Australian Competition and Consumer Commission v April International Marketing Services Australia Pty Ltd

Australian Competition and Consumer Commission v April International Marketing Services Australia Pty Ltd - [2011] FCA 153 - FCA 2011 case summary — Zoe

[18]

THE COURT DECLARES THAT:

Each of the 11th and 12th respondents, Asia Pulp & Paper Company Ltd and PT Indah Kiat Pulp and Paper Tbk, in the period between December 2000 and January 2004, by: 1.1. arriving at arrangements with competitors for the supply to customers in Australia of uncoated woodfree folio and cut-size paper (UWF paper) which arrangements contained provisions which had the purpose and effect or likely effect of fixing, controlling or maintaining the average price per metric tonne at which they would supply UWF paper to customers in Australia; and 1.2. giving effect to those provisions in its pricing for the supply of UWF paper to customers in Australia; thereby contravened s 45(2)(a)(ii) and s 45(2)(b)(ii) of the Competition and Consumer Act 2010 (Cth) (formerly Trade Practices Act 1974 (Cth)) (the Act) and the Competition Codes as defined in s 150A and 150I of the Act (the Codes). THE COURT ORDERS THAT:
Each of the 11th and 12th respondents be restrained, whether by themselves or by their servants or agents, for a period of five years from the date of order from: 2.1. making any contract or arrangement or arriving at any understanding with one or more competitors for the supply of UWF paper to customers in Australia, which contains a provision with the purpose, effect or likely effect of fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining of, the price at which any party to the contract, arrangement or understanding, or any related body corporate or agent, will supply UWF paper to customers in Australia (other than a contract made directly with a competitor who is a customer or agent of the respondent, for supply to that customer or by that agent); or 2.2. giving effect to any provision of a contract, arrangement or understanding of the nature set out in subparagraph 2.1 above.
The 11th respondent pay to the Commonwealth of Australia, in respect of its conduct in contravention of the Act and the Codes, a pecuniary penalty in the amount of $3,400,000, such penalty to be paid within 28 days of order.
The 12th respondent pay to the Commonwealth of Australia, in respect of its conduct in contravention of the Act and the Codes, a pecuniary penalty in the amount of $800,000, such penalty to be paid within 28 days of order.
The 11th and 12th respondents pay a contribution to the applicant's costs of and incidental to these proceedings, in the agreed amount of $300,000, within 28 days of the date of order.
The proceedings be otherwise dismissed against the 11th and 12th respondents.
The notice of motion filed by the 11th and 12th respondents on 11 August 2009 be dismissed.
The 11th and 12th respondents discontinue the appeal proceedings with file number NSD 1162/2010 by filing a notice of discontinuance within 14 days of order.
The proceedings be dismissed as against the 13th and 15th respondents, with no orders as to costs in relation to the proceedings as against those respondents, and any existing costs orders be vacated. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website.

[23]

REASONS FOR JUDGMENT 1 These proceedings allege contraventions of ss 45(2)(a)(ii) and 45(2)(b)(ii) of the Trade Practices Act 1974 (Cth) (the TPA) and the Competition Codes as defined in s 150A and 150I of the TPA (the Codes), and involvement in those contraventions, by (inter alia) the 11th respondent, Asia Pulp & Paper Company Ltd (APP Singapore) and the 12th respondent, PT Indah Kiat Pulp and Paper Tbk (Indah Kiat). I previously made orders in respect of other respondents in the proceedings, collectively the April parties (Australian Competition and Consumer Commission (ACCC) v April International Marketing Services Australia Pty Ltd (No 5) [2010] FCA 17. 2 The Australian Competition and Consumer Commission (ACCC), APP Singapore and Indah Kiat (collectively the Parties) have reached agreement, for the purposes of these proceedings only, as to the relevant facts to be admitted for the purposes of s 191(3)(a) of the Evidence Act 1995 (Cth) (the Evidence Act). Agreement has also been reached as to: 1. the level of pecuniary penalties, pursuant to s 76 of the TPA and the Codes, to be recommended to the Court as appropriate for the contraventions; 2. the granting of injunctions pursuant to s 80 of the TPA and the Codes; 3. the terms of declarations to be made pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth); and 4. other orders. 3 Submissions, facts and admissions pursuant to s 191(3)(a) of the Evidence Act have been made jointly on behalf of the Parties. 4 The proposed form of resolution provides: 1. for the making of orders, including the imposition of pecuniary penalties, in relation to each of APP Singapore and Indah Kiat; 2. that the proceedings be otherwise dismissed, with no order as to costs, as against the 13th and 15th respondents, respectively Mr Paul George and Mr Sunil Sood, each of whom consent to those orders. 5 The facts agreed to, and the admissions made, are agreed to and made pursuant to s 191(3)(a) of the Evidence Act, for the purpose of these proceedings only and are admissions upon which the Court may rely to pronounce judgment and make orders (Federal Court Rules O 18 r 4(1); ACCC v Jurlique International Pty Ltd (2007) ATPR 42-146 at 46,087). 6 It is for the Court to determine whether the contraventions of s 45 of the TPA occurred and the quantum of any pecuniary penalties and other relief that should be ordered. The joint submissions set forth the submissions of the Parties as to the appropriateness of the proposed orders.

