2003 Agreement
148 As I have said, I will deal with the extra-territorial application of the Act and the Competition Code and the issue of a market in Australia later in these reasons. For the purposes of the analysis which follows, I will assume those issues are resolved in favour of the ACCC.
149 With respect to the facts surrounding the 2003 Agreement, there is a good deal of common ground between the parties as to what occurred in Japan and, in those circumstances, it is not necessary for me to descend to the same level of detail that might otherwise be necessary had all matters been in dispute.
150 The ACCC's witnesses who gave direct evidence in relation to the 2003 Agreement were Mr Shigi and Mr Urata with respect to events in Japan, and Mr Nagasawa with respect to events in Australia. As I have said, only Mr Nagasawa was required for cross-examination.
151 At the relevant time, Mr Shigi was employed by SEI as Branch Office Manager of the Toyota Branch Office and he was responsible for managing sales of automotive electronic components to TMC and other motor vehicle manufacturers in Western Japan. Mr Urata was his subordinate and he held a position in the 1st Harness Sales Department within SEI's Toyota Branch Office.
152 On 14 May 2003, representatives of SEI, being Mr Urata, Mr Nakamura, Mr Kato and Mr Takeharu Ito, attended a meeting in Japan with representatives of TMC. The meeting was the start of a tender process for the supply of WHs to TMC for the new model of the Toyota Camry to be introduced in 2006. The life of the model was to be five years. TMC gave SEI a written document entitled "Selection of Suppliers for [the 2006 Toyota Camry]". The ACCC referred to the document as an RFQ and, subject to the observations I make below (at [163]), I will adopt that description. In the RFQ, TMC sought bids for the supply of WHs for the 2006 Toyota Camry to it in relation to four manufacturing locations namely, Japan, the United States of America, Australia and Thailand. TMC later added Taiwan as an additional manufacturing location. The bids had to be lodged by 7 July 2003.
153 In early to mid-May 2003, Mr Shigi had a discussion with a senior representative of TMC's Design Group and he learnt from that discussion that TMC was angry with Yazaki because of what were said to be frequent quality problems experienced by TMC with the WHs supplied by Yazaki. Mr Urata was also aware that TMC had concerns about the quality of WHs which were being supplied by Yazaki.
154 By the time the RFQ dated 14 May 2003 was issued, SEI had been selected by TMC to supply the power distributor and relay block for two other Toyota models, being the Toyota Avalon and the Toyota Harrier. The power distributor and relay block is closely related to the engine room main WH as it connects to it, or is incorporated into it. In the RFQ for the 2006 Toyota Camry, TMC indicated that it proposed to use the power distributor and relay block that SEI supplied for use in the Toyota Avalon in the 2006 Toyota Camry. This gave SEI a competitive advantage because it would be desirable from TMC's perspective to have the same designer and supplier for both the power distributor and relay block, and the engine room main WH. The RFQ dated 14 May 2003 made it clear that some of the WHs were not to be the subject of competitive tender. For example, SEI was supplying the engine WH and that was to remain the case.
155 On 10 June 2003, there was a meeting at SEI's offices in Toyota City between representatives of SEI and representatives of Yazaki to discuss the RFQ for the 2006 Toyota Camry. The persons present at the meeting were Mr Shigi and Mr Urata representing SEI, and Mr Tetsuro Suzuki, Mr Nobutake Osada and Mr Nagao representing Yazaki. Mr Suzuki told the representatives of SEI that Yazaki, as the existing supplier, wanted to win the supply of all WHs that were up for competition in the RFQ dated 14 May 2003. Mr Shigi of SEI referred to the "dominant principle" by which he was referring to the basic understanding or principle between SEI and Yazaki that each company should maintain its respective share of the supply of WHs for new models of existing motor vehicles and prevent price erosion. Mr Shigi told the representatives of Yazaki that TMC had certain expectations of SEI in relation to the engine room main WH and that SEI would find it difficult not to attempt to meet those expectations. There was an admission by the representatives of Yazaki during the meeting that there had been quality problems with the WHs it supplied in 2002. There was also a discussion about TMC's wish to increase significantly its total global production target to nine million motor vehicles annually across its range. The meeting concluded with the representatives of each of SEI and Yazaki agreeing to give further consideration to the various matters which had been discussed at the meeting.
