Part 18 of the Penalty Reasons: the primary judge's core reasoning
319 The primary judge's core reasoning in relation to the penalties to be imposed is contained in Part 18 of the Penalty Reasons, with reference back to earlier parts of those reasons. At [760], the primary judge noted that he had expressed some views about particular matters in the course of considering the parties' submissions, such as the correct approach to the counterfactual as set out at [477]-[489] of the Penalty Reasons (set out above). At [761], the primary judge said that he had examined the true character of the contraventions and contextual matters relevant to those contraventions, including the nature and extent of the contravening conduct and the circumstances in which the conduct took place. These parts of the Penalty Reasons have been described above.
320 The primary judge then made the following additional observations at [763]-[775] of the Penalty Reasons in relation to (what may be described as) "qualitative" matters:
763 There is no doubt that leading up to entry into the OMC (and a relevant starting point might be 2001) and throughout the period 2002 to 2006, QCL and Pozzolanic, in the period up to May 2003, and CA Holdings and the Cement Australia group of companies thereafter, enjoyed a substantial degree of power in the SEQ unprocessed flyash market and the SEQ cgf market. The degree of that market power amounted to, in substance, a monopoly. Those companies relevantly controlled the sources of unprocessed flyash. Both contracts, of course, were subject to tender arrangements. Pozzolanic/QCL won the tender for Millmerran and ultimately entered into a contract, through the vehicle of Pozzolanic, for the acquisition of Millmerran unprocessed ash on the relevantly identified terms which were adopted for the purpose and had the effect and likely effect of substantially lessening competition.
764 Pozzolanic/QCL entered into the OMC contract in order to risk-manage its exposure to the possibility that those companies might not win the Tarong Contract. In simple terms, that is why those companies were not found to have taken advantage of their market power. It is not necessary to re-visit the analysis of that matter. The presently important matter is that even though Pozzolanic/QCL entered into the OMC in circumstances where that conduct did not engage a contravention of s 46 of the Act, the relevant provisions of the contract identified earlier in these reasons were adopted for the purpose and had the effect and likely effect of substantially lessening competition. The rational need for a contract with Millmerran did not carry with it the need to adopt provisions for the purpose and having the effect and likely effect of substantially lessening competition, which brought about contraventions of s 45 of the Act.
765 In all of the documents examined in the course of the principal liability judgment and the documents referred to by the parties in the penalty aspects of the proceedings, one thing is perfectly clear. Nowhere is there any debate which throws up considerations by which Pozzolanic/QCL would seek to serve their own commercial rational interests by securing a contract with Millmerran but, at the same time, adopt provisions which would enable third parties who might wish to secure access to a new source of ash and enter the market, to do so. The objective and the purpose was to secure the Millmerran Contract so as to serve the rational interests of Pozzolanic/QCL but do so in a way which usefully prevented any third party securing access to any of that ash. It is also perfectly obvious that the economic analysis by officers of Pozzolanic/QCL was that those companies controlled a market for cgf in SEQ; it produced significant revenues; it generated high margins; and the entire market ought to be preserved for Pozzolanic/QCL. Pozzolanic/QCL sought exclusive supply arrangements from Millmerran and Tarong at the outset of their tender negotiations and that was undoubtedly their frame of mind. Thus, they sought to adopt provisions which had the purpose of substantially lessening competition and provisions which would have the same effect and likely effect. They did so from a standpoint of market dominance amounting to monopoly.
766 Ultimately, Pozzolanic and QCL were saved from themselves, in fact, to a considerable extent, because the Millmerran ash which they assumed would be substitutable for Tarong ash and would place in jeopardy their prices, revenues and margins should a third party obtain access to it and compete with them, proved to exhibit substantial technical and colour difficulties which made it unable to be used as fine grade concrete grade flyash in the SEQ cgf market.
767 There is also no doubt that the purpose of the identified provisions of substantially lessening competition was a purpose incubated by Mr Ridoutt and Mr Wilson and embraced by Mr Arto and ultimately Mr Maycock. Mr Ridoutt and Mr Wilson were not just subordinate line managers engaged in misadventure of their own. They were significant senior responsible managers steeped in the flyash business. Mr Arto was a Director and CEO. Mr Maycock was the Chairman and a highly experienced and sophisticated Director imbued with all of the knowledge and dynamics of the flyash and concrete markets. He was Holcim's man in Australia. Mr Arto was also from the Holcim school.
768 There is also no doubt that in adopting the particular provisions of the OMC, Mr Ridoutt and Mr Wilson and Mr Arto had a sense of the competitive pressures which would be placed upon flyash pricing and margins should a competitor enter the SEQ cgf market armed with Millmerran ash as a substitutable ash. Their views about all of those matters may have been wrong. Those views might have been formulated upon assumptions about the quality of the Millmerran ash which proved to be wrong. However, they had a view that if a new entrant came into the SEQ cgf market with substitutable ash they would not be able to maintain their margins. Price and volumes would come under pressure.
769 As things turned out, the Millmerran ash proved to be very problematic and as I have already observed, much scientific analysis was deployed in trying to understand the cause of the problems. Once the market became informed about the nature of the problems and more particularly the fact that Millmerran ash would not be readily on the market as a substitutable ash, the effect and likely effect of the provisions began to dissipate. Those effects had dissipated by 31 December 2003.
770 I accept that deterrence requires a significant penalty to be imposed upon Pozzolanic/QCL in respect of the conduct of adopting provisions for the purpose of foreclosing third party competitor entry irrespective of whether ultimately, in one sense, those companies, their senior management and directors, need not have worried about the strategic threat of unprocessed flyash from Millmerran.
771 I also accept that the conduct of crafting and adopting provisions of the OMC for the purpose of foreclosing third party entry and thus substantially lessening competition, was undertaken with the sense of deliberateness contended for by the ACCC. It is, of course, true that there were other purposes which were not unlawful purposes or which did not give rise to contraventions of the Act. However, Pozzolanic/QCL could have served those commercial purposes without engaging in, as a substantial purpose, the purpose of adopting provisions foreclosing third party entry at Millmerran having the purpose of and having the effect and likely effect of substantially lessening competition in the SEQ unprocessed flyash market and the SEQ cgf market. However, Pozzolanic/QCL chose to take a different course.
772 At the moment in time when Pozzolanic/QCL adopted the relevant provisions of the OMC, those companies understood the risks from a competition law perspective and did not have a satisfactory or effective compliance program. I accept that the respondents have now adopted a compliance program with proper integrity.
773 As to the contravening conduct so far as it relates to adopting the provisions of the OMC, I am not satisfied that the respondents have shown a disposition to co-operate with the ACCC in relation to those matters. They took a course entirely open to them to contest the question of whether they had engaged in conduct in contravention of s 45 of the Act and, of course, that stance has to be viewed in the context of their decision to challenge the contentions of contraventions of s 46 which the ACCC failed to make good.