[24]

The Conduct 7 Between December 2000 and January 2004, APP Singapore and Indah Kiat entered into arrangements or understandings with competitors at meetings (which are referred to hereafter as AAA Club meetings). 8 The participants at AAA Club meetings, including APP Singapore and Indah Kiat, were companies involved in the manufacture and supply of uncoated woodfree (UWF) folio and cut size paper to persons including customers in Australia. 9 UWF cut size paper consists of uncoated cut sheets of A3 and A4 copy paper in the range of 70 to 89 grams per square metre (gsm), that typically are supplied wrapped in reams of 500 sheets. UWF folio paper consists of uncut sheets of paper in the range of 60 to 350 gsm, that is measured and supplied by weight, ream or pallet load, in standard sizes larger than A3. 10 APP Singapore was the parent company of various companies responsible for the operations of APP paper mills, relevantly including Tjiwi Kimia, Pindo Deli and Indah Kiat, which produced paper for supply to places including Australia. 11 Indah Kiat was responsible for the operations of and supply of paper from the Indah Kiat mills in Indonesia from which UWF paper was supplied to Australia. 12 Each of APP Singapore and Indah Kiat carried on business in Australia during the relevant period, within the meaning of s 5 of the TPA, by reason of their supply to customers in Australia of UWF folio and cut size paper, and through the operations of APP Singapore's subsidiary, APP Australia Pty Ltd (now deregistered) (APP Australia). APP Singapore and Indah Kiat supplied paper products to customers in Australia assisted by APP Australia, and were otherwise connected with one or more of the States or Territories, within the meaning of s 8(2) of the Competition Policy Reform Acts, by reason of that supply. 13 APP Singapore and Indah Kiat participated in AAA Club meetings, and arrived at arrangements or understandings with other participants at such meetings, as to the average price per metric tonne at which they would supply folio and cut size paper to their customers in Australia, on the 16 occasions between 6 December 2000 and 16 January 2004 pleaded by the ACCC. 14 The meetings took place in overseas locations in south-east Asia. No AAA Club meetings were held in Australia. 15 APP Singapore and Indah Kiat were represented at AAA Club meetings by APP employees , including the following individuals: 1. Mr Chirawood, whose positions in the relevant period included the position of Sales Operation Head and Regional Director within the APP group of companies; and 2. Mr Sood, whose positions in the relevant period included position of Business Development Manager and marketing executive within the APP group of companies. 16 APP Singapore and Indah Kiat gave effect to the arrangements or understandings reached at AAA Club meetings, between December 2000 and January 2004, in their pricing for the supply of UWF folio and cut size paper to customers in Australia. Although APP Australia sold the UWF folio and cut size paper, it frequently exercised little or no discretion in setting the prices for that paper. Prices were frequently set by directives issued by APP Singapore and Indah Kiat. 17 APP Singapore and Indah Kiat ceased involvement in AAA Club meetings after January 2004. 18 The arrangements or understandings arrived at by APP Singapore and Indah Kiat at AAA Club meetings had the purpose and likely effect of fixing, controlling and maintaining the prices at which UWF folio and cut size paper were supplied to customers in Australia, between December 2000 and January 2004. By arriving at the arrangements or understandings, APP Singapore and Indah Kiat thereby contravened s 45(2)(a)(ii) of the TPA and the Codes, by operation of s 45A. 19 By giving effect to those agreements, as outlined above, each of APP Singapore and Indah Kiat contravened s 45(2)(b)(ii) of the TPA and the Codes.

