Australian Competition and Consumer Commission v Cabcharge Australia Ltd

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.

TRADE PRACTICES COMPLIANCE AND EDUCATION / TRAINING PROGRAM Interpretation

1. In this Annexure: 1.1. "Cabcharge" means Cabcharge Australia Limited; 1.2. "Cabcharge's Program" means the Compliance Program as established, maintained and administered by Cabcharge by reason of the Order of the Court; 1.3. "the Commission" means the Australian Competition and Consumer Commission; 1.4. "the Compliance Advisor" means the person defined in paragraph 6 below; 1.5. "the Compliance Officer" means the person appointed under paragraphs 2 or 3 below; 1.6. "the Compliance Policy" means the report defined in paragraph 8 below; 1.7. "the Compliance Program" means the Trade Practices Compliance and Education / Training Program in this Annexure; 1.8. "the Compliance Program Review Report" is the report defined in paragraph 22 below; 1.9. "the Compliance Trainer" is defined in paragraph 17 below; 1.10. "the Contravening Conduct" means the conduct declared by the Federal Court of Australia in this proceeding to be in contravention of section 46 of the Trade Practices Act; 1.11. "the duration of the Order of the Court" means the period during which the Order is to operate; 1.12. "the External Reviews" means the reviews required by paragraph 21 below; 1.13. "the Order of the Court" is the order of the Federal Court of Australia that requires the establishment of this Program; 1.14. "the Relevant TPA Provision" means section 46 of the Trade Practices Act which was contravened by the Contravening Conduct; 1.15. "the Reviewer" is defined in paragraph 21.2 below; 1.16. "the Risk Assessment"means the assessment required by paragraph 6 below; 1.17. "the Risk Assessment Report"means the report required by paragraph 7 below; 1.18. "the Trade Practices Act" means the Trade Practices Act 1974 (Cth); and 1.19. "the Training" means the training required by paragraph 16 below.

Compliance Officer 2. Cabcharge must, within 28 days of the Order of the Court, appoint a Director or a Senior Manager with suitable qualifications or experience in corporate compliance as (Compliance Officer) with responsibility for ensuring that the Compliance Program is effectively established, maintained and administered in accordance with the Order of the Court.

3. After the appointment of the Compliance Officer in accordance with paragraph 2, Cabcharge must take all reasonable steps to ensure that, for the duration of the Order of the Court,there is a Director or a Senior Manager with suitable qualifications or experience in corporate compliance appointed as Compliance Officer with responsibility for ensuring that the Compliance Program is effectively established, maintained and administered in accordance with the Order of the Court.

4. Cabcharge must take all reasonable steps to ensure that for the duration of the Order of the Courtthe Compliance Officer discharges his or her responsibility of ensuring that the Compliance Program is effectively established, maintained and administered in accordance with the Order of the Court.

5. Cabcharge must take all reasonable steps that are necessary to ensure that the Compliance Officer reports in writing to Cabcharge's board of directors every six months with respect to the on-going maintenance and administration of the Compliance Program including, in particular, whether the Compliance Program is effectively: 5.1. ensuring an awareness by Cabcharge's employees of their responsibilities and obligations in relation to the Relevant TPA Provision; and 5.2. reviewing and revising the internal operations of Cabcharge's business which led to Cabcharge engaging in the Contravening Conduct.

Risk Assessment 6. Cabcharge must, within 28 days of the Order of the Court, appoint an internal or external compliance professional with expertise in trade practices issues (the Compliance Advisor) to conduct a risk assessment to: 6.1. identify the areas of Cabcharge's business where it is at risk of contravening the Relevant TPA Provision; 6.2. assess the likelihood of any such contravention occurring; 6.3. identify where there are deficiencies in Cabcharge's procedures for managing any such risk; 6.4. make findings concerning the matters set out in sub-paragraphs 6.1 to 6.3 above; and 6.5. make recommendations for action having regard to the matters set out in sub-paragraphs 6.1 to 6.4 above (the Risk Assessment).

7. Cabcharge must instruct the Compliance Advisor to set out, and must take all reasonable steps that are necessary to ensure that the Compliance Advisor sets out, the findings and recommendations of the Risk Assessment in a written report (the Risk Assessment Report), to be provided to Cabcharge's board of directors within three months of his or her appointment.

Compliance Policy 8. Cabcharge must, within 28 days of the Order of the Court, establish a policy which is communicated in writing to all employees of Cabcharge regarding trade practices compliance, which must include: 8.1. a statement of commitment by Cabcharge to comply with the Relevant TPA Provision; 8.2. a direction to all employees to report any compliance related issues and trade practices compliance concerns to the Compliance Officer; 8.3. a statement guaranteeing that employees making a complaint or report in relation to Cabcharge's compliance with the Relevant TPA Provision will not be victimized or disadvantaged in any way by reason of their complaint or report and that their complaint or report will be kept confidential and secure; and 8.4. a statement that Cabcharge will take disciplinary action against any employees who are knowingly or recklessly involved in a contravention, or attempted contravention, of the Relevant TPA Provision and will not indemnify them, directly or indirectly, in respect of any such involvement. (the Compliance Policy).