774 In principle, having regard to the qualitative circumstances surrounding the conduct and taking into account the nature and extent of that conduct, the circumstances in which it took place, the degree of market power the relevant respondents enjoyed at that moment in time, the deliberateness of the conduct and the engagement of senior management and directors in it, I am satisfied that a substantial pecuniary penalty ought to be imposed in respect of that conduct. I accept, as the ACCC submits, that Pozzolanic/QCL were respondents conducting a very significant business when the contraventions occurred and I accept that the respondents in the post-merger circumstances are also conducting very significant businesses. I see no good reason to proceed on the basis that the Court ought to only have regard to the scope and nature of the flyash business itself. Of course, the conduct took place within the flyash segment of the overall businesses including the Cement Australia Partnership. The flyash businesses were, in their own right, significant businesses. Nevertheless, the size and scope of the respondents needs to be taken into account more generally as an aspect of deterrence in determining an appropriate penalty. In doing so, the arrangements in relation to the Cement Australia Partnership and the role of Cement Australia in that Partnership needs to be taken into account.
775 In considering the qualitative matters, I have taken into account the impact upon the SEQ unprocessed flyash market and particularly the SEQ cgf market in terms of the harm inflicted upon competition especially in the SEQ cgf market. In the principal liability judgment, I form views about what would likely have occurred had a new entrant entered the SEQ cgf market with contestable ash. Professor Hay had views about that topic as did Mr Arto, as I found. The provisions had the effect of foreclosing competition in the way described in the principal liability judgment. When Pozzolanic/QCL adopted the identified provisions which had the purpose, effect and likely effect of substantially lessening competition they simply did not know that the ash would prove to be problematic and not substitutable for and thus contestable with Tarong ash. Nevertheless, their purpose was clear.
321 After these observations, the primary judge addressed the penalties to be imposed, considering these by reference to the contraventions relating to each contract in issue. In the course of this part of the Penalty Reasons, the primary judge referred both to the qualitative matters discussed in the passage set out above and to the quantitative matters discussed in a later paragraph ([818]) of the Penalty Reasons (set out below).
322 As to the contraventions relating to the Original Millmerran Contract, the primary judge said at [776]-[783] of the Penalty Reasons:
776 Having regard to all of these qualitative matters, in the context of identifying a pecuniary penalty which serves the interests of deterrence, it seems to me that an appropriate pecuniary penalty as a matter of instinctive synthesis of all the factors in respect of the adoption of the provisions of the OMC and taking into account the matters set out at [818] of these reasons, is $3.5 million.
777 Pozzolanic was the entity that conducted the flyash business in the sense that it was the company which entered into the contracts with the power stations and it managed and operated the collection and processing facilities. QCL was the entity that sold cgf into the SEQ cgf market. Pozzolanic was ultimately a wholly owned subsidiary of QCL. Pozzolanic made the contract but it only made it because QCL caused it to be made with Pozzolanic. PIPL was the entity selected as the guarantor. It became the guarantor simply because of its position in the corporate structure and only because QCL caused it to be selected to provide the guarantee.
778 The prime mover in all of the conduct was QCL.
779 In terms of the contraventions, Pozzolanic contravened s 45(2)(a)(ii) of the Act by making the OMC with the relevant provisions having the purpose, effect and likely effect. Pozzolanic gave effect to the provisions until 31 December 2003. QCL was knowingly concerned in Pozzolanic's conduct in making the agreement and it gave effect to the provisions day-to-day by funding Pozzolanic's performance of the contract. Each class of conduct (making, giving effect to, being knowingly concerned in) gives rise to a separate contravention of s 45 of the Act. Even though that is true, I accept that there are two fundamental things informing this particular conduct.
780 The first is the making of the contract with the provisions ultimately brought about by QCL through the vehicle of Pozzolanic.
781 The second is acting upon the agreement as reached and giving effect to it and thus taking the benefit of it at least until the effects became exhausted on 31 December 2003. Although the effects had become dissipated by 31 December 2003, the provisions endured and they, of course, were adopted for the prescribed purpose.
782 In respect of the conduct of giving effect to the provisions of the contract as made in the period from the making of the contract until 31 December 2003, a further penalty ought to be imposed of $500,000. It should be remembered that the Millmerran ash failed to enter the market and was never capable of being used in the multiplicity of applications required of fine grade concrete grade flyash due to the technical and colour difficulties.
783 I also accept that the proper way to view the two classes of conduct is that they are two aspects of one class of conduct. That is not to say that a pecuniary penalty ought not to be determined in relation to the second aspect of that conduct. However, having regard to all of the relevant factors, I am satisfied that a penalty of $4 million in respect of the conduct reflecting both the making and the giving effect to the conduct is an appropriate penalty.
323 As to the contraventions relating to the Tarong Contract, the primary judge said at [784]-[805] of the Penalty Reasons:
784 The Tarong Contract was entered into on 26 February 2003.
785 That contract was also made in circumstances where provisions were adopted for the purpose and having the effect and likely effect of substantially lessening competition in the unprocessed flyash market and the SEQ cgf market. The Tarong Contract was a much more important contract for Pozzolanic/QCL in the sense that it had been the source of Pozzolanic/QCL's cgf for sale into the SEQ cgf market for a long period of time. It was proven, well accepted, well understood and well known. Pozzolanic/QCL had a number of very good reasons for wishing to secure an ongoing ash supply contract with TEC. Pozzolanic/QCL would not lightly give up trying to secure that contract. There was no suggestion in the proceedings that Pozzolanic/QCL engaged in a contravention of s 46 by seeking to acquire that contract.
786 Nevertheless, the same point of principle remains in relation to the TEC contract as that which applies to the OMC. Pozzolanic/QCL could have secured its rational commercial objectives by entering into an ash supply contract with TEC which gave it the necessary continuity of ash supply but nevertheless on terms which enabled third parties to acquire ash from TEC and enter the SEQ cgf market in competition with QCL.
787 That, of course, was heterodoxy to Mr Wilson, Mr Ridoutt and also Mr Arto and Mr Maycock.
788 Those gentlemen were focused upon securing the ash supply contract and doing so in a way which made it, in every practical sense, a virtual impossibility for third parties to secure access to the best ash in SEQ. They could, so easily, have adopted provisions which enabled third parties to obtain quantities of ash from Tarong and Tarong North, process it in some way and enter the market.
789 There would, of course, be other barriers to entry which a new entrant would have needed to overcome such as acquisition and deployment of the appropriate capital equipment, skilling-up in operational expertise, demonstrating a supply reputation in the market and winning the confidence of buyers, and contracts, with buyers. It is highly unlikely that potential participants entirely unfamiliar with the operational and marketing aspects of flyash would have sought to enter into arrangements with TEC and enter the SEQ cgf market. In the main, the entities expressing interest in ash supply arrangements with TEC were entities in the cement, flyash, concrete and aggregates businesses. FAA and Transpacific did not suffer from these other obvious barriers to entry.
