Australian Competition and Consumer Commission v FFE Building Services Limited

Federal Court of Australia|2003-12-19|Before: Building Services P, Wilcox J

REASONS FOR JUDGMENT WILCOX J: 1 This proceeding has been brought by the Australian Competition and Consumer Commission ('ACCC') against four corporations involved in the fire protection industry and seven executives, or former executives, of those corporations. ACCC claims that each of the corporations was involved in contraventions of ss 45 and 52 of the Trade Practices Act 1974 (Cth) ('the Act') and the executives were each knowingly concerned in those contraventions. 2 Shortly before the scheduled hearing of the proceeding, I was informed by counsel that it had been substantially settled. On the invitation of counsel for ACCC and counsel for one or more particular respondents, I made consent orders disposing of the proceeding (in whole or in part) as against that respondent or those respondents. Those orders comprised declarations concerning the past conduct of that respondent or those respondents, and injunctions restraining future similar contraventions. 3 After those orders were made, the only matter outstanding was ACCC's applications for penalties against two respondents, FFE Building Services Limited (the first respondent, 'FFE') and Vito Fodera (the seventh respondent). Mr Fodera was formerly employed by FFE as its State Manager in New South Wales. 4 For reasons not fully apparent to me, ACCC did not seek the imposition of penalties on any other respondent. In relation to the penalty claims against FFE and Mr Fodera, the relevant counsel prepared joint submissions. They were placed before me on 12 December 2003 and were the subject of some discussion.

6 According to the agreed facts, from 1994 onwards, FFE provided training to its employees about compliance with the Act. This was said to have taken the form of seminars and the adoption of policy manuals and authorities that specifically prohibited conduct of the type which is the subject of the present proceeding. The agreed facts include no information about the extent of the training or the persons who were affected by it. Whatever was done seems to have been notably ineffective.

(b) The Ryde Meeting 7 In November 1995, Geoffrey Grimley, Sales Manager/Estimator of FFE, arranged a luncheon meeting at a restaurant in Ryde. Four persons attended. They were Mr Grimley, Mitchell Grice (the tenth respondent), James Bell (the eighth respondent), and a David Tarrant. At that time, Mr Grice was employed by the second respondent, Tyco Australia Pty Limited ('Tyco'), as NSW Manager of Wormald's Sprinkler Contracting, Fire Door and Alarm Contracting Division. Mr Bell was Managing Director of Metropolitan Fire Systems Pty Limited ('MFS'), the present fourth respondent. Mr Tarrant was a director of Automatic Fire Protection Design Pty Ltd, a company that has not been made a party to this proceeding. Each of the companies represented at the meeting was engaged in the fire protection industry. 8 It is agreed that, during the course of the lunch, Mr Grimley made these two statements on behalf of FFE: (i) 'If there is an opportunity not to chop each other up, then I do not see why we should be doing that. We should not be slicing each other up. We've got builders who have won a project using your or my price and they then broadcast that price and put it out in the marketplace for re-tender. Therefore, if it is known that any of us have the best price, anyone else in the market should not undercut them.' (ii) 'We should talk about jobs and try and line up some of the jobs that are coming up. We should put up our hands for different jobs, so that we do not compete with each other, but still compete with the other companies on the job. There is a lot of work around, why should we all compete when we could put up our hand for jobs that we have a good chance of getting.' 9 It is agreed between the parties that Mr Grice agreed with the latter statement. There is no agreed statement about the reaction of Mr Bell and Mr Tarrant.