9. Cabcharge must take all reasonable steps that are necessary to ensure that the Compliance Program is maintained and administered in a manner that is consistent with the Compliance Policy for the duration of the Order of the Court.

Processing Request Policy 10. Cabcharge must, within 28 days of the Order of the Court, establish a written set of criteria against which it will assess every request for another business to accept or process Cabcharge's non-cash payment instruments by electronic means or with an EFTPOS (electronic funds transfer at point of sale) or other electronic system for the payment, by non-cash means, of fares and charges incurred by taxi passengers (Request to Process Cabcharge Products).

11. For each written Request to Process Cabcharge Products that Cabcharge does not agree to in writing within 90 days of the receipt of that request, Cabcharge will create a written record of the reasons for not agreeing to that request, and in relation to any decision not to agree to a request, also create a written record of the date of and person or persons who made that decision.

12. Any decision referred to in 11 must be based on a written recommendation made by the Group General Manager, Cabcharge Operations, or another executive who is responsible for Cabcharge's payment system or their superiors recording the recommended reasons for not agreeing to that request.

13. Each request, written recommendation and decision must be kept or maintained by Cabcharge for 3 years after the request was received by Cabcharge.

Complaints Handling 14. Cabcharge must establish, maintain and administer a trade practices complaints handling system.

15. Cabcharge must take all reasonable steps that are necessary to ensure that the trade practices complaints handling system is in accordance with AS/ISO 10002:2006 Customer satisfaction - Guidelines for complaints handling in organizations, though tailored to its own circumstances.

Training 16. Cabcharge must take all reasonable steps that are necessary to ensure thatall directors, officers and employees of Cabcharge, whose duties could result in them being concerned with conduct that may contravene the Relevant TPA Provision, receive practical trade practices training (the Training) no less than once within each twelve month period for the duration of the Order of the Court.

17. The Training must be conducted by either a suitably qualified compliance professional or a legal practitioner with expertise in trade practices law (the Compliance Trainer).

18. Cabcharge must instruct the Compliance Trainer to design the Training, and must take all reasonable steps that are necessary to ensure that the Training is designed, to ensure that the persons at the Training are made aware of: 18.1. the responsibilities and obligations in relation to the Relevant TPA Provision; 18.2. the potential consequences of contravening the Relevant TPA Provision; 18.3. the areas of Cabcharge's business where it is at risk of contravening the Relevant TPA Provision, as identified in the Risk Assessment Report; and 18.4. the content of the Compliance Program.

19. Cabcharge, for the purposes of conducting the Training, must provide the Compliance Trainer with a copy of: 19.1. the Order of the Court; 19.2. the Compliance Program; 19.3. the Compliance Policy; and 19.4. the Risk Assessment Report.

20. Cabcharge must take all reasonable steps that are necessary to ensure that an awareness of the Compliance Program and the Compliance Policy forms part of the induction of all new directors, officers and employees whose duties could result in them being concerned with conduct that may contravene the Relevant TPA Provision. External Review
21. Cabcharge must take all reasonable steps that are necessary to ensure that annual reviews of Cabcharge's Program are carried out in accordance with sub-paragraphs 21.1 to 21.4 below (the External Reviews): 21.1. Scope of the External Reviews - The External Reviews are to ascertain whether Cabcharge's Program: 21.1.1. has made the employees aware of their responsibilities and obligations in relation to the Relevant TPA Provision; 21.1.2. has revised the internal operations of Cabcharge's business in relation to the Relevant TPA Provision and the circumstances that led to the Contravening Conduct; 21.1.3. effectively maintains and administers the Compliance Program.

21.2. Independence of Reviewer - Cabcharge must take all reasonable steps that are necessary to ensure thatall External Reviews are carried out by a suitably qualified, independent compliance professional with expertise in trade practices law (theReviewer). The Reviewer will qualify as independent on the basis that he or she: 21.2.1. is not a present or past director, employee or officer of Cabcharge; 21.2.2. has no significant shareholding or other financial interest in Cabcharge; 21.2.3. has not acted for or consulted to, and does not act for or consult to, Cabcharge in any matters involving alleged contraventions of Australian trade practices legislation; 21.2.4. has not acted for or consulted, and does not act for or consult to, Cabcharge or provide other services in relation to the Compliance Program, other than as the Reviewer in a previous year; and 21.2.5. has no conflict of interest in carrying out the Reviews.