790 As to the TEC contract, Pozzolanic/QCL again sought to obtain an exclusive agreement. Once it became clear that TEC would not accept a term conferring exclusivity, Mr Wilson took the view that Pozzolanic/QCL would need to be more creative about the provisions of the contract so as to bring about circumstances of control, through the contract, over all of Tarong's ash taken at the critical ash transfer points through the critical hoppers.
791 I accept the ACCC's submissions on the deliberateness surrounding the contravening conduct so far as it relates to the Tarong Contract. There were, of course, other perfectly proper rational purposes in seeking to secure an ash supply agreement with TEC. However, Pozzolanic/QCL could have secured its own rational commercial interests in a way entirely consistent with enabling third parties to obtain commercially realistic access to Tarong ash.
792 In these reasons, I have already described the nature and extent of the contravening conduct, the circumstances in which it took place and I have expressed views about the size and scope of Pozzolanic/QCL and the later entities concerned with the Cement Australia group of companies and the Cement Australia Partnership.
793 I have described the scope of the market power enjoyed by QCL and the deliberateness of the conduct. The conduct in the case of the TEC contract was engaged in by the same individuals who were involved in the arrangements in relation to Millmerran. At the time of these contraventions, Pozzolanic/QCL did not have in place a compliance system which isolated and protected against the contraventions that occurred. I accept that the respondents have now put in place a compliance system with integrity. As to these contraventions, I am not satisfied that the respondents have demonstrated a culture of co-operation with the ACCC. Nevertheless, it remains true that parties are entitled to test the contentions of the ACCC and advance whatever evidence and arguments they might wish to make in answer to the claims.
794 I am also satisfied that the senior officers of Pozzolanic/QCL were entirely astute to the competition law risks associated with framing and adopting the identified provisions.
795 I also recognise as found in the principal liability judgment that the effect upon competition by reason of the identified provisions was significant and meaningful. It inflicted harm upon the market by depriving market participants of an opportunity to engage with a new entrant supplier who would engage in rivalry and contestability thus forcing Pozzolanic/QCL to engage in competition, compete away inefficient costs and adapt their service offerings to the market. It is likely, as Professor Hay observed, and Mr Arto believed, that there would have been a significant effect upon QCL's margins.
796 Taking account of these factors going to all of these qualitative considerations and having regard to the matters set out at [818], I am satisfied that an appropriate penalty in respect of the conduct of making the Tarong Contract with the relevant provisions is $5.5 million.
797 Having secured the contract, QCL continued to give effect to it. In the principal liability judgment, there is a vast amount of evidence about steps particular entities were seeking to take to secure some degree of access to Tarong ash or (potentially) ash from Tarong North. Apart from entirely episodic collections of ash by a possible third party at moments in time when Pozzolanic may not have required access to all the ash available through its facilities attached to the critical hoppers, no access was available to third parties.
798 Those who tried were unsuccessful.
799 The Tarong ash was particularly significant ash in the context of the SEQ cgf market. It was well known and well received. Third parties securing access to the Tarong ash and entering the SEQ cgf market would have provided meaningful and significant competition. Again, there is nothing in any of the vast amount of material relating to the formulations of strategy by Pozzolanic/QCL and their analysis of the economic impact in the market which suggests any disposition to accommodate the possibility of third party access to Tarong ash. The entire purpose of the identified provisions was to foreclose (and risk-manage) any possibility of such an outcome. Having secured provisions serving that purpose, QCL, until the beginning of June 2003, continued to give effect to the provisions and thereafter Cement Australia continued to give effect to them.
800 It is true that the conduct of giving effect to the provisions is conduct which bears an inevitable relationship with the making of the provisions. If the conduct is examined in a linear sense rather than a disjunctive sense, the conduct consists of a corporation forming a view about striking an agreement with provisions which have the purpose, effect and likely effect of substantially lessening competition and then, having secured a contract with those provisions, performing the contract which necessarily engages giving effect to the provisions so made. However, in my view, the conduct should not be viewed as simply one class of linear conduct in the context of the Tarong Contract. There are two separate classes of conduct in relation to this contract.
801 The first is the body of activity, thinking, engagement and completion of arrangements for a contract containing particular provisions which had the purpose and creatively had the effect and likely effect of substantially lessening competition ("making").
802 The second class of conduct involved embarking upon activities to give voice to the outcome achieved by making the contract. At any moment in time when it became apparent to Pozzolanic/QCL or Cement Australia that systemically depriving third parties of access to Tarong ash was having and would be likely to have the effect of substantially lessening competition by reason of the provisions, Pozzolanic/QCL and/or Cement Australia could have elected not to take advantage of those provisions and could have put in place protocols enabling third party access to Tarong ash. Officers of those entities could have elected not to give effect to provisions which were adopted expressly for the purpose of foreclosing third party access to the best ash in SEQ from an SEQ power station.
803 They chose not to do that. Again, doing so would have been heterodoxy.
804 I am satisfied that an appropriate penalty in respect of giving effect to the Tarong provisions having regard to all of these considerations and the matters set out at [818], is $5.5 million.
805 In relation to the Tarong Contract, Pozzolanic contravened s 45(2)(a)(ii) by making the contract containing the provisions having the purpose, effect and likely effect; Pozzolanic contravened s 45(2)(b)(ii) by giving effect to the provisions; QCL was knowingly concerned in Pozzolanic's entry into the Tarong Contract containing the relevant provisions having the purpose, effect and likely effect; and QCL was knowingly concerned in Pozzolanic's contravening conduct of giving effect to the provisions. Cement Australia contravened s 45(2)(b)(ii) on and from 1 June 2003 by giving effect to the relevant provisions.
324 As to the contraventions relating to the Amended Millmerran Contract, the primary judge said at [806]-[811] of the Penalty Reasons:
806 The Millmerran Contract was amended on 28 July 2004.
807 In these reasons, I have discussed the circumstances of the amendment. Mr Clarke and Ms Collins were the officers who were most closely engaged in the negotiations for the amendment to the contract. Mr Clarke ultimately received instructions from Mr Leon. The circumstances of that engagement have been discussed extensively in the principal liability judgment and in these reasons.
808 Mr Clarke was a senior member of the management team within Cement Australia. Ms Collins had formulated various postulations of what might occur in the market in terms of price, revenue and the impact upon EBIT earnings should a rival enter the SEQ cgf market. The evidence given by Mr Clarke about those views has been addressed extensively in the principal liability judgment. Mr Clarke thought that ultimately the technical issues with the ash would be resolved and that it would likely be useable. Mr Clarke took the view that the contract ought to be amended and extended and one of the purposes informing his mind, as a substantial purpose, was preventing a rival from securing access to Millmerran unprocessed ash and preventing a rival from entering the SEQ cgf market.