156 On 17 June 2003, there was a second meeting between representatives of SEI and representatives of Yazaki at SEI's offices in Toyota City. Again, Mr Shigi and Mr Urata represented SEI, and Mr Suzuki, Mr Osada and Mr Nagao represented Yazaki. The discussions centred on the prices to be submitted to TMC for the engine room main WH. Yazaki was desperate to retain the business and for SEI to submit a much higher price for the engine room main WH than its price.
157 Before a third meeting which was planned to take place on 28 June 2003, Mr Shigi and Mr Urata of SEI undertook an analysis "as to SEI's and Yazaki's positions in relation to the 2006 Toyota Camry RFQ". That analysis was supplied to Mr Shigi's superior, Mr Yoshio Ebihara. In addition, Mr Urata met with two of his subordinates, Mr Nakamura and Mr Kato, to discuss an appropriate strategy in terms of SEI's dealings with Yazaki. Mr Urata prepared a document setting out his views as to the appropriate strategy.
158 At the third meeting on 28 June 2003, Mr Shigi and Mr Urata again represented SEI, and Mr Suzuki, Mr Osada and Mr Nagao represented Yazaki. By reference to notes on a whiteboard, the parties discussed the party which would "win" supply of a particular part in a region by submitting a lower bid, and the party which would "lose" by submitting a higher bid. Although the parties made substantial progress towards a final agreement, they did not finally agree at that meeting.
159 SEI and Yazaki reached final agreement on 30 June 2003 during a telephone conversation between Mr Shigi of SEI and Mr Suzuki of Yazaki. With respect to the engine room main WH to be supplied to Toyota they agreed to the following:
(1) with respect to supply in Australia, SEI was to "win" by around 1% including customs duty;
(2) with respect to supply in North America, Yazaki was to "win" by 2 - 3% approximately;
(3) with respect to supply in Japan, Yazaki was to "win" by 1 - 2% approximately; and
(4) with respect to supply in Thailand, Yazaki was to "win" by 2 - 3% approximately.
160 The critical issue was agreement on the engine room main WH and Mr Shigi said, and I accept, that it was implicit in the agreement as to that part, that SEI had also agreed that it would respect Yazaki's position as the incumbent supplier of the other WHs that were subject to the competitive tender process.
161 Mr Shigi advised Mr Urata and Mr Nakamura of the details of the agreement he had reached with Mr Suzuki and he instructed them to move straight into the "co-ordination phase", that is to say, the phase involving the formulation of prices that would give effect to the agreement. It was necessary to ensure that the prices reflected the percentage differences referred to above and that involved a considerable amount of work because there were nine parts and four regions to be addressed.
162 I interrupt the narrative to identify the areas of dispute between the parties with respect to the facts stated to this point.
163 The ACCC alleges in its Amended Statement of Claim that, on 30 June 2003, Yazaki and SEI made an arrangement or arrived at an understanding in respect of the supply of the 2006 Toyota Camry WHs by each of them and their subsidiaries to TMC and its subsidiaries during a telephone conversation between Mr Suzuki of Yazaki and Mr Shigi of SEI and it describes this as the 2003 Agreement. In their Amended Defence, the respondents "admit" that Yazaki and SEI made an arrangement or arrived at an understanding in Japan in respect of the "Drawing Prices" to be submitted by Yazaki and SEI as part of the "2003 Supplier Selection Process". The respondents describe this as the "2003 Supplier Selection Agreement". It is not entirely clear to me what the respondents mean by Drawing Prices, but I assume they mean prices based on, or linked to, drawings and they use the description to make clear their point that because of what occurred thereafter, the Drawing Prices were most unlikely to be the prices actually paid for the WHs. I will return to consider the significance of this point. For similar reasons, the respondents refer to a "Supplier Selection Process" and "Supplier Selection Agreement" and, in one sense, that is correct because that is precisely what was occurring. I will use the ACCC's terminology for convenience, but these points should be borne in mind.
164 The ACCC alleges that the 2003 Agreement contained provisions to the following effect:
(1) Yazaki and SEI would discuss and attempt to agree, in respect of each 2006 Toyota Camry manufacturing location, the prices for the 2006 Toyota Camry WHs that they would submit in response to the 2006 Toyota Camry RFQ dated 14 May 2003;
(2) Yazaki and SEI would determine the 2006 Toyota Camry agreed prices with a view to ensuring, as far as possible, that TMC awarded supply of the 2006 Toyota Camry WHs in each 2006 Toyota Camry manufacturing location to the party that was the incumbent supplier of equivalent WHs for the 2002 Toyota Camry, in this case Yazaki; and
(3) Yazaki and SEI would submit the Toyota Camry agreed prices to TMC in Japan.