21.3. Evidence - Cabcharge must take all reasonable steps that are necessary to ensure that the External Reviews are conducted on the basis that the Reviewerhas access to all relevant sources of information in Cabcharge's possession or control, including access to: 21.3.1. any officers, employees, representatives or agents of Cabcharge; 21.3.2. any relevant records of Cabcharge, including its complaints register/reports and any documents relevant to its training or induction program; and 21.3.3. any documents created by Cabcharge's consultants or legal advisers for use in relation to the Compliance Program and Cabcharge's Program.

21.4. Timing - Cabcharge must take all reasonable steps that are necessary to ensure thatthe first of the External Reviews is completed within one year of the making of the Order of the Court and that each subsequent External Review is completed within one year thereafter, save that all steps to be taken by Cabcharge in relation to the final of the External Reviews is to be completed one month prior to the expiration of the Order of the Court.

Cabcharge must instruct the Reviewer to set out, and must take all reasonable steps that are necessary to ensure thatthe Reviewer sets out, the findings of each of the External Reviews in a written report which addresses each of the following: 22.1. details of the evidence gathered and examined during the External Review; 22.2. the name and relevant experience of the person appointed as the Compliance Officer; 22.3. if, and to what extent, Cabcharge's Program includes all the elements and requirements of the Compliance Program; 22.4. if, and to what extent, Cabcharge's Program adequately covers the areas identified in the initial Risk Assessment; and 22.5. recommendations that the Reviewer considers are reasonably necessary to ensure that Cabcharge's Program effectively maintains and administers the Compliance Program, save where the report relates to the final External Review in which case this requirement may be, but is not by this Order required to be, addressed for the benefit of any voluntary continuance of Cabcharge's Program as the case may be. (the Compliance Program Review Report).

Cabcharge must instruct the Reviewer to complete and provide the Compliance Program Review Report to it, and must take all reasonable steps that are necessary to ensure that the Compliance Program Review Report is completed and provided to it, within 28 days of each External Review.

Cabcharge must retain each Compliance Program Review Report.

Within 28 days of the receipt of each Compliance Program Review Report, Cabcharge's board of directors must hold a meeting to consider and at that meeting Cabcharge's board must consider: 25.1. the Compliance Program Review Report; 25.2. save for the final Compliance Program Review Report, whether to make any changes to Cabcharge's Program to more effectively implement the Compliance Program for the purposes of: 25.2.1. ensuring an awareness for the employees of Cabcharge of their responsibilities and obligations in relation to the Relevant TPA Provision; and 25.2.2. revising the internal operations of Cabcharge's business in relation to the circumstances that led to the Contravening Conduct; 25.3. save for the final Compliance Program Review Report, any recommendation of the Reviewer for the purposes of sub-paragraph 22.5 above.

Within 14 days of holding the meeting referred to in paragraph 25 above, Cabcharge must advise the Commission in writing of: 26.1. details of when the meeting was held and who was present; 26.2. the outcome of the meeting, including: 26.2.1. what, if any, changes Cabcharge decided to make to Cabcharge's Program to more effectively implement the Compliance Program and details of the proposed implementation of any changes; and 26.2.2. the decisions made by Cabcharge about each of the recommendations that had been made by the Reviewer (if any).

Supply of Documents to the Commission 27. Cabcharge must cause to be produced and provided to the Commission copies of each of the following documents: 27.1. documents evidencing the appointment of the Compliance Officer and Compliance Adviser; 27.2. the Risk Assessment Report; and 27.3. the Compliance Policy and the documents evidencing its implementation. Each of the above documents must be provided to the Commission within 14 days of its creation or, if not created by Cabcharge, within 14 days of it coming into Cabcharge's possession.

28. Cabcharge must, provide a copy of each Compliance Program Review Report to the Commission within 14 days of its receipt from the Reviewer.

29. Cabcharge must cause to be produced and provided to the Commission copies of documents evidencing the provision of Training, including all materials used in the Training no less than once within each twelve month period for the duration of the Order of the Court.

30. If the Commission believes on reasonable grounds that Cabcharge has not complied with the elements or requirements of the Compliance Program and it makes a request of Cabcharge in writing, Cabcharge must, at its own expense, provide copies of documents and information constituting or evidencing the relevant compliance or non-compliance.

31. For the avoidance of doubt, nothing in this Compliance Program requires Cabcharge to disclose communications and documents to which legal professional privilege attaches.

Severance 32. It is the intention that the Compliance Program operate to the full extent permitted by a court.

33. If any paragraph (or part thereof) of the Compliance Program is held by any court to be invalid, beyond the power of the Federal Court of Australia or otherwise inappropriate as an order of the Court, it is the intention that that paragraph (or part thereof) is to be severed from the Compliance Program and all remaining paragraphs (and parts thereof) of the Compliance Program are to continue to operate to the full extent possible.

BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

Introduction 1 The respondent, Cabcharge Australia Ltd (Cabcharge), is an ASX listed company. It provides various products and services in Australia and overseas, predominantly to taxi drivers, owners and networks (the firms that provide booking and dispatch services to drivers and owners). The services that Cabcharge provide include non-cash payment processing systems for taxi fares, payment processing systems for taxis and taxi meters. The applicant, the Australian Competition and Consumer Commission (ACCC) contends that Cabcharge breached s 46 of the Trade Practices Act 1974 (Cth) (the abuse of market power provision) by refusing to deal with certain firms and by engaging in predatory pricing. These contentions are not denied in respect of a number of the alleged contraventions. Accordingly, the ACCC seeks declarations of contravention in respect of those that are not denied, the imposition of pecuniary penalties, a probation order that would require Cabcharge to establish a compliance program and a contribution to its costs.

Background 2 It is necessary to explain briefly the nature of the relevant products that Cabcharge supplied in the period in which the allegations relate - 2004 to 2008. 3 The first is Cabcharge's "account product", which gave customers a line of credit to pay for taxi fares and related charges. To charge taxi fares and related charges to a particular account, the taxi passenger used a "Cabcharge instrument" such as a Cabcharge credit card, e-ticket or paper voucher. 4 The value of taxi fares paid using Cabcharge instruments in Australia for the 2008 financial year was $455,307,773. Cabcharge levied a 10% service fee on all payments made using a Cabcharge instrument. 5 The second product is Cabcharge's "payment processing system", which allowed drivers to process Cabcharge instruments and other non-cash payments (eg credit and debit cards). Cabcharge provided both manual and electronic payment processing systems. The manual system used dockets and cheque-like vouchers supplied by Cabcharge, which were processed using credit card imprinters. The electronic system used EFTPOS terminals and other equipment supplied by Cabcharge. Cabcharge's EFTPOS terminals were present in approximately 95% of Australia's taxis in 2008. Cabcharge did not charge drivers, owners or networks for supplying its payment processing systems. Instead, Cabcharge charged passengers who used its payment processing systems a service fee, which was 10% of the total amount owing to the driver. Networks were then paid a commission out of the service fee. 6 The third product is Cabcharge's "taxi meters and meter updates", which it began supplying from late 2004. Taxi meters recorded the charge for each passenger's journey. Meters required updating when taxi fares changed (the fares were set by government), which was generally once per year. Updates could only be installed by the meter manufacturer. A significant point of difference of Cabcharge's meters compared to their competitors was that their updates could be installed "over the air" by mobile telephony and Cabcharge's EFTPOS systems, whereas competitors' meter upgrades had to be physically installed, requiring taxis to be off the road for a period of time. Accordingly, the meters and meter upgrades formed part of a fully integrated electronic payment and radio despatch system with other taxi equipment supplied by Cabcharge.

Market definition 7 To contravene s 46 the firm must have substantial degree of power in a market. Here there are three relevant markets: the "Taxi Specific Instruments Market", the "Manual and Electronic Processing Market" and the "Taxi Meter Market". 8 It is common ground that there was a Taxi Specific Instruments Market (the "Instruments Market") for non-cash payment methods that could be used only to pay for taxi fares and related charges. These instruments were not close substitutes for and not in close competition with payment of taxi fares by cash, general non-cash instruments (such as credit and debit cards), or non-cash payment methods that could be used only to pay for a limited range of motor industry related goods and services (eg charge cards such as MotorCharge or MotorPass). This is because taxi specific non-cash instruments had unique characteristics such as a reduced risk of fraud or misuse, ease of transferability between persons and a limit on what could be purchased with the instruments. The last factor made them particularly attractive to businesses and government. Cabcharge overwhelmingly had the largest share of the market. Other competitors in the market included Live Payments since around May 2005 and some networks (eg Townsville Taxis and Mackay Taxis). 9 There was a Manual and Electronic Processing Market (the "Processing Market") for the supply of services to enable acceptance of taxi specific non-cash instruments, general non-cash instruments (eg credit and debit cards) and government subsidy instruments. There were no close substitutes for manual processing other than electronic processing, and vice-versa. Cabcharge had the largest market share, with its payment processing systems being used in approximately 95% of taxis in Australia in 2008. A small number of taxis had multiple non-cash payment processing systems installed and, accordingly, Cabcharge's market share was less than 95% in 2008. Other competitors or potential competitors in the market included Akyman, SEL, GM Cabs, Townsville Taxis, Travel Tab/MPos, Live Payments, Cabbiexpress, Tax E Pay, Black & White and Alex Taxis. 10 There was a Taxi Meter Market (the "Meter Market") for taxi meters and meter updates. There were no substitutes for these products as almost every taxi in Australia was required to be fitted with an approved meter, which required updating each time taxi fares changed. Between September 2004 and October 2007 Cabcharge supplied approximately 50% of all new meters installed by taxi operators. Other competitors in the market were SEL, Martin Meters and Novax.