809 When Cement Australia caused Pozzolanic to enter into the amended arrangements with MPP/MOC, Cement Australia continued to enjoy a monopoly position in the SEQ cgf market. I accept the ACCC's statistics in relation to the size of the Cement Australia Group of companies and I accept that it is relevant to have regard to the Partnership arrangements and the assets and scope of undertaking of that Partnership. It was an arrangement crafted expressly for the operation of the merged entities and it was by operation of that merger arrangement that Cement Australia assumed the role of a monopoly supplier of cgf in the SEQ cgf market.
810 I am also satisfied that the conduct of amending the contract in the context of the identified provisions was conduct deliberately undertaken, at least for a substantial purpose, to foreclose the possibility of third party entry should the Millmerran ash prove to be free of the technical difficulties which had bedevilled it until then. Having caused Pozzolanic to make the amended Millmerran Contract, Cement Australia continued to give effect to it. The Millmerran ash never entered the market. The technical questions associated with the ash continued to be examined. Unlike the Tarong Contract, I regard the making of the contract and giving effect to it as one course of conduct. There is, however, an additional consideration concerning the role of Ms Collins and Mr Clarke. There can be no doubt that both Ms Collins and Mr Clarke well understood Cement Australia's monopoly position in the SEQ cgf market and well understood postulations that rival entry would have a significant impact upon prices and the EBIT margin Cement Australia used as the measure of its earnings (apart from EBITDA). I have described aspects of the engagement between Mr Clarke and Ms Collins and also Mr Adams earlier in these reasons.
811 It seems to me that an appropriate penalty in respect of the making of the amended agreement having regard to all of the factors I have discussed and the matters set out at [818], is $850,000. It was made by Pozzolanic at the direction of Cement Australia. In that sense, Cement Australia was knowingly concerned in the contravention. I regard the making of the amended contract and Cement Australia being knowingly concerned in its making as one class of conduct.
(Bold emphasis added.)
325 As to the contraventions relating to the Swanbank Contract, the primary judge said at [812]-[817] of the Penalty Reasons:
812 As to the Swanbank Contract, the role of the Swanbank ash was also important. The volumes were relatively small and that became more so by 2005. Nevertheless, the ash produced by Swanbank was ash from the power station located very close to the Brisbane catchment. It was another source of cgf able to be traded in the SEQ cgf market. Pozzolanic/QCL had secured an exclusive supply agreement with the owner of the power station which ultimately became CSE. The contract had been extended on exclusive supply terms to 31 December 2004 under the extensions described in the principal liability judgment and described in these reasons. The contract was the subject of a further extension as a result of the exchanges between Mr Christy and Mr White discussed extensively in the principal liability judgment and in these reasons.
813 The Swanbank Contract was an important part of the market power exercised by Pozzolanic/QCL. No third party could secure access to the ash having regard to the contractual arrangements in place with Pozzolanic/QCL. Pozzolanic/QCL was entirely astute to the exclusive character of the contract. Pozzolanic/QCL understood that CSE was seeking to establish terms which would enable third parties to secure access to its ash. At the time of the extension to 31 December 2004 and the further extension to 30 June 2005, Pozzolanic/QCL and then Cement Australia continued to enjoy a monopoly position in the market. The terms of the Swanbank Contract foreclosed any possibility of supply of Swanbank ash to a third party.
814 Having secured the contract to 31 December 2004 and an extension of it to 30 June 2005, Pozzolanic/QCL up until May 2003, and thereafter Cement Australia, continued to give effect to the contract. Cement Australia was knowingly concerned in Pozzolanic's extension of the contract from 31 December 2004 to 30 June 2005.
815 Mr White was responsible for the extension of the contract on 31 December 2004 to 30 June 2005. Mr White's position and his seniority have been extensively described already.
816 I accept the submissions of the ACCC in relation to the Swanbank Contract set out at [383] to [390] of these reasons except in relation to the quantum of the penalty. I also accept the submissions of the ACCC in relation to the Swanbank extension for the period 1 January 2005 to 30 June 2005 except as to the quantum of the penalty.
817 I have taken into account the nature of the market harm by reason of the provisions of the Swanbank Contract, in a qualitative sense. I have also had regard to the provisions of the principal liability judgment concerning the Swanbank Contract and all matters relevant to the contraventions. I have examined at [818], the quantitative aspects urged by the ACCC in relation to benefit and market harm which engaged questions in relation to Swanbank and the sale of Swanbank cgf. Having regard to all of these factors relevant to the assessment of penalty, it seems to me that in respect of the contravening conduct in the period up to 31 December 2004, an appropriate penalty in relation to the making of that contract with the identified provisions is $1.5 million. As indicated in the principal liability judgment, substitutable ash from Swanbank would have had a significant and meaningful effect upon rivalry, prices, revenue and margins. Prior to deterioration in the quality of the ash towards the end of the contravening period, Swanbank ash was regarded by the respondents as substitutable for Tarong ash. In respect of the making of the six month extension to 30 June 2005 by Mr White, an appropriate penalty is $200,000. The extension was for a short period. In relation to the contract up to the period 31 December 2004, Pozzolanic gave day-to-day effect to that contract as did QCL by selling cgf produced from Swanbank ash. It seems to me, having regard to all of the relevant factors, that an appropriate penalty in respect of that conduct is $1 million. Like the Tarong Contract, there are two classes of separate conduct in relation to the contraventions concerning Swanbank as an analysis of conduct overall. In respect of the giving effect to the provisions in the period 1 January 2005 to 30 June 2005, the appropriate penalty is $50,000. Cement Australia was also knowingly concerned in the extension of the contract to 30 June 2005. The conduct of Mr White for Cement Australia of making the extension and Cement Australia being knowingly concerned in the contravention is a single course of conduct and no additional penalty ought to be imposed in respect of Cement Australia being knowingly concerned in the extension conduct.
326 The primary judge then considered the factors of benefit and market harm quantitatively at [818] of the Penalty Reasons. Given the significance of this paragraph for the appeal issues, we set it out in full:
In relation to the various approaches to determining market harm caused by the conduct or benefit derived by the respondents, I have formed these views.
(1) An attempt to measure, quantify or estimate the prices that would have prevailed in a market but for the contravening conduct is an extremely difficult and precise task. Although the ACCC in its further submissions disavows the notion that it is seeking to establish a but for price, the substance of the submissions are really directed to that task. The task is undertaken in this case by the ACCC to try and demonstrate or estimate the difference between the prices charged for cgf by QCL and later, Cement Australia, in the period 2002 to 2006 and prices that would likely have prevailed in that period had not the respondents entered into and given effect to provisions of the contracts adopted for the purpose and having the effect or likely effect of substantially lessening competition by foreclosing access to third parties to ash from Tarong, Tarong North and Swanbank (and Millmerran at least for a time, as to effects).
(2) That raises the question of the counterfactual. I will not repeat what I said at [477] to [489] of these reasons.
