Transmission (2004) ATPR 42-011; Roche Vitamins Australia (2001) ATPR 41-809; CSR Ltd (1991) ATPR 41-076; Pioneer Concrete (1985) ATPR 40-590 and TNT Australia (1995) ATPR 41-375 and associated cases (known as the Transformers, Vitamins, Concrete and Express Freight cartels respectively), repeat contraventions, and where the company was otherwise a very large company which acted as a clear ring leader (eg Tyco (2000) ATPR 41-740 and associated Tyco cases (the Queensland Fire Protection Case). 492 The applicant states there are a number of other penalty decisions which provide a guide as to the applicable range in this instance. For example: 1. as noted above, Tyco (2000) ATPR 41-740 and associated Tyco cases (the Queensland Fire Protection Case) with a penalty of $1.4 million; 2. in another recent decision, Midland Brick Co (2004) 207 ALR 329, a penalty of $1 million was awarded against a company. The Court set the $1 million penalty having regard to several factors including the need for the penalty to act as a deterrent but not be so high as to be oppressive, the co-operation of the parties with the applicant, the absence of evidence of any loss and the revenue of the company. In this case, unlike HVAC, the two colluding parties had a monopoly on the product so there was no alternative supplier. The estimated annual revenue for the company was approximately $53 million -$58.5 million. The penalty was imposed for two contraventions of s 45(2)(a)(ii) of the Act (much fewer than is the case here) and there was no allegation against the relevant company of a provision of the relevant arrangement or understanding being given effect to; and 3. other cases with penalties within this range include Tubemakers of Australia [2000] FCA 227; Safeway Stores 75 FCR 238 and George Weston (2000) ATPR 41-763. 493 Accordingly, it is submitted to the Court that the proposed penalty of $2 740 000 for HVAC is within the appropriate range. 494 HVAC has the highest total value ($69m) by a wide margin (the next being Envar at $57m). It engaged in 40 collusive jobs. It cannot be said that the proposed starting point of $2.74m, when considered in relation to DES, is beyond range. No discount is proposed and there are no circumstances apparent to make that inappropriate. HVAC is a large corporation which had 9% of the total market. The impact on that market of the arrangements to the top value in issue can only have been considerable, taking into account also the length of the engagement in the market in that respect. A penalty of $2 740 000 is appropriate in this instance when the matters going to the seriousness of the conduct referred are considered. 495 As the evidence is that HVAC has gone into liquidation, no purpose would be served by consideration of payment by instalments.

Australian Competition and Consumer Commission v Admiral Mechanical Services Pty Ltd

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