(c) Randwick Hospital 10 Whether or not Mr Bell expressed agreement with Mr Grimley at the meeting, he took up Mr Grimley's idea in connection with tenders for fire protection services at Randwick Hospital. FFE was invited to tender for these services in March 1996. It is agreed as follows: 'Grimley was responsible for submitting a tender on behalf of FFE and at a time prior to the submission of the FFE tender Grimley received a telephone call from Bell in which Bell said "We would like the Randwick hospital job and we want you to cover us". Grimley said words to the effect of "OK". Bell then read out figures to be inserted by Grimley in the FFE tender. Grimley used the prices given to him by Bell or prices greater than those given to him by Bell in preparing the FFE tender, which was submitted by letter dated 28 March 1996 and the price submitted was $1,985,640. This letter from FFE represented that its tender had been prepared from the invitation to tender, specification and drawings. MFS tendered by letter dated 28 March 1996 and the price submitted was $1,822,900. This letter from MFS represented that its tender had been prepared from the invitation to tender and drawings. Neither MFS nor FFE were awarded the tender.' 11 FFE accepts that Mr Grimley's conduct in relation to Randwick Hospital contravened four provisions contained in s 45 of the Act: s 45(2)(a)(i), s 45(2)(a)(ii), s 45(2)(b)(i), and s 45(2)(b)(ii). However, no penalty is sought in relation to these contraventions. The reason is that they occurred more than six years before this proceeding was commenced, on 31 May 2002: see s 77 of the Act. The four later contraventions are within the six year period.

(d) Kotara Garden City 12 The first of the later contraventions concerned Kotara Garden City Shopping Centre in Newcastle. It involved William Lawson, Tyco's Northern Regional Manager for New South Wales, and John Shirlaw, FFE's contracts manager responsible for the preparation and submission of tenders for fire protection services, including sprinkler services. The following account of this incident is agreed: 'Lawson prepared the tender for the provision of the sprinkler services on behalf of Tyco and submitted this tender to the builder Mainbrace Constructions Pty Limited ("Mainbrace") on or about 27 November 1996. At some time within the period between 19 and 27 November 1996 Lawson telephoned John Shirlaw. At this time Shirlaw was an employee of FFE responsible for the preparation and submission of tenders for fire protection services including sprinkler services. Lawson said words to the following effect: "I've been doing some calculations for the Garden City Job. We want FFE to cover us on this one, and you will need to go in at a price higher than X dollars (a figure higher than $300,000). You owe me a favour because of the Cargill job." Shirlaw replied in words to the effect of "OK". Tyco were successful in being awarded the tender for the Garden City job. FFE submitted a tender at a price higher than Tyco. Tyco's price was $298,210. Gregory Scott who in November 1996 held the position of construction manager with Mainbrace telephoned each of the first and second respondents and was told that the price they had submitted was their best price. The conduct of FFE in submitting the tender, and affirming that the price was its best price, was misleading or deceptive, in the absence of disclosure of the communication with the other tenderer.'

(e) Darling Harbour 13 On the next occasion, Mr Grimley took the initiative. It is agreed as follows: 'In 1996 tenders were called for the provision of sprinkler systems and alarm systems for the Darling Harbour Side Shopping Centre. The job was a refurbishment job for alarms and sprinklers and all the existing alarm systems were Wormald (ie Tyco) proprietary alarm systems. The closing date for tenders for fire protection services was 19 July 1996. Grice was responsible for submitting the tender on behalf of Tyco. Prior to the closing date for tenders for the Darling Harbour Centre job Grice was contacted by Grimley who at the time was a Sales Manager with FFE. Grimley asked Grice to "cover me on your all up price and give me a competitive price for the fire alarms, I'll give you the fire alarm back at that price." By this request Grimley was asking Grice to submit a tender in excess of the price that FFE would be submitting and in return FFE would award the fire alarm component of the job to Tyco. Grice agreed to provide the cover price to Grimley, and did so. FFE were awarded the contract and subsequently Tyco were sub contracted by FFE to carry out the provision of the alarm system for the Darling Harbour Centre job. The FFE tender price was $213,985 and the Wormald price was $235,162.'