(3) The point of undertaking this analysis of the but for price is to try and identify the extent to which the respondents were better off by securing a price, a volume of sales and revenue and a level of EBIT they would not have enjoyed had the provisions not been adopted constraining third party access and new entrant competition in the SEQ cgf market. The ACCC also seeks to identify the market harm brought about by the conduct. The application of the with and without test has already made clear qualitatively that the process of competition in a future world with the provisions was substantially lessened as compared with a future world without the provisions. Now, the ACCC seeks to bolster the serious qualitative assessment already made in the principal liability judgment without an actual measure of the difference between the actual position as to prices, volume, revenue and EBIT as it was from 2002 to 2006 with those things as they would have been but for the contravening conduct.
(4) As mentioned, the ACCC says in its further submissions that it is not trying to "quantify" the but for price and consequential but for volumes, revenues and EBIT but rather it seeks to identify an estimate of those things and also the forward-looking estimates of the consequences of new entrant competition identified by the respondents themselves in their own documents. This approach is later described by the respondents as the "hybrid" approach between qualitative assessments and best informed estimates of likely differentials.
(5) One of the methods of gaining a sense of how much higher cgf prices were in the period 2002 to 2006, by reason of the contravening conduct, than they would have been is the extent to which the prices of cement and cgf "de-coupled" in the years 2011 and 2012. I accept the submissions of the respondents that the two invoices identified at [353] of these reasons provides no basis for a conclusion that but for the contravening conduct cgf prices in 2002 to 2006 would have been a particular proportion or ratio of the GP cement price [REMOVED TO THE CONFIDENTIAL SCHEDULE] and thus prices would have been a lesser ratio than it was (50% to 60%) in the period 2002 to 2006 with the result that, analytically, one can say that cgf prices would have been lower in the period 2002 to 2006 than they were.
(6) At [333] to [349] of these reasons, I describe another measure proposed by the ACCC of the likely price differences that would have prevailed in the period 2002 to 2006 but for the contravening conduct. That measure involves an analysis of pricing differentials between Cement Australia's delivered prices and the delivered prices for cgf of Sunstate and IFB in the years 2011, 2012 and 2013, Sunstate having entered the SEQ cgf market in April 2007 (with ground Tarong North run-of-station ash) and IFB having entered in 2008 (with Millmerran ash). The margin difference for each year is set out at [349] of these reasons as it relates to Nucon. It is not an insignificant margin. Another example is given for purchases by Rocla, Gailes. The "study" years 2011, 2012 and 2013 are 5, 6 and 7 years after the end of the contravening period 2002 to 2006. I have great difficulty with this measure for a number of reasons. First, the study years for the transactions are quite a long time after the period of the contraventions which began on 30 September 2002. The contravening period under examination in the principal liability judgment ends on 31 December 2006. Second, although that which is supplied is flyash, the source of the ash in the case of Cement Australia is Tarong and Gladstone ash each of which has its own particular properties. The source of the Sunstate ash is Tarong North as mentioned, ground in Sunstate's mill, until it reaches the cgf particulate standard. The source of IFB's ash is Millmerran and some of the other comparative ash is Bayswater ash. It is not clear to me, on the present evidence, what role in pricing in 2011, 2012 and 2013 differential sources of ash played, if any, or what the impact of any comparative cement equivalence may have been or its role in pricing. Third, more would need to be known about the transactions to draw the conclusion sought to be established which is that the significant pricing differentials are only attributable to alternative pricing made possible by entry by Sunstate and IFB and had they entered the SEQ cgf market from 2002 to 2006 (which they did not, it is said, by reason of the contravening conduct), the pricing differentials now apparent in these later years of 2011, 2012 and 2013 would have been seen in Sunstate or IFB's pricing (or other third party pricing). The ACCC says that Sunstate's "ex-works" price was [REMOVED TO THE CONFIDENTIAL SCHEDULE] than Cement Australia's "average delivered price" in 2013, and the transport costs of delivering Sunstate ash to the buyers batching plants (on this comparative basis) does not account for the difference, as the tables reveal at [333] to [349] of these reasons. However, I am not satisfied that this measure of pricing differentials for the years 2011, 2012 and 2013 tells me anything ultimately probative of prices which would have prevailed in the period 2002 to 2006 but for the contravening conduct.
(7) Another measure said to reveal an analogue of prices that would have prevailed in the period 2002 to 2006 but for the contravening conduct is a comparison of SEQ prices with prevailing prices in NSW. The supply of cgf in NSW was contestable in the relevant years. Prices were a function of that contestability at least in part. The ex-works prices at Mt Piper, Eraring and Bayswater are set out at [322] of these reasons for the period 2001 to 1 December 2006. A delivered pricing comparison between the prevailing prices for delivered cgf into NSW from NSW power stations and prevailing prices for cgf delivered from Tarong and Swanbank to the batching plants of buyers in SEQ is set out for the years 2003, 2005 and 2006 at [323] of these reasons. The differences, plainly enough, are significant: see [329] of these reasons. The difference postulated for the years 2002 to 2006 are set out at [330] of these reasons.
(8) The difference per tonne for each year is said to be: 2002 - $26.50/t; 2003 - $33.81/t; 2004 - $26.46/t; 2005 - $29.92/t; 2006 - $15.98/t. The additional revenue for the period 2002 to 2006 based on the volume sold having regard to these price differentials is $42.087 million. The point emphasised by the ACCC is that NSW is a geographic catchment that represents a proper analogue of the SEQ market. The ACCC says that what follows is that had the contravening conduct not occurred, new entrant rivalry in SEQ would have brought about a level of delivered prices on the part of Cement Australia very similar to those prevailing in NSW. Thus, this method demonstrates, it is said, a measure of the margin by which prices were higher in SEQ in 2002 to 2006 than they would have been but for entry and contestability which was foreclosed by the provisions of, particularly, the Tarong and Swanbank Contracts. In NSW, FAA was competing with Hyrock. The ACCC says that FAA had agitated for entry into the SEQ cgf market through access to both Tarong and Millmerran ash and there is no reason to believe that had the contracts at Millmerran and Tarong/Tarong North (but particularly Tarong/Tarong North) not contained the identified provisions, FAA would not have sought to secure access to that ash. The merger of May 2003 resulted in Cement Australia having a 50% interest in FAA (and therefore ultimately Holcim, Rinker and Hanson, the beneficial owners of that interest).
(9) Dr Williams accepts that one possible explanation for the marked differences in prices between the two regions is that the effective monopoly of Cement Australia in SEQ meant that it could charge uncompetitive prices. Dr Williams said that another possible explanation is that the ash sources are not homogenous. The product differentiation in the ashes would require extensive empirical work which Dr Williams had not undertaken. Dr Williams thought that another possible explanation was that transfer pricing might be a cause of the differences. The similarity in prices between Eraring, Mt Piper and Bayswater ash suggested to Dr Williams that those ashes were reasonable substitutes for each other. As to aspects of the pricing, Dr Williams seemed to be confused about the 2006 prices. However, he accepted that the SEQ average delivered price for 2006 was $69.09/t and the highest NSW price for 2006 was $54.11/t. Thus, there plainly were differentials.