[26]

Injunctions 21 The Court is empowered by s 80 of the TPA to grant injunctive relief. Section 80 relevantly provides as follows: (1) …[W]here, on the application of the Commission or any other person, the Court is satisfied that a person has engaged, or is proposing to engage, in conduct that constitutes or would constitute: (a) a contravention of any of the following provisions: (i) a provision of Part IV…; … (b) attempting to contravene such a provision; … the Court may grant an injunction in such terms as the Court determines to be appropriate. … (4) The power of the Court to grant an injunction restraining a person from engaging in conduct may be exercised: (a) whether or not it appears to the Court that the person intends to engage again, or to continue to engage, in conduct of that kind; (b) whether or not the person has previously engaged in conduct of that kind; and (c) whether or not there is an imminent danger of substantial damage to any person if the first-mentioned person engages in conduct of that kind. 22 The Parties jointly submit: 1. the Court has power under section 80 of the TPA to make the orders sought; 2. the injunctive relief is not too vague or imprecise, nor does it require continuing supervision by the Court; 3. there is no multiplicity of overlapping injunctions that may give rise to confusion about the scope of the obligations being imposed (ACCC v Econovite Pty Ltd (2003) ATPR 41-959 at 47,532 per French J); and 4. the injunctions are appropriate to deter a repetition of the conduct (ACCC v Automotive, Food, Metals, Engineering, Printing and Kindred Industries Union (2004) ATPR 42-002 at 48,751). Section 80(4)(a) of the TPA gives the Court power to grant an injunction whether or not it appears to the Court that the person intends to again engage in conduct of that kind. 23 The Parties therefore submit that the injunctions in the attached terms should be made. 24 I am satisfied that the proposed injunctions are within the power of the Court and that they are appropriate. I note that proposed order 2.1, which mirrors the language of s 45(2)(a) of the TPA, is in part in imprecise terms. I have been informed by counsel for the 11th and 12th respondents that those parties have been properly advised as to the effect of that order. In the circumstances and bearing in mind that those respondents have had the benefit of advice from experienced and competent lawyers, I am of the view that the generality and imprecision of terms such as 'with...the effect or likely effect of fixing, controlling or maintaining…the price…' does not prevent the jointly proposed order 2.1 from being too vague or imprecise for the understanding of the Parties or require continuing supervision of the Court.

[31]

Significance of specific and general deterrence 32 It has long been accepted that a principal object of a penalty under s 76 of the TPA is deterrence (TPC v Stihl Chainsaws (Aust) Pty Limited (1978) ATPR 40-091 at 17,896 per Smithers J). In CSR Ltd at 52,152 French J stated: The principal, and I think probably the only, object of the penalties imposed by s 76 is to attempt to put a price on contravention that is sufficiently high to deter repetition by the contravener and by others who might be tempted to contravene the TPA. 33 This approach was approved by the majority of the Full Federal Court in NW Frozen Foods. 34 Deterrence has two aspects: specific deterrence in respect of the actual contravener and general deterrence of others 'who may be disposed to engage in prohibited conduct of a similar kind' (TPC v Mobil Oil Australia Ltd (1984) 4 FCR 296 at 297-298 per Toohey J). The Full Court in NW Frozen Foods made it clear (at 294-295) that: The Court should not leave room for any impression of weakness in its resolve to impose penalties sufficient to ensure the deterrence, not only of the parties actually before it, but also of others who might be tempted to think that contravention would pay… 35 The cases demonstrate the importance of general deterrence considerations for per se contraventions where competing or conflicting matters arise in determining penalty. In ACCC v McMahon Services Pty Ltd (2004) ATPR 42-031 at 49,228, Selway J observed in relation to price fixing conduct: Once it is understood that deterrence, and particularly general deterrence, is the primary principle in the imposition of penalty for price fixing, then at least two conclusions flow from that. First, it means that penalties for collusive price fixing will need to be substantial and significant. This is, of course, reflected in the size of the maximum penalty upon corporations of $10 million. However, it also follows logically from the principle. Collusive price fixing, particularly between tenderers is difficult to detect. Public enforcement often only occurs with "a tip from an affected party or an insider" (see Marshall & Meurer, "Bidder Collusion and Antitrust Law: Refining the Analysis of Price Fixing to Account for the Special Features of Auction Markets" (2004) 72 AntiTrust Law Journal 83 at 101). Given these difficulties and the potential for large profits from such practices there is a chance that those in the market place might be prepared to factor the risk of a low penalty into its pricing structure as a 'business cost'. That would be inimical to the statutory purpose of ensuring that the practices do not occur. The penalty must be sufficiently high that a business, acting rationally and in its own best interest, will not be prepared to treat the risk of such a penalty as a business cost. 36 The above extract from Selway J's judgment was cited with approval by Merkel J in ACCC v Leahy Petroleum Pty Ltd (No 2) (2005) 215 ALR 281. 37 In ACCC v Midland Brick Co Pty Ltd (2004) 207 ALR 329 at [22] Lee J said: The object of orders made under s 76, or s 80, of the Act is to protect the integrity of markets and to prevent the subversion and distortion thereof by conduct that has the purpose or effect of adversely affecting competition. The Act sets out the norms to be met by corporations engaged in trade or commerce and in the main seeks to obtain adherence to those standards by providing for penalties to be imposed, and injunctions to be granted, that will be sufficient to deter corporations from risking, whether deliberately or negligently, the consequence of contravening the Act.