Market power 11 A classic definition of market power is "the ability of a firm to raise prices above the supply cost without rivals taking away customers in due time" (emphasis added): Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) 167 CLR 177, 188. In Boral Besser Masonry Ltd v Australian Competition and Consumer Commission (2003) 215 CLR 374, Gleeson CJ and Callinan J said (at [121]) that the essence of market power is the absence of constraint. There are, however, many factors that are relevant to a firm having market power. These include barriers to entry, the absence of competitive constraints and market share. 12 At least between 1 February 2005 and 31 July 2008 Cabcharge had a substantial degree of market power in the Processing Market. Cabcharge was not constrained to any substantial degree by the conduct of competitors or potential competitors or its suppliers. There were significant barriers to entry in that market because of the large sunk costs in providing payment processing systems to drivers. 13 At least between 1 February 2005 and 31 July 2008, Cabcharge had a substantial degree of market power in the Instruments Market. Cabcharge instruments were the only widely accepted taxi specific non-cash instrument in Australia. It was not constrained to any substantial degree by the conduct of competitors or potential competitors. 14 A significant reason for Cabcharge's market power in the Instruments Market was its dominance in the Processing Market. It was important for Cabcharge's competitors to have their taxi specific non-cash instruments accepted in as many taxis as possible; otherwise the usefulness of the instruments would be greatly diminished. By virtue of Cabcharge's overwhelming market share in the Processing Market, it was critical for Cabcharge's competitors to be able to have their instruments accepted and processed by Cabcharge's payment processing systems. Cabcharge's payment processing systems did not, however, accept any competitors' instruments and consequently the vast majority of taxis did not accept non-cash instruments provided by Cabcharge's competitors. 15 Thus a person wishing to enter the Instruments Market would have to simultaneously enter the Processing Market. This represented a significant barrier to entry, given the significant sunk costs of entering the Processing Market. In addition, competitors would have needed to simultaneously convince consumers to accept their instruments and taxi drivers, operators and networks to adopt their payment processing systems. 16 It was not alleged that Cabcharge had market power in the Taxi Meter Market.

Allegations 17 The ACCC made several allegations against Cabcharge in its amended statement of claim. It is only necessary to describe those which are conceded by Cabcharge. The remainder are not pressed.