(10) Apart from these possible explanations, Dr Williams criticises the method of simply applying the price difference between the two regions each year across all tonnes sold in SEQ to produce an aggregated price difference of $42.087 million because the price difference, by doing so, is applied to all "tied sales" across each of the five years. The second criticism is that no proper controls were applied to isolate the causal influence of transport costs; whether prices charged were at arms-length; and tied sales were not excluded.
(11) Again, I have difficulty with this method as a measure of the price that would have prevailed but for the contravening conduct. Dr Williams accepts that reference to a truly analogical market is one method recognised by economists for testing a but for price. Dr Williams also accepts that the price differentials are significant and that they need to be explained. Apart from the criticisms already mentioned, Dr Williams says that no conclusion can be reached about "average prices" unless all of the invoices for the period under inquiry are examined. The prices could just be point in time prices. It is not clear whether the prices set out in the tables are properly representative or not in the absence of a complete analysis of all of the invoices.
(12) It seems to me that these questions of whether the ash is homogenous; the lack of control for other causative factors; and the need for an examination of all the invoices over the period under examination, does not enable a conclusion to be reached that, on this measure, prices in SEQ in the period 2002 to 2006 were higher than they would have been but for the contravening conduct, by the order suggested.
(13) This measure is put forward as a measure of market harm of $42.087 million. That number depends upon the integrity of the pricing data to determine the differential per tonne. In principle, however, Dr Williams accepts that direct market harm can be quantified by multiplying the tonnage by the difference in price per tonne between the price actually charged and the price that would have been charged but for the conduct ([679] of these reasons) provided that those tonnes were sold to external parties: that is, not tied sales to shareholder owners. As a method of measuring market harm, therefore, Dr Williams accepts the principle of the method subject, of course, to the elimination of tied sales in the calculation and the integrity of the data.
(14) Although I have expressed difficulty with the determination of the differential per tonne each year in the table at [330] of these reasons, as earlier mentioned based in part upon aspects of the evidence of Dr Williams, the differences on the face of the data are significant and they do require an explanation. The ultimate difficulty is that the evidence does not demonstrate a truly probative basis for a causative finding that the contravening conduct is the source of the differential in that measure.
(15) The question of tied sales raises a much more general point of principle. Dr Williams says that tied sales should be excluded because an examination of market harm is about identifying harm caused by the contravening conduct to others: see [669] to [673] of these reasons where Dr Williams identifies the principled foundation for that view based upon his expert opinion and his understanding of the economic orthodoxy applied to determining market harm in the context of deterrence. As to the circumstances of Holcim, Rinker and Hanson and their relationship with Cement Australia, Dr Williams accepted that if Hanson, as a shareholder concrete producer buying flyash, was charged $4/t more than a rivalrous price due to contravening conduct and $1/t came back to it (due to its 25% shareholding interest) and the same result occurred for Hanson, then 50% of the higher price would go in a circle and 50% would not. If Hanson and Rinker each pay $4/t more than the "but for" price as a measure of the market harm, Cement Australia then has $8/t (and leaving aside costs for the moment) $2/t would be returned to each of Rinker and Hanson and $4/t would be returned to Holcim, a non-concrete producer. It seems then that if 60% of the sales are tied, only 50% of that 60% should be excluded. If that is so, and the market harm is said to be $42,087,793, 60% of that amount is $25,252,675 and 50% of that number is $12,626,337. The market harm excluding tied sales would then be $29,461,456 assuming the integrity of the pricing differentials which, of course, for the reasons mentioned, cannot be assumed.
(16) I have examined the literature and the cases to try and identify judicial authorities for the proposition that tied sales ought to be excluded in measuring market harm consistent with the principle articulated by Dr Williams. I can find no authority on the point. As a matter of foundation principle, it seems to me to be correct to say that if a Court is seeking to identify the market harm caused by contravening conduct, the focus of the inquiry ought to be upon the market harm caused to parties other than entities associated with the companies engaging in the conduct.
(17) Accordingly, I accept the proposition that in determining market harm, the proper course is to exclude harm inflicted upon shareholder entities who are engaging in tied acquisitions.
(18) Apart from market harm, the ACCC has conducted an analysis of benefit derived by the respondents from maintaining a higher market share than would have been the case but for the contravening conduct. I accept, in substance, the accuracy of the data contained in the tables at [267] and [268] of these reasons as it relates to the full five years in those tables. The Tarong EBIT calculation for those years is at [408] of these reasons ($58,742,565) and the combined Tarong and Swanbank EBIT calculation is at [361] of these reasons ($63,278,191). After excluding the additional Millmerran costs, the five year EBIT calculation is $55,313,191. These financial statistics represent the value of the SEQ flyash business of and to the respondents. The EBIT of $55.313 million as a proportion of total revenues is an EBIT of 43.7% for the full five calendar years set out in those tables. It represents an EBIT of $31.11/t over 1,777,514 tonnes averaged over the five years.
(19) The ACCC says that this position reflected in these statistics can be usefully and relevantly contrasted with the position the respondents would have been in across the period at least 2003 to 2006 had they lost the Tarong Contract but won the OMC. They would have earned $0.14/t or $6,429 and this difference between the two positions represents "one straightforward indicator of the potential financial benefit the [respondents] earned by preventing competition": [367] of these reasons. In other words, the ACCC sees the entire flyash undertaking of the respondents, largely derived from the sale of Tarong ash (see [408] of these reasons) as a benefit derived from the contravening conduct which should be stripped away as a function of deterrence. Plainly, that is not correct.
(20) The true analytical position is that discussed at [477] to [489] of these reasons.
(21) The whole of the revenues and EBIT of the flyash business from the date of the Tarong Contract (in particular) forward cannot be attributed to the adoption of the impugned provisions and thus the contravening conduct in that causal sense. Pozzolanic/QCL might have entered into the Tarong Contract with none of the impugned provisions and yet it might have sustained at least a proportion of its revenues and EBIT in the face of responding to competition notwithstanding that absent the provisions, new entrants would likely have entered with access to Tarong ash (perhaps FAA or Transpacific but also others) and brought about a significant impact on earnings through contestability with Pozzolanic/QCL and later Cement Australia. The competition impact of the provisions is significant but if the benefit brought about by reason of the contravening provisions is to be assessed, quantified or estimated, then it is necessary to approach the matter on the footing of the method identified at [477] to [489] of these reasons.
(22) Another measure of the benefit said to have been derived from the contravening conduct is that once contestability occurred (foreclosed by operation of the provisions) through Sunstate and IFB, the contravening grip of the respondents on non-tied sales would have been lost and the ACCC says that the data shows that these sales collapsed from 40% of sales in 2005 to merely 6% in 2010. The ACCC says that had Sunstate or IFB entered the market in 2005 and had that event resulted in a reduction in sales to sales of cgf by Cement Australia to only 6% of the non-tied customers, Cement Australia would have lost $5,418,656 of its 2005 EBIT earnings: see [371] to [372] of these reasons. This is said to give an indication of the measure of the benefit Cement Australia derive from adopting the impugned provisions.
(23) Generally, the non-tied sales represented 40% of the SEQ cgf sales of the respondents from 2005 to 2007. Those sales declined throughout 2008 to 2010. In the years 2011, 2012 and 2013, Cement Australia's percentage of sales volume in SEQ declined from [REMOVED TO THE CONFIDENTIAL SCHEDULE] in 2012 and then [REMOVED TO THE CONFIDENTIAL SCHEDULE] in 2013. The volume of sales won by competitors, Sunstate, Hyrock and IFB in that period, correspondingly amounted to [REMOVED TO THE CONFIDENTIAL SCHEDULE].
(24) As described, one significant benefit derived by the respondents from the contravening conduct is said to be the retention for each year from 2002 to 2006 of sales of cgf to non-tied customers represented 40% of the sales revenue. The ACCC then postulates the impact the respondents would have suffered had the impugned provisions not been adopted. The ACCC says that instead of deriving an EBIT across those five years of $53,282,774, the EBIT would have been $21,313,108, a difference (or postulated benefit) of $31,969,666. However, if an assumption is also made that prices were $14/t higher than they would have been but for the contravening conduct, further adjustments for that price difference on the 60% of the remaining sales results in a contended potential EBIT loss of $33,585,604. The respondents are said to have benefited to that quantifiable extent by reason of the contravening conduct: [375] of these reasons. That amount is then adjusted by the ACCC to $32,558,000: [376] of these reasons.
(25) A further measure along this line of thinking is that if the respondents had suffered a loss of 40% of sales for each of the five years 2002 to 2006 and prices on the remaining 60% of sales had occurred at the prevailing NSW cgf delivered price, the potential EBIT loss is then said to be $44,158,556. That amount is said to be a measure of the benefit the respondents derived over the five years 2002 to 2006 and as a matter of principle, that benefit ought to be removed from the respondents in the interests of serving the objective of deterrence.
(26) This calculation of benefit is, in many respects, quite problematic. It assumes that there would have been a loss of non-tied sales but for the contravening conduct in the way described. The position in relation to tied sales would have been different in the period from 26 February 2003 to the end of May 2003. From 1 June 2003, the sales to the shareholder concrete producers were retained by Cement Australia not because of the contravening conduct but by reason of the shareholder equity interest those buyers held in the supplier of the product. As to the non-tied sales, plainly there would have been a significant impact upon those sales as Professor Hay suggested. What is not clear is whether responsive rivalry from QCL and later Cement Australia would have resulted in a proportion of those sales being held by QCL/Cement Australia. QCL and Cement Australia might well have been reluctant to supply Tarong cgf to non-tied buyers operating batching plants within a relevant catchment of a batching plant of a shareholder concrete producer for fear that the MFN provisions of the contracts would have required QCL/Cement Australia to provide the same price to those buyers as the non-tied buyers notwithstanding that the tied shareholder buyers enjoyed the benefit of the "50% goes around in a circle principle".
(27) There is no doubt that QCL/Cement Australia derived a benefit by reason of the contravening conduct in retaining a certain level of non-tied sales during the period 2002 to 2006, a significant proportion of which would have been lost to a third party entrant. The difficulty I have with the formulations as described, in the necessary detail required of the analysis as set out in these reasons, is that as a true measure of the benefit, it is not clear to me what proportion of the non-tied sales would have been lost in the period 2002 to 2006. The other calculations are then dependent upon an assumption that the entire 40% of the sales would have been lost and, on top of that, the price in any event was $14/t higher than it would have been with the result that recalculations must be made on the balance 60% of sales to reflect the deterioration in revenue and EBIT (apart from the further table factoring in the NSW delivered price as a further calculation).
(28) I am not satisfied that these calculations provide the Court with a probative analysis of a but for benefit. As I have said, I entirely accept that QCL and Cement Australia garnered to itself a real and meaningful benefit by adopting the provisions. My difficulty is that in attempting to either quantify the measure of that benefit or, as the ACCC later says, estimate that benefit on an informed basis, I cannot attribute a quantification or estimate of the kind sought to be asserted by the ACCC based on these calculations.
(29) Apart from these matters, a number of other propositions need to be addressed.
(30) I accept that sales to shareholder customers, in the way I have described it, ought to be removed from the calculation if the exercise is one of seeking to calculate market harm.
(31) I accept that in calculating the benefit derived from the contravening conduct, the starting point is to isolate the revenue derived during the period of the contravening conduct and, in that regard, I accept that the relevantly adjusted revenue is about $101 million according to the matters described at [490] of these reasons.
(32) Although I accept that the calculation of market harm ought to exclude harm, in effect, inflicted upon itself or its related corporations in the form of the shareholder concrete producers, it is not entirely clear to me that in seeking to identify a benefit derived by QCL/Cement Australia in supplying cgf at a price higher than the but for price, the returns to the equity owners who are shareholder concrete producers ought to be taken into account in off-setting the market measure of the benefit derived by the supplier. However, if the analysis involves accepting that any profit extracted from a shareholder buyer due to a higher price, is returned to the concrete producer equity owners as to 50%, the better view is that the measure of the so-called "benefit" derived through the higher but for price ought to be discounted to reflect a 50% return to the concrete producer equity owners.
(33) As to the EBIT earnings, there is much controversy about the true measure of the EBIT. For the purposes of seeking to examine the EBIT earnings, it seems to me that a measure of about 37% is an average benchmark EBIT to test the calculations.
(34) As to the off-setting of the Millmerran costs, Pozzolanic/QCL incurred an ongoing royalty obligation in entering into the contract. It may have been a price QCL was willing to pay to secure the contract for ash supply from the Millmerran power station without provisions which had the purpose, effect or likely effect of substantially lessening competition. In fact, Pozzolanic/QCL entered into an obligation to pay royalties under a contract which contained provisions adopted for the purpose and having the effect or likely effect of substantially lessening competition. That was a price Pozzolanic/QCL was willing to bear and an obligation Cement Australia assumed as it gave effect to the contract. To the extent that an attempt is made to quantify or estimate the benefit derived from the contravening conduct, it seems to me that costs related to the acquisition of flyash under a contract containing provisions prohibited by the Act ought not to be taken into account in reducing the measure of the contended benefit. Those costs simply lie where they fall.
(35) As to the calculation of the costs to be taken into account, the respondents say that there are many other costs allocated to the MIC segment which ought to have been allocated to the flyash business. The respondents historically calculated EBIT and EBITDA on a particular basis and I can see no basis on which costs that have never been regarded by the respondents as part of the flyash business should now be treated as costs of the flyash business for the purpose of seeking to calculate the measure of the profit.