[34]

The Court's approach to agreements on penalty 43 I accept that, provided that the Court is satisfied that the terms of the orders are appropriate, it is in the public interest for the Court to make orders in Part IV TPA litigation on the terms that have been agreed between parties, so as to encourage parties to assist the ACCC in its investigations and achieve negotiated settlements. The Court has recognised that, in addition to savings in time and costs, there is a public benefit in imposing agreed pecuniary penalties where appropriate, as parties may not be disposed to reach such agreements were there unpredictable risks involved (NW Frozen Foods at 291). 44 The ACCC's position is contained in the ACCC Cooperation Policy for Enforcement Matters, July 2002. The ACCC expressed the view that making the public aware of the manner in which co-operation and assistance by parties is recognised (such as by making joint submissions to the Court for a reduction of penalty) encourages parties in breach to come forward to assist the ACCC in its enforcement activities. While the Court is not bound by the Policy nor required to take it into account in any given case, it has recognised (in relation to a previous edition of the Policy) that the matters which the Policy takes into consideration are matters relevant to a determination of the appropriate penalties to be imposed for contravention of Part IV of the TPA (ACCC v SIP Australia Pty Ltd (1999) ATPR 41-702 at [32]). 45 The principles governing whether a Court should accept a penalty that has been agreed between the ACCC and a respondent were considered in TPC v Allied Mills (No 4) (1981) 37 ALR 256 by Sheppard J, who stated (at 259): It is, of course, true that the penalty has been suggested to me by the agreement of the parties. Uninformed of their agreement, I may have selected a different figure, but I am satisfied that it would not have been very different from theirs. There is from time to time, amongst members of the profession and amongst the public, discussion concerning plea bargaining. Sometimes it is suggested that it involves disreputable conduct. It is my opinion that that is so if it at all implicates the court in private discussions as to what the court's attitude will or would be likely to be if a particular course is taken. In this case nothing of that kind has occurred. The parties have made their own agreement and put it to the court for approval, not knowing what its attitude was likely to be. ... This, of course, is not a criminal case; the liability is civil only. But, even in the most serious criminal cases, it is not unusual for the prosecution to accept a plea to a lesser charge, subject always to the approval of the court. I have said what I have only to explain that the course which the parties have adopted is both proper and not uncommon, even though perhaps novel in the comparatively new field of trade practices. 46 That approach was considered and approved by the Full Federal Court in NW Frozen Foods. In that case, the Court held (at 298-299): We agree with the statement made in several of the cases cited that it is not actually useful to investigate whether, unaided by the agreement of the parties, we would have arrived at the very figure they propose. The question is not that; it is simply whether, in the performance of the Court's duty under s 76, this particular penalty proposed with the consent of the corporation involved and of the Commission, is one that the Court should determine to be appropriate. 47 The Full Court further stated (at 291): There is an important public policy involved. When corporations acknowledge contraventions, very lengthy and complex litigation is frequently avoided, freeing the courts to deal with other matters, and investigating officers of the Australian Competition and Consumer Commission to tend to other areas of the economy that await their attention. At the same time, a negotiated resolution in the instant case may be expected to include measures designed to promote, for the future, vigorous competition in the particular market concerned. These beneficial consequences would be jeopardised if corporations were to conclude that proper settlements were clouded by unpredictable risks. A proper figure is one within the permissible range in all the circumstances. The Court will not depart from an agreed figure merely because it might otherwise have been disposed to select some other figure, or except in a clear case. 48 The Full Court noted (at 290) that generally the most significant and relevant matters that the Court needed to consider about penalty were effects upon the functioning of markets and other economic effects. Although the Court is responsible for determining the appropriate penalty, the Full Court considered that it would be informed by the views of the ACCC about those effects. 49 In Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd (2004) ATPR 41-993, the Full Court held that the decision in NW Frozen Foods disclosed no error of principle. Relevantly, the Court said at 48,626: ...the views of the regulator on matters within its 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. 50 Further, in Real Estate Institute French J said at [18]: The question whether an undertaking is to be accepted or a consent order made is not concluded by a finding that it is within the power of the court to do so. The power of the court to make the orders sought is "defined and conferred by public law not by private agreement": Fiss, "Against Settlement" (1984) 93 Yale Law Journal 1073. In the exercise of that power the Court is not merely giving effect to the wishes of the parties, it is exercising a public function and must have regard to the public interest in doing so. This principle applies to the resolution of private litigation by consent orders or undertakings. A fortiori it applies to proceedings brought by the Crown or public or statutory authorities to enforce the law in the public interest. The court has a responsibility to be satisfied that what is proposed is not contrary to the public interest and is at least consistent with it … Consideration of the public interest, however, must also weigh the desirability of non-litigious resolution of enforcement proceedings. 51 In this proceeding, the case as against the April parties was resolved by orders made on 29 January 2010.