Refusals to deal 18 The ACCC contends that Cabcharge refused to deal with Travel Tab/Mpos for the purposes of eliminating or substantially damaging it as a competitor and to prevent and deter it from entering into competition with Cabcharge in the Processing and Instruments Markets. The ACCC alleges that in doing so Cabcharge took advantage of the substantial degree of power which it had in the Processing and/or the Instruments Markets. 19 Travel Tab/MPos was one of Cabcharge's competitors. Until 14 January 2007 the company was known as "Travel Tab" and after that day it was known as Mpos. The company supplied electronic payment processing systems. It did not, however, provide manual payment processing systems or non-cash payment instruments. Travel Tab/Mpos provided EFTPOS equipment to taxi drivers and imposed a 10% service fee. One point of difference for drivers and operators was that Travel Tab/MPos paid commission directly to drivers and operators whereas Cabcharge paid commission to networks. 20 The first contravention took place during 2005. On 1 February 2005, Mr Kelsey, a Director and Manager of Travel Tab, wrote to Mr Kermode, the Executive Chairman and Chief Executive Officer of Cabcharge, requesting permission to process "CabCharge Card[s]". The letter stated that "[o]ur Terminals are state of the art and there would be seamless integration of our hardware into your system with no security issues". One of the benefits outlined by Travel Tab was "[e]nsuring that anti competitive guidelines and criteria are met". 21 On 4 February 2005, Ms Doyle, Cabcharge's Company Secretary and Corporate Counsel, replied to Mr Kelsey, requesting 10 pieces of information from Travel Tab and promising to review the matter further upon receipt of the information. The information requested included: the names of Travel Tab's directors and their experience, the share capital of Travel Tab, a list of assets, any correspondence from government and a copy of Travel Tab's intellectual property register. 22 On 26 April 2005, Mr Kelsey responded. He provided information regarding Travel Tab's payment processing systems but remarked that Cabcharge's requests for information were "excessive" and would require confidential information to be provided. He asked Ms Doyle to advise what technical requirements Cabcharge had to approve and facilitate the use of Cabcharge cards within the Travel Tab terminal system. 23 No response having been received to this letter, Mr Kelsey sent a follow up letter on 28 July 2005. 24 On 29 July 2005 Ms Doyle faxed to Mr Kelsey a letter dated 29 April 2005. The letter stated that Cabcharge would be happy to provide an undertaking not to disclose any confidential information. The letter concluded by saying that Cabcharge awaited a full response to the questions set out in the 4 February 2005 letter. 25 The correspondence from Ms Doyle constitutes a constructive refusal of Travel Tab's request to process Cabcharge instruments. Cabcharge was indifferent to whether or not Mr Kelsey provided the information it requested; it was simply putting him off. 26 The second refusal to deal took place in 2008. On 1 July 2008, Mr Kelsey wrote to Ms Doyle requesting permission to process "Cabcharge cards". Mr Kelsey stated that MPos was capable of processing Cabcharge cards, including e-tickets. Mr Kelsey said that "[MPos] understands that there are a number of technical and related issues that would need to be worked through however; we trust that this approach to Cabcharge can lead to an agreement in principle". 27 On 10 July 2008 Ms Doyle responded stating that Cabcharge could not agree to Mpos' request. She gave the following reasons: (1) that Cabcharge was upgrading its systems and when completed, the system would "bear little resemblance" to its current operations; (2) that the system would include a higher level of security; and (3) that the card functionality would be changed. She stated that it was "unrealistic" for Cabcharge to discuss the matter further at that stage. 28 On 16 July 2008 Mr Kelsey wrote to Ms Doyle and said: "[o]ur terminal is capable of reading your cards. Our system is capable to process the information that is stored on your cards … We acknowledge that your system is being upgraded however we do not understand why this should preclude further discussions towards forming a relationship between the two companies". 29 On 29 July 2008 Ms Doyle confirmed that Cabcharge's position remained unchanged and that "[i]t would not be practical or of benefit to Cabcharge or taxi customers to engage in further discussions". 30 This correspondence from Cabcharge constitutes a refusal of MPos' request to process Cabcharge instruments. 31 With respect to both refusals, Cabcharge acknowledges that although there would have been time and costs involved in developing appropriate interfaces, there was no technical reason that would prevent any electronic taxi-specific payment product from being processed by any EFTPOS terminal as long as that taxi-specific instrument and the relevant EFTPOS terminals complied with all relevant banking/financial industry protocols, including security protocols. 32 By refusing to allow Travel Tab/MPos to process Cabcharge instruments, Cabcharge took advantage of the substantial degree of power it had in the Processing and Instruments Markets. Cabcharge's refusals were for the purpose of preventing Travel Tab/MPos from processing Cabcharge instruments electronically and resulted in Cabcharge's payment processing system remaining the only system that processed Cabcharge's instruments electronically. Cabcharge would not and could not have engaged in this conduct if it were constrained by actual or potential competitors in the Processing and Instruments Markets.

Predatory pricing 33 The allegation is that Cabcharge engaged in predatory pricing by selling meters below cost to (1) eliminate or substantially damage SEL in the Processing Market and SEL, Martin Meters and Novax in the Meter Market; (2) prevent the entry of Martin Meters and Novax into the Processing Market; and (3) deter or prevent SEL, Martin Meters and Novax from engaging in competitive conduct in the Processing and Meter Markets. The ACCC alleges that in doing so Cabcharge took advantage of the substantial degree of power it had in the Processing Market. 34 Between September 2004 and October 2007 Cabcharge acquired taxi meters at a cost of $250 per meter. Of these, Cabcharge supplied approximately 727 units free of charge and approximately 5613 units at an invoiced price of $100 (of which it did not obtain any payment for approximately 758 units). At the time its competitors sold meters for between $430-550 plus GST. Cabcharge installed 197 meters free of charge at an estimated cost of $120 to $160 per installation. During the same period, Cabcharge supplied meter updates free to networks and operators, notwithstanding that it incurred costs of around $75,000 to supply these updates. At the time its competitors charged $70 to $110 plus GST per update. Cabcharge funded its losses from profits it made from its payment processing systems. From 9 November 2007, it sold meters at a retail price of $250 per meter. 35 Cabcharge concedes that its power in the Processing Market materially facilitated its ability to predatorily price; ie, if it did not have power in the Processing Market its meters would not have been so attractive to potential purchasers because the meters would not have integrated with other equipment, Cabcharge would not have been able to deliver over the air updates and it would not have had the same relationships with drivers, operators and networks. 36 Cabcharge took advantage of the substantial degree of power it had in the Processing Market for the purposes of: (1) affecting the profitability of other suppliers of meters and updates; (2) ensuring that other suppliers of meters and updates could not match or be price competitive with Cabcharge; and (3) ensuring that SEL, Novax and Martin Meters did not commence supplying Electronic Processing Services. It could not have engaged in this conduct if it were constrained by actual or potential competitors in the Processing Market.