(36) As to the tax, I accept that there is some evidence about earnings and the relationship between earnings and the tax liability of the respondents. However, the respondents could have put on focused, succinct material about that question directed expressly to the tax position. They chose not to do so and it is not clear to me what the tax position of the respondents is or has been and whether any non-deductible benefit ought to be reduced by the tax burden that theoretically falls upon the profit margin elevated by reason of the non-deductibility of a pecuniary penalty.
(37) I accept that leaving aside the tax question but taking into account the adjustments already indicated (but not the Millmerran costs) the EBIT derived by the respondents in the precise period of the contraventions (rather than the total period 2002 to 31 December 2006) is probably an amount between [$13.5 million] to possibly [$20 million].
(38) I also accept that it does not necessarily follow that all of this EBIT would have been lost in the face of rivalry and that all of it represents a true "benefit". Contestability would have resulted in QCL/Cement Australia retaining some proportion of its EBIT earnings. What the measure of that retention might have been or the measure of the actual lost EBIT is not really clear to me notwithstanding an intensive consideration of all of the data.
(39) The last matter on this topic is the emphasis the ACCC attributes to the internal analysis by the respondents of the forward-looking position should a competitor enter the SEQ cgf market. Dr Williams says that it is not inappropriate to examine the thinking within the respondent group but that whatever the thinking of the relevant individuals might have been, it rises no higher than the expression of an opinion and does not reflect hard analysis of a but for price upon which economists would rely. In short, economists would want to test the opinions by reference to hard data to get the answer to the question of what the but for price might have been and that analysis might or might not align with the expressions of opinion. I accept entirely that as a true analytical exercise, the opinions expressed by individuals within the respondent group would need to be tested to determine whether their assessments of the forward-looking price were likely to be correct. It is important to remember that the opinions were forward-looking projections of the price that would, in their view, prevail in the face of competition. They were based on certain assumptions some of which proved to be untrue. Notwithstanding all of those qualifications, I do not accept that the Court ought to simply put to one side the expressions of opinion of experienced managers charged with the conduct of the business and experienced directors charged with the governance of the companies. As already indicated, those individuals are probably in the best position to make a market assessment of likely future events notwithstanding that future events might prove their judgements to be wrong. It is clear that Mr Arto and Mr Maycock thought that the assessments by Mr Wilson and Mr Ridoutt were exaggerated, strong expressions of view and perhaps a postulation of the worst possible case. It is also true that Mr Maycock did not accept those assessments as a likely result once QCL began to engage in the competitive process.
(40) Nevertheless, Mr Ridoutt and Mr Wilson thought that there would be a significant price reduction should new entrant competition emerge and it would be likely to be in the order of a $10/t reduction in the price of cgf. Mr Arto seemed willing to act on that view. He certainly had his own views about the benchmark margin QCL should seek to preserve. Later, Ms Collins had very similar views about the likely price reduction should Cement Australia find itself in the very unfortunate and undesirable position of having to compete with a rival for the sale of flyash in SEQ. Revenues and EBIT earnings would be under pressure. She spoke about a $10/t price reduction. She pressed the proposition with Mr Clarke.
(41) I accept that these postulations by Mr Ridoutt and Mr Wilson and later by Mr Clarke and the emerging reality which Mr White confronted are, at the end of the day, simply expressions of opinion. They remain, however, informed opinions. They cannot be in any sense determinative or probative of a price which would have emerged in the period 2002 to 2006 but for the contravening conduct and the postulations of a price reduction cannot simply be projected across the entire period of the contraventions. That is simply not a rational approach. However, these expressions of opinion make it very plain that the most informed market participant fully expected there to be a significant impact upon the price should a new entrant emerge with contestable ash and seek to compete away the margin and price enjoyed by the monopoly incumbent. Ultimately, it is not possible to put a number in any credible way on the measure of that benefit because it simply depends upon too many factors and assumptions and is ultimately not supported by hard data establishing a but for price. The entire exercise of trying to postulate, by reference to hard data and sound economic analysis, a but for price, is a very complex exercise. I have undertaken with economists such a detailed exercise in seeking to determine the but for price for electricity transformers which would have prevailed had participants in that industry not engaged in cartel conduct. The opinions of the senior managers cannot operate as a proxy for the but for conduct. However, those opinions ought not to be discounted because they tend to suggest a consistent theme accepted by Mr Maycock that in the face of competition QCL, and later Cement Australia, would not have been able to sustain the margins they enjoyed. The immediate difficulty is trying to quantify or estimate the measure of that difference.
(42) In the result, it seems to me, that the trend in the opinions within the respondents' own documents ought to be taken into account in recognising that those individuals believed that QCL and Cement Australia would suffer degradation in the price and earnings should new entrant competition emerge armed with substitutable ash. The pecuniary penalty ought to take into account not the postulated measure of the price reduction projected over five years as a uniform measure but rather recognise that the internal officers believed that new entrant competition would represent a serious threat to price, earnings and margin. It cannot be put any higher than that. Ultimately, the entire matter comes back to a qualitative assessment of the conduct in the sense that the pecuniary penalty should take account and recognise that the respondents derived benefit from the conduct but the true measure of the benefit in the absence of proper economic analysis cannot be quantified in any hard way.
We note that it is common ground that of the Penalty Reasons contains a typographical error and should be corrected to refer to the range $13.5 million to $20 million, as we have indicated in square brackets in the above quotation.
327 During the appeal hearing, senior counsel for the respondents handed up a note which set out an analysis of the primary judge's finding as to the relevant profit range at of the Penalty Reasons. Senior counsel for the ACCC indicated agreement with the methodology and calculations in the note (T206). However, the ACCC disputes whether some of the steps set out in the note should be taken, in particular whether sales to shareholders should be subtracted. On the basis of the note, the EBIT range of $13.5 million to $20 million referred to by the primary judge may be calculated as follows:
(a) The first step is to identify the whole of the revenue (for the relevant product in the relevant market) across the period from 1 January 2002 to 31 December 2006. The primary judge accepted that this was $126,574,053.
(b) The second step is to reduce that revenue figure so that it relates to the narrower period of the contraventions (see [291] above). The primary judge accepted that the revenue across the narrower period of the contraventions was $101,033,957.
(c) The third step is to exclude sales to shareholders from the revenue figure, which comprised approximately 60% of sales. Excluding shareholder sales leads to a figure of $40,413,582.
(d) The fourth and final step is to apply a figure for EBIT margin in order to derive a figure for earnings rather than simply revenue. The respondents contended for an EBIT margin of 33% and the ACCC referred to a range of figures for EBIT margin, the highest of which was 49%. If these margins are applied to the revenue figure derived from the first three steps, it produces a range of $13,336,482 to $19,802,656.