[48]

Parity with other respondents 79 Any penalties to be imposed upon APP Singapore and Indah Kiat should retain parity with those imposed upon other corporate respondents in the proceedings to date, taking into account the similarities and differences between their conduct and respective positions. 80 In January 2010 pecuniary penalties were imposed upon other respondents in these proceedings which were part of the April group of companies, following joint submissions by the ACCC and those respondents (April (No 5)). The penalties imposed were as follows: 1. April Fine Trading Pte Limited (Singapore) (AFPT Singapore): $3,250,000; 2. April International Marketing Services Australia Pty Limited (AIMS Australia): $750,000, (together, the April respondents). 81 The penalties proposed as against APP Singapore and Indah Kiat take into account the following differences and similarities between those respondents and the APRIL respondents: 1. the degree of cooperation afforded by the respective respondents; 2. their level and timeframe of involvement in the contravening conduct alleged against them, including the nature and number of the contraventions; 3. the size and turnover of the companies, and their operations; and 4. the other factors relevant to penalty which are set out above. 82 The conduct of the APP and the APRIL respondents was of a similar nature, scale and duration overall. It should be noted that AIMS Australia however was incorporated towards the end of the period of contravening conduct, and the relatively low penalty imposed upon AIMS Australia reflects its ancillary involvement in only 2 meetings of the AAA Club. However, the proposed penalties should be considered in their totality for the APP Singapore and Indah Kiat compared to the totality for the April respondents as, in each case, the evidence indicates that the APP parties on one hand and the April parties on the other function as a group. 83 The chief differences between APP Singapore and AFPT Singapore are: 1. AFPT Singapore cooperated at an earlier stage of the proceedings, including accepting service overseas, and before other corporate respondents, while APP Singapore pressed an application contesting service overseas, from which it appealed; 2. The APP Group, of which APP Singapore was the parent entity, was responsible for supply in Australia of paper with a market share in Australia considerably higher than that of the April respondents. Each of these differences dictates a total penalty as against APP Singapore which is higher than that imposed by the Court upon the April respondents. 84 Indah Kiat differs from the other corporate respondents to the proceedings in that: 1. it was a subsidiary of APP Singapore; 2. it was responsible for a market share in Australia of between 1-2% of the market in which UWF paper was supplied; 3. it was involved throughout the pleaded period of conduct; 4. it was served in the proceedings in June 2009. The above factors in total support a penalty as against Indah Kiat which is significantly below that imposed upon APP Singapore or AFPT Singapore. 85 The other corporate respondent to the proceedings, AIMS Australia, which received a pecuniary penalty of $750,000, differed from the other corporate respondents in that it was incorporated in mid 2003, towards the end of the pleaded period of conduct; and was served at the outset of proceedings, in December 2006 (rather than June 2009). 86 In terms of parity, the effect on the Australian market of the actions of the APP Singapore and Indah Kiat on one hand and the April parties on the other were comparable. Each group was responsible for a relatively minor but significant market share in circumstances where another manufacturer held an estimated market share of 50-60%. 87 Taking account of all of the above considerations, including the penalties imposed on the April parties for the reasons set out in April (No 5), I am of the view that the proposed penalties are appropriate.

At a glance

Court

Decision date

Before

Source

Judgment (50 paragraphs)

Parties

Legislation Cited (4)

Cases Cited (18)