The declarations sought 37 The ACCC seeks declarations that Cabcharge has contravened s 46 of the Act. It is well accepted that declarations serve the public interest by vindicating the ACCC's claims and marking the court's disapproval of the contravening conduct. Further, in this case granting declarations will define and publicise the type of conduct that contravenes s 46 of the Act (an area of law that is subject to much controversy and uncertainty).

The penalties sought 38 The parties have suggested that Cabcharge pay pecuniary penalties of $2 million for the Travel Tab refusal, $9 million for the MPos refusal and $3 million for predatory pricing. 39 The maximum penalties available differ for each of the three contraventions because of amendments to s 76 of the Act that took effect from 1 January 2007. For the Travel Tab refusal, the maximum penalty is $10 million. For the MPos refusal, the maximum penalty is the greater of: $10 million; three times the total value of the benefit that Cabcharge obtained by virtue of the conduct; and where the benefit cannot be determined, 10% of Cabcharge's annual turnover of the 12 months ending July 2008. This is not a case where the value of the benefit that has been obtained and is attributable to Cabcharge's refusal to deal with MPos can be readily ascertained. The relevant maximum penalty is therefore 10% of Cabcharge's annual turnover for the 12 months ending July 2008; namely $12,837,823. 40 For the predatory pricing contravention, which took place between 2004 and October 2007, the conduct spans both the old and new penalty regimes. The maximum penalty is therefore somewhere between $10 million and $12,837,823 (ie 10% of turnover). As most of the conduct in terms of time and sales occurred under the old regime, the maximum penalty is likely to be closer to the lower end of that range. In any event, it is not necessary to identify the maximum penalty with any precision as it will not materially affect the penalty imposed. 41 The principal purpose of imposing penalties is specific and general deterrence: Australian Competition and Consumer Commission v High Adventure Pty Ltd (2006) ATPR ¶42-091, [11]. 42 The principles concerning the imposition of penalties are well known. When parties agree on a penalty and approach the court to give effect to their agreement, it still remains the responsibility of the court to determine the appropriate penalty. The court will give effect to the parties' agreement provided the penalty is within a permissible range, even if the court would have imposed a different penalty. The view of the regulator as a specialist body is important in helping the court assess the relevant penalty. 43 Under s 76, the following factors are relevant to the determination of the permissible range: (1) the nature and extent of the contravening conduct; (2) the loss or damage suffered as a result of the contravening conduct; (3) the circumstances in which the contravening conduct took place; and (4) whether the contravener has previously engaged in similar conduct. 44 The cases also outline several other important considerations: (1) the size of the contravening company; (2) the degree of power the company has, as evidenced by its market share and ease of entry into the market; (3) the deliberateness of the contravention and the period over which it extended; (4) whether the contravention arose out of the conduct of senior management or lower level staff; (5) whether the company has a corporate culture conducive to compliance with the Act, as evidenced by education programs and disciplinary or other corrective measures in response to an acknowledged contravention; and (6) whether the company has shown a disposition to cooperate with the authorities responsible for the enforcement of the Act in relation to the contravention: see eg NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285; and Trade Practices Commission v CSR Ltd [1991] ATPR ¶41-076, ¶52,152-3. 45 I do not propose to go to each factor separately; it will suffice if I address the factors that I place the most reliance on. 46 First, the imposition of a total penalty of $14 million will have a significant specific and general deterrence effect. This is the largest total penalty imposed for contraventions of s 46 of the Act, which partly reflects the new penalty regime and partly the seriousness of the contraventions. The $3 million penalty for the meter conduct is the largest predatory pricing penalty in Australia. 47 Second, Cabcharge's conduct occurred over an extended period of time and straddled different markets. 48 Third, prior to this proceeding, no court had found that Cabcharge had contravened the Act in any way and the ACCC had not previously commenced legal proceedings against Cabcharge. This reduces the gravity of the Travel Tab refusal and the predatory pricing. However, by the time of the MPos refusal, Cabcharge knew that it was being investigated by the ACCC and s 155 examinations had taken place. This increases the gravity of the MPos refusal. 49 Fourth, Cabcharge is a prosperous public listed company with significant resources. In the 2009 financial year, its profit after tax was $61.4 million and it held around $419 million worth of assets. 50 Fifth, Cabcharge had substantial market power in the Instruments and Processing Markets by virtue of it having the largest market share in each market by a significant margin. 51 Sixth, although Cabcharge was not conscious that it was breaching s 46 of the Act, its conduct was deliberate. As the Full Court said in Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission (2003) 131 FCR 529, [310]: "If a company 'takes the odds', it must expect serious consequences if it miscalculates". 