In their Amended Defence, the respondents "admit" that the 2003 Supplier Selection Agreement contained three provisions substantially to the effect of the provisions alleged by the ACCC. There is a slight qualification to this statement, but I did not understand either party to treat it as material. Yazaki was the incumbent supplier of the engine room main WH in Australia, but according to the arrangement or understanding, SEI was to win this part in Australia.
The ACCC alleges that the 2003 Agreement contained two further provisions to the following effect:
(4) for each 2006 Toyota Camry manufacturing location other than Japan, Yazaki and SEI would submit, or would cause their subsidiaries or agents to submit, to the relevant TMC subsidiary located in or responsible for that manufacturing location, the 2006 Toyota Camry agreed prices, or alternatively, the 2006 Toyota Camry agreed prices for each of the WHs of which TMC awarded supply in that manufacturing location; and
(5) Yazaki and SEI would do all things necessary to ensure that they each received the benefit of any WH supply awarded to them by TMC in response to the RFQ dated 14 May 2003, and not do anything which would or might deprive them of that benefit.
The respondents deny that there were provisions to this effect.
165 With respect to the fourth alleged provision, there is no evidence that it was the subject of a particular discussion between representatives of Yazaki and representatives of SEI. However, that is not fatal. Yazaki and SEI would have been aware of their own and each other's subsidiaries and those of TMC in each manufacturing location. Their arrangement or understanding involved an allocation of the market having regard to various manufacturing locations. It seems that it was common practice for a local subsidiary to submit prices to the local subsidiary of TMC. Even if, as the respondents submit, the global decision could not be overturned and the submission of prices locally was a mere formality, it is at least implicit in the arrangement or understanding that when a TMC subsidiary outside Japan called for a price or prices, then Yazaki and SEI would cause their respective subsidiaries or agents to submit the same price or prices. The concept of an understanding is broad enough to include such a provision.
166 With respect to the fifth alleged provision, the provision is redolent of the type of implied obligation identified in Mackay v Dick (1881) 6 App Cas 251 at 263 per Lord Blackburn and discussed by Mason J (as his Honour then was) in Secured Income Real Estate (Australia) Limited v St Martins Investments Proprietary Limited (1979) 144 CLR 596. It is convenient to consider first, how the ACCC seeks to deploy this provision. The ACCC submits that a person can give effect to a provision of an arrangement or understanding by conduct pursuant to a term or provision of the arrangement or understanding or more generally. Even though it does not restrict its argument to the former case, it has pleaded such a case. The fifth alleged provision gives rise to a subset of obligations, including an obligation to supply in accordance with the award of supply by TMC, an obligation not to inform TMC or any regulatory authority of the arrangement or understanding, and an obligation not to compete with SEI so as to acquire any of SEI's share contrary to the arrangement or understanding.
167 There is nothing in the evidence of the discussions leading up to and comprising the 2003 Agreement to the effect that the parties directed their minds to the matters in the fifth alleged provision. Whilst the parties may have had an expectation of secrecy and that neither of them would turn around and act contrary to their arrangement or understanding, that does not amount to a commitment in terms of the fifth alleged provision. I reach this conclusion with more confidence when I consider the specific obligations said to emanate from the general obligation. I am not satisfied that if asked, one of the parties would not say, in relation to the specified obligations, yes in general terms but with this qualification. I am not satisfied that the fifth alleged provision was a provision of the arrangement or understanding.
168 Leaving aside the market in Australia issue, I do not think that there is any doubt that Yazaki and SEI and their respective subsidiaries were competitive with each other within s 4D of the Act and the Competition Code. I think the provisions of the 2003 Agreement had the purpose of "restricting or limiting" the supply of WHs to TMC or its subsidiaries to the incumbent supplier. The fact that the party designated as the losing party would still submit a price does not take the facts outside the scope of s 4D (Australian Competition and Consumer Commission v Admiral Mechanical Services Pty Ltd [2007] ATPR 42-174; Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (2001) ATPR 41-815). The 2003 Agreement fell within the terms of s 45(2)(a)(i) and the definition of a cartel provision in s 44ZZRD of the Act and the Competition Code.
169 The issue of whether the provisions of the arrangement or understanding had the purpose, or had or were likely to have the effect, of controlling or maintaining, or providing for the controlling or maintaining of prices for WHs supplied or to be supplied by Yazaki and SEI and their respective subsidiaries to TMC and its subsidiaries is more difficult. The respondents did not make detailed written submissions about this point and that needs to be borne in mind in terms of the discussion which follows.
170 The evidence of Mr Matthew Ward is relevant to the issue, and I will summarise it at this point. After the global allocation by TMC and the determination of the local RFQ by the relevant subsidiary of TMC there were, as a matter of course, further negotiations about prices between, in the case of Australia, AAPL and TMCA which took place over the months and years that followed. In his first affidavit, Mr Ward details those negotiations in the case of the 2006 Toyota Camry (paragraphs 41-117), and in the case of the 2011 Toyota Camry (paragraphs 151-218), and in each case he identifies the total price at particular stages of the negotiations (paragraphs 117 and 218). It is not necessary for me to set out all the details. The negotiations concerned, or were influenced by, among other things, exchange rates, VE/VA proposals and other costs downs, as they were referred to in the evidence. A similar process occurred between Yazaki and TMC. As I have already said, both before and after supply commenced, TMC and TMCA were continually pressing suppliers to achieve price reductions. Mr Ward identified the negotiations and discussions, including further negotiations as to prices, at various stages: SE level drawings (November 2004), authority to incur tooling costs (March 2005), Production level drawing prices (July 2005), 1A Production (first major build of the vehicles), 2A level (second trial build of the Toyota Camry model) supply of WHs by AAPL (June 2006). It is clear that the "price" for the WHs to be supplied by AAPL to TMCA varied at different stages of the process. I also refer to the evidence of Mr O'Donohue which is to similar effect and which is summarised below (at [330]-[332]).
171 Mr Ward admitted that, to a "fair degree", Yazaki's Toyota Business Unit ("TBU") in Japan was kept informed of the discussions between AAPL and TMCA between, for example, 2003 and 2006, and that the TBU had input into various matters, particularly if they had or were likely to have an impact on the global design for the vehicle. For example, the TBU vetoed a proposal by AAPL to combine two floor WHs into one.
172 The issue is whether the 2003 Agreement did not fix, control or maintain or provide for the fixing, controlling or maintaining of the price for goods supplied or to be supplied because the prices submitted or to be submitted in the middle of 2003 were not (and were never going to be) the prices for the goods to be supplied.
173 The issue raised in this case is different from that which was before Lindgren J in CC (NSW) and Logan J in ACCC v TF Woollam. In CC (NSW) Lindgren J was required to determine whether an arrangement or understanding about an amount to be paid by the successful tenderer (referred to as an unsuccessful tenderer's fee) and likely to find its way into the tender had the effect of "controlling" the price. Lindgren J held that it is not necessary to specify the price in order for an arrangement or understanding to fall within s 45A. His Honour also said that "controlling" a price meant restraining a freedom that would otherwise exist as to the price to be charged (at 413 [168]) and, with respect, perhaps more controversially, that any degree of control apart from that considered to be de minimus was sufficient at the contravention stage (at 415 [178]). His Honour said that the degree of control was relevant at the penalty stage. The "price" in issue before Lindgren J was the tender price for building services. The commercial context before Logan J in ACCC v TF Woollam was similar (i.e., tenders for building services) although the contravening conduct was different in that it involved the controlling of prices by means of the provision of cover prices between the parties to the arrangement or understanding. One argument put to Logan J was that there was a difference between tender prices and prices. His Honour rejected that argument noting that s 45A referred to services to be supplied (at 238 [90]).
174 In this case, "prices" were submitted in 2003 followed by negotiations between the winning party or its relevant subsidiary, and TMC or its relevant subsidiary, and then a different price paid on the commencement of supply some three years later. The ACCC accepted that the price upon which supply was allocated, that is to say the quoted prices, were not the prices at which supply was likely ultimately to occur, given the extensive negotiations that often took place during the design and engineering phase.
175 On the evidence, it would seem that the "price" went through a number of changes from the quoted price, in say 2003, to the last stage price in 2006, and that the last price was generally lower than the quoted price.
176 None of the following matters provide a direct answer to the issue: (1) the price does not need to be specified for the case to fall within s 45A; in this case, the price differentials were specified, (2) a tender price may fall within s 45A because it is a price at which services were to be supplied, (3) the "price" can be quite transitory and still fall within s 45A such as a case where there is a price which is followed shortly thereafter by variations which alter the price.
177 The ACCC submits that the agreed prices determined or influenced the allocation of supply and that meant that there was a controlling of prices. If that argument is that the removal of potential competitor leads to a controlling of price, then I do not accept the argument. It would mean that almost all market sharing arrangements would also involve a controlling of price. To say that a reason for market sharing is to prevent the erosion of price is not to say that a provision of an understanding has the purpose, effect or likely effect, of controlling a price.
178 The other way the ACCC put its submission was to say that the agreed prices "set the starting price or ceiling price, for the negotiations which ensued as to the final price". I doubt whether on the facts in this case one could call the price a ceiling price. To my mind, the evidence does not extend to the point of being able to say that the final price would never exceed the quoted price. The quoted price might be characterised as the "starting price" or "first price", but is that sufficient? With some hesitation, I have reached the conclusion that it is sufficient. Although there were many iterations to the price between the allocation of supply and the fixing of the final price, and many and varied circumstances that might lead to those changes, I think the starting price still operated as a restraint in terms of the final price. Yazaki and its subsidiaries, and SEI and its subsidiaries, and TMC and its subsidiaries would all have been aware of the process. To ask the question posed by the section, I think it can be said that a substantial purpose of Yazaki and SEI was to control the price at which WHs were to be supplied. In terms of the effect or likely effect of the arrangement or understanding, that issue is to be assessed at the date of the arrangement or understanding (CC (NSW) at 406 [132]). "Likely" means a real chance or possibility rather than "more likely than not" (Seven Network Ltd and Another v News Ltd and Others [2009] FCAFC 166; (2009) 182 FCR 160). I think that there was a sufficient relationship between starting or first price and the final price to reach the conclusion that the provisions of the arrangement or understanding were likely to control the price of the WHs. As the ACCC pointed out, the starting or first prices and the final prices were not significantly different.
179 In my opinion, the 2003 Agreement contravened s 45(2)(a)(ii) of the Act and the Competition Code, and was a cartel provision within s 44ZZRD.
180 I resume the narrative.
181 Between 30 June 2003 and 7 July 2003, those representatives of SEI and Yazaki respectively who were responsible for implementing the agreement made on 30 June 2003 met and discussed prices. There was a meeting on 2 July 2003 at which SEI was represented by Mr Urata, Mr Nakamura and Mr Kato, and Yazaki was represented by Mr Nagao and two other persons. The parties exchanged base prices for the various WHs, including the engine room main WH. A base price is the price determined on the basis of the design drawings and specifications provided by TMC usually based upon an existing model. In addition to a base price, TMC usually required a potential supplier to provide a "value engineering" or VE price.
182 A VE price is a price intended to reflect a future price which incorporates the supplier's cost reduction proposals by part number. The cost reduction proposals are usually based upon anticipated technological developments or improvements. In one of the TMCA letters, it described "VE" as a change or modification in the engineering design of a component which reduced the cost of the manufacturing process without altering the component's design intent. TMCA gave a simple example of a change from painting a lock on an internal door handle in a way which indicated whether the door was locked or not to applying a sticker. TMCA said that the component's design intent had not been changed in that the lock identification mechanism worked as intended, but the cost of the manufacturing process had been reduced. A VE price could be within conditions or outside conditions.
183 At the meeting on 2 July 2003, the parties exchanged information about the cost of each component of a part because TMC required component pricing, and the prices advanced needed to be, as Mr Urata put it, supported by logical calculations. Mr Nakamura sent Mr Nagao a list of SEI's prices, and Mr Nagao added Yazaki's price and sent the document back to Mr Nakamura.
184 There were two further meetings between the same representatives of SEI and Yazaki respectively on 3 July 2003 and 4 July 2003 at which prices were discussed.
185 There was a final meeting on 6 July 2003. Mr Shigi does not recall whether he attended that meeting, but Mr Urata says that Mr Shigi was there representing SEI together with himself and Mr Nakamura. Mr Suzuki and Mr Nagao were at the meeting representing Yazaki. The meeting was at Yazaki's office. Its purpose was to confirm the final prices that SEI and Yazaki would submit to TMC.
186 On 7 July 2003, SEI submitted prices to TMC in response to the RFQ dated 14 May 2003. Those prices reflected the agreement reached on 30 June 2003.
187 In its Amended Defence Yazaki "admits" that the meetings between representatives of Yazaki and representatives of SEI took place on 2, 4 and 6 July 2003 and that at those meetings the parties discussed and agreed the Drawing Prices to be submitted by Yazaki and SEI as part of the 2003 Supplier Selection Process and that the meetings gave effect to the 2003 Supplier Selection Agreement. It further admits that it submitted Drawing Prices to TMC which had been agreed with SEI in furtherance of the 2003 Supplier Selection Agreement. Plainly, the submission by