(f) Cargill 14 Mr Shirlaw initiated FFE's contravention in relation to the next incident. It is agreed as follows: 'In 1996 a tender was called to provide the fire protection services for the Cargill Seed and Oil Processing Plant at Kooragang Island near Newcastle in New South Wales. This was a special hazards system calling for an addressable fire alarms system, deluge and sprinkler system and fire hydrants. Approximately two to four weeks prior to Lawson submitting the tender submission for Tyco on 9 July 1996 he received a telephone call from John Shirlaw who was employed by FFE to prepare tenders for the provision of fire protection services. Shirlaw said words to the effect of: "Are you tendering the Cargill job? You owe me a favour because of [a previous job]". Lawson responded in words to the effect of: "I will price it on the figures you give me provided you give me enough information to put in a credible price". A meeting between Shirlaw and Lawson and an FFE estimator/draughtsman Colin Simpson took place at Lawson's home. At this meeting Shirlaw explained to Lawson the estimated labour costs for the job and Simpson provided technical information such as flow rates, pump sizes and design information. Shirlaw requested Lawson to submit a tender at a price of approximately $1 million. Lawson submitted a tender based on the technical specifications and price related to him by Shirlaw and Simpson. In the tender submission Tyco represented that "Our proposal has been prepared from Drawings, General Conditions of Contract, Specification 1122 Revision C and additional drawings received on your transmittal dated 2 July 1996." This statement was misleading and deceptive. The tender price was $1,028,593 and FFE's price was $913,617. FFE and Tyco were the only tenderers. The conduct of FFE in submitting the tender was misleading or deceptive, in the absence of disclosure of the communication with the other tenderer.'

(g) Angel Place 15 Finally, there was an incident involving Mr Fodera. It is agreed: 'In about November/December 1997, Vito Fodera the NSW State Manager for FFE contacted a competitor, and obtained a price from that competitor to submit to Leighton in relation to the tender for fire protection services for Angel Place. FFE through Fodera submitted a tender to Leighton at the price given to Fodera by the competitor.'

(h) The admitted contraventions 16 FFE admitted that its conduct in respect of each of the incidents contravened both s 45(2)(a)(i) and s 45(2)(a)(ii) of the Act and that its conduct in relation to each of Cargill, Kotara Garden City and Angel Place also contravened s 45(2)(b)(i), s 45(2)(b)(ii) and s 52 of the Act. 17 No penalty attaches to a contravention of s 52: see s 78 of the Act. However, s 76(1A)(b) of the Act provides a maximum penalty of $10,000,000 in respect of any contravention of s 45 by a corporation.

(i) Relevant factors 18 The joint submission refers to the factors identified by French J in Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 ('CSR') at 52,152-3 as being relevant to the assessment of a penalty. They are identified in the submission as: 1. 'The nature and extent of the contravening conduct; 2. The amount of loss or damage caused; 3. The circumstances in which the conduct took place; 4. The size of the contravening company; 5. The degree of power it has, evidenced by its market share and ease of entry into the market; 6. The deliberateness of the contravention and the period over which it extended; 7. Whether the contravention arose out of the conduct of senior management or at a lower level; 8. Whether the company has a corporate culture conducive with the Act as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention; and 9. Whether the company has shown disposition to cooperate with the authorities responsible for the enforcement of the Act in relation to the contravention.' 19 Two factors mentioned by Burchett J in Trade Practices Commission v TNT Australia Pty Ltd (1995) ATPR 41-375 ('TNT') at 40,169, are also relevant, paraphrased in the submissions as: '∙ the total penalty for related offences ought not to exceed what is proper for the entire contravening conduct involved (the 'totality principle' as known in the criminal law) and ∙the extent to which, by admitting the allegations, the respondents saved the community the burden of litigating a lengthy and expensive case.' 20 Other things being equal, similar contraventions should incur similar penalties. 21 Finally, ACCC and FFE referred to the fact that they had reached agreement that the appropriate range of total penalty to be imposed upon FFE was between $1,000,000 and $1,500,000. They said: 'Although the matter of penalty is ultimately one for the Court, any settlement reached between the ACCC and a respondent as to the range of appropriate range of penalty has great significance.' (ii) Reasoning 22 I accept the relevance of all the factors identified in CSR and TNT. However, I do not think their application provides much comfort to FFE. The collusive conduct of FFE in relation to each of the relevant jobs (Kotara Garden City, Darling Harbour, Cargill and Angel Place) constituted multiple contraventions of s 45 of the Act. That section is a major element in the Act's armory of provisions dealing with restrictive trade practices. It is now generally recognised that restrictive trade practices are inimical to a healthy competitive economy. Moreover, the collusive arrangements were made by senior FFE personnel in pursuance of a policy adopted by Mr Grimley and promoted by him at the Ryde luncheon. The contravening conduct not only had the potential to deprive building contractors, and their clients, of the lowest available price for fire protection services in relation to the particular job; but also had a tendency to undermine the entire tender system in the industry. FFE was a large company. It apparently enjoyed the second largest share of the New South Wales fire protection market (10%), after Tyco with 20%. The company's conduct extended over a period of at least two years, from the Ryde luncheon in November 1995 to the Angel Place incident in November 1997. 23 In their submission, counsel for FFE claimed the existence of a corporate culture conducive to compliance with the Act. They based this claim on the training program said to have been instituted in 1994. However, I would have expected that people such as Mr Grimley, Mr Shirlaw and Mr Fodera would have been prime candidates for participation in such a program; they were all involved in negotiating contracts on behalf of FFE. If they were included in the program, all three seem to have been untouched by it. If there was an active program, it is difficult to accept that it was taken seriously. 24 Counsel also claimed, as a mitigating factor, FFE's willingness to concede the case brought against it by ACCC. I agree that FFE is entitled to have this matter taken into account. However, not too much should be made of it. The concession came only at the last minute, virtually on the eve of trial, and only after FFE had exercised its right to pursue numerous interlocutory applications. The affidavit evidence filed by ACCC was compelling and FFE had filed no affidavits challenging the substance of that evidence. It is difficult to avoid the suspicion that FFE's advisers simply came to the conclusion that their client had no substantial prospect of success. 25 The joint submission pointed out that FFE's concession came within a week of the last of the documents concerning the ACCC - Tyco agreement being made available to FFE. Counsel said that FFE was 'entitled to ascertain the nature and extent of the arrangement with Tyco'. It is not apparent to me why ignorance of that arrangement would have been an impediment to FFE deciding to concede liability. FFE always knew there was a leniency agreement between ACCC and Tyco and that ACCC was not seeking penalties against Tyco. The precise terms of the agreement would seem to have been immaterial. 26 The documents that were produced to FFE in the week or two before its concession of liability were principally early drafts of statements of people who had been employed by Tyco at material times, some at least of whom ACCC intended to call as witnesses. If there was any significance in the timing of the concession of liability, it probably arose out of the content of those statements. Presumably, FFE's advisers realised that the statements provided them with no ammunition for attacking the witnesses' credibility. 27 As I have said, the maximum penalty for a contravention of s 45 is $10,000,000, in the case of a corporate respondent. I accept that each of the four penalty incidents (Kotara Garden Centre, Darling Harbour, Cargill and Angel Place) should be treated as involving a single offence, notwithstanding that each involved multiple contraventions of s 45. Even so, the maximum available penalty is $40,000,000. I accept it would be inappropriate to impose a penalty anywhere near this maximum; because of FFE's admission of liability and because no penalties had been imposed on FFE prior to the contravening conduct. Nonetheless, a total penalty range of $1,000,000 to $1,500,000 is so far below the penalty provided by Parliament that, having regard to the circumstances I have mentioned, I cannot accept it as providing proper guidance in this case. A more appropriate penalty would be at least double the top of that range. 28 Notwithstanding that all four incidents arose out of a collusion policy adopted by Mr Grimley, there is a qualitative difference between them. The second and third incidents (Darling Harbour and Cargill) were initiatives by FFE executives whereby they sought to gain a commercial advantage for their employer. The first and fourth incidents (Kotara Garden City and Angel Place) were incidents in which FFE reacted to approaches of others. I propose to impose a penalty of $1,000,000 in relation to each of the second and third incidents and a penalty of $750,000 in relation to each of the first and fourth incidents; a total of $3,500,000. 29 In fixing these figures, I am conscious of the fact that that no penalty is sought against any of the other companies who participated in the collusive tendering arrangement. In the case of Tyco, I understand the reason for this. Through its solicitors, Tyco alerted ACCC to the fact of the contravening conduct. Tyco, and its relevant executives, agreed to provide evidence to ACCC in return for a leniency agreement under which ACCC agreed not to seek the imposition of a penalty upon any of them. 30 No doubt it was appropriate for ACCC to offer leniency; without such an offer, ACCC may not have been able to prove the collusive conduct. It is another matter whether ACCC should have gone so far as totally to abjure any penalty application. However, that is not for me to determine. It is sufficient to say that, because of the existence of the leniency agreement, there can be no valid argument for parity in outcome as between Tyco and FFE. If this approach leads to a perception amongst colluders that it may be wise to engage in a race to ACCC's confessional, that may not be a bad thing. 31 ACCC has apparently decided not to seek the imposition of a penalty upon either of the other corporate respondents to this proceeding, Premier Fire Protection (NSW) Pty Ltd ('Premier') and MFS. I have been given no explanation for that decision. However, I understand, from evidence adduced in an interlocutory application, that Premier is no longer in business. Perhaps the same statement is true of MFS. I should not act on speculation. The proper course is for me to assume that ACCC had good reason for its decisions in relation to these two corporations and to put aside any consideration of parity between FFE and them. 32 Counsel have drawn to my attention the level of penalties imposed in a number of earlier s 45 cases. The most relevant of those cases is Australian Competition and Consumer Commission v Tyco Australia Pty Ltd [1999] FCA 1799; (2000) ATPR 41-740. That case involved collusive tendering in the fire protection industry in Queensland and northern New South Wales. The collusion extended over several years and involved tenders relating to 145 sprinkler contracts and 158 fire alarm contracts. Not all respondents in that case were involved in all incidents. However, FFE was a major participant. In his reasons for judgment, Drummond J said that 'FFE, by its officers, played a major part in making and implementing the contravening arrangements in both fire protection markets'. He referred to those officers being involved in organising and attending meetings. Liability being ultimately conceded, Drummond J imposed the penalties proposed to him by the parties. They included a penalty of $5,000,000 for FFE. 33 Counsel argued that the conduct of FFE in the Queensland case was more serious than its conduct in the present case. I agree, but I do not think it follows that a penalty of $3,500,000 in the present case is excessive. I see no reason why the penalty in the present case should be calculated by reference to the penalty imposed in the Queensland case. Drummond J's reasons contain no information as to the manner in which the figure of $5,000,000 was calculated. Drummond J seems simply to have adopted the amount suggested to him by the parties. On the facts noted by his Honour, his decision to take that course seems to have been generous to FFE. 34 There is a danger in judges of this Court being overly influenced by the view as to penalty taken by the ACCC. In Australian Competition and Consumer Commission v Colgate Palmolive Pty Ltd [2002] FCA 619; (2002) ATPR 41-880, Weinberg J was confronted with a case where the ACCC and the respondent had agreed upon a particular penalty figure. Although he eventually decided to adopt the agreed figure, his Honour made it clear at [29] that he thought it too low. His Honour went on to make some comments that apply equally to a situation where the Court is presented with an agreed narrow range of penalties. His Honour said, at [34]: 'There are dangers associated with this approach. The Court may be seen, perhaps not altogether incorrectly, to act as a "rubber stamp" in simply approving a decision taken at an executive level by a body charged with investigating and prosecuting contraventions of the Act, but having no role in actually imposing particular sanctions for those contraventions. Negotiated settlements are an important vehicle for resolving complex matters such as those involved in the present case. It must be borne in mind, however, that there is a public interest in ensuring that corporations that engage in behaviour of the kind that occurred in this case are dealt with appropriately, and that proper recognition is given to the need for specific and general deterrence. There are important parallels between the fixing of a pecuniary penalty under s76, and the ordinary sentencing process which is quintessentially a matter for the courts.' 35 Weinberg J noted the tendency of the Court simply to adopt the agreed figure. He said at [32]: 'I acknowledge that both the ACCC and Colgate have accepted that the figure proposed is in no way binding upon the Court. However, when pressed to point to a single instance when the Court has not, in the past, endorsed such a figure, counsel found it difficult to do so.'

36 This seems to me a most unsatisfactory position. It involves an abrogation of responsibility by the Court. My concern is exacerbated by the level of penalties often accepted by ACCC. In 1992, Parliament made a dramatic revision of the scale of penalties available for breaches of Part IV of the Act. The maximum penalty for a corporate respondent was increased from $250,000 to $10,000,000. Parliament obviously intended to achieve a quantum leap in the size of penalties imposed for breaches of Part IV. Yet, as the cases cited to me demonstrate, ACCC has continued to negotiate penalties that are but a small fraction of the new maximum.

37 The joint submission argues that the principal object of a penalty under s 76 is deterrence, both deterrence of the actual contravener and deterrence of others who may be disposed to engage in prohibited conduct of a similar kind. I agree. That is why it is necessary to impose substantial monetary penalties upon companies that persist, over a significant period of time, in a course of conduct that contravenes the Act.

38 Conduct in contravention of s 45 usually has the potential to yield substantial monetary gains. It often passes without detection. Even when detected, it is often difficult and expensive to prove in court. Therefore, when contraventions are detected and proved, courts should insist on the imposition of a substantial penalty. In determining what constitutes substantial, in this context, they should have regard to the level of penalties fixed by Parliament. 39 I propose to order that FFE pay a total penalty in the sum of $3,500,000.

Mr Fodera 40 The circumstances concerning Mr Fodera's contravention are set out at [15] above. Mr Fodera's conduct did not immediately advantage FFE. The action he took was done in order to assist a competitor, although he may have hoped the favour would later be reciprocated. Whatever the position, his conduct amounted to a serious infringement of s 45 of the Act. I do not know why ACCC has elected not to seek penalties against some of the other executives involved in the collusive tendering arrangement. In particular, it seems unfortunate that Mr Grimley is not even named as a respondent. On the agreed facts, he was the instigator of the collusive arrangements. While I can understand a regulatory authority deciding to enter into a 'no-prosecution' agreement with a person who offers to co-operate with it in providing information and evidence against others, it seems odd to make that agreement with the ringleader of the unlawful conduct. 41 However, I think I have to approach Mr Fedora's case on the assumption that there was a good reason for ACCC's decision not to seek penalties against others; and to consider his case on its own merits. 42 The maximum penalty provided by the Act in respect of a person other than a body corporate is $500,000. I do not think that I should impose a penalty on Mr Fodera that is anywhere near the maximum. However, it seems to me that the range agreed between ACCC and Mr Fodera ($5,000 to $10,000) is far too low. It trivialises his offence. I propose to order Mr Fodera to pay a penalty of $50,000. I certify that the preceding forty two (42) numbered paragraphs are a true copy of the Reasons for Judgment of Justice Wilcox.

Mr N J Williams SC, Mr D Godwin Counsel for the applicant:

Solicitor for the applicant: Australian Government Solicitor

Counsel for the first respondent: Mr F M Douglas QC, Mr W G Muddle

Counsel for the seventh respondent: Mr N C Hutley SC, Mr D Stack

Solicitor for the seventh respondent: Carbon Legal

Date of Hearing: 12 December 2003

Date of Judgment: 19 December 2003

Trade Practices Act 1974(Cth)ss 45, 52, 76, 77

At a glance

Court

Decision date

Before

Source

Judgment (22 paragraphs)

Parties

Legislation Cited (1)

Cases Cited (2)