52 Seventh, Cabcharge's most senior employees and management participated in the contravening conduct, including Cabcharge's Executive Chairman and CEO (Mr Kermode), CFO and Director (Mr Barukh, who resigned in 2007) and Company Secretary and Corporate Counsel (Ms Doyle). 53 Eighth, Cabcharge is entitled to some discount for cooperating with the ACCC. Its admissions have avoided the need for a lengthy trial (estimated to take at least four weeks and most likely far longer) and the appeals that would likely have followed. However, Cabcharge's admissions came only five weeks before the trial was to begin and 15 months after the filing of the proceeding. Over 100 affidavits had been filed and three interlocutory judgments have been delivered following several disputes and an appeal to the Full Court. In these circumstances, Cabcharge is not entitled to the discount that would be available had it made its admissions before a significant amount of time, money and effort was expended by the ACCC. 54 Ninth, parity of penalties between cases is important. The best analogy to the Travel Tab refusal is to be found in Australian Competition and Consumer Commission v Fila Sport Oceania Pty Ltd (2004) ATPR ¶41-983. There, Fila admitted that it had contravened ss 46 to 47 of the Act by threatening to refuse supply to any purchaser who chose to stock a competitor's products. Heerey J found that Fila was conscious that its conduct might well infringe the Act. This was evidenced by a letter from one of Fila's competitors and a memo from the Managing Director of Fila. Heerey J stated that the contraventions were serious and "blatant" and occurred over an extended period of time. By contrast, Cabcharge did not appreciate that it may be breaching the Act (although it was alerted by Travel Tab to the existence "anticompetitive guidelines"). In the circumstances, the appropriate penalty for this refusal is less than that in Fila. 55 The $9 million penalty for the MPos refusal may, on its face, seem disproportionate to the $2 million penalty for the Travel Tab refusal. However, I am satisfied that the penalty is appropriate for a number of reasons: (1) the maximum penalty for this contravention was higher than for the Travel Tab contravention; (2) this was not Cabcharge's first contravening refusal to deal; (3) the nature of the refusal was more egregious than its refusal to deal with Travel Tab. The Travel Tab refusal was caused by Travel Tab not providing Cabcharge with information it requested. Although the information requested by Cabcharge was excessive, it was Travel Tab's choice not to comply with the request. By contrast, the MPos refusal was caused solely by Cabcharge's unwillingness to negotiate with MPos; (4) Cabcharge refused MPos' request when it knew it was being investigated by the ACCC and when s 155 examinations had already taken place. In my opinion this significantly aggravates the nature of the contravention. 56 The $9 million penalty proposed by the parties is slightly over 70% of the maximum penalty, which takes into account the relevant discount. I regard this as an appropriately high penalty in the circumstances of this contravention. 57 The $3m penalty for predatory pricing in relation to the meter conduct is also within the acceptable range. I regard predatory pricing as one of the more insidious breaches of the Act. Firms engage in predatory pricing "to drive rivals out of business and scare off potential entrants": Denis Carton and Jeffrey Perloff, Modern Industrial Organisation (4th ed, 2005) 352. Then, they raise prices, capturing monopoly/oligopoly rents. Once firms gain monopoly/oligopoly power, it is often extremely difficult to take that power away; firms are likely to be deterred from entering the market because they know the incumbent has the ability to undercut them and if new firms try to enter the market, the incumbent is likely to engage in predatory pricing to force them out. 58 There are however, several factors that work in Cabcharge's favour: (1) as the ACCC's lead counsel, Mr Shavin QC, elegantly put it: "Although there were three competitors which were affected, there are no bodies". This can be compared with Boral Besser Masonry v ACCC, where two parties exited the market as a result of predatory pricing; (2) the conduct was stopped unilaterally by Cabcharge when the ACCC began investigations and when the so-called Birdsville amendments were passed in 2007. The amendments inserted s 46(1AA) into the Act (which prohibits selling below cost for a substantial period for a purpose proscribed by s 46); (3) it is at least arguable that Cabcharge's primary purpose in selling meters below cost was to gain a foothold in a market in which it was a new entrant, which is not a proscribed purpose; and (4) Cabcharge is entitled to the relevant discount. 59 Conversely, Cabcharge's predatory pricing contributed to it selling 50% of all new meters installed between September 2004 and October 2007. While I believe that $3 million is at the low end of the acceptable range for this type of conduct, it narrowly falls within the range I would deem permissible, taking into account the total penalties imposed in this case and the fact that this is still the largest predatory pricing penalty ever imposed in Australia.

The probation order and costs 60 The ACCC seeks the imposition of a probation order requiring Cabcharge to establish and maintain a trade practices compliance and education/training program at its own expense for three years. The program is of the usual type implemented following contraventions of Pt IV of the Act. 61 The parties agree that Cabcharge ought to pay $1 million of the ACCC's costs of and incidental to this proceeding. 62 I am satisfied that the declarations, pecuniary penalties, probation order and costs order sought by the parties are both necessary and appropriate. I certify that the preceding sixty-two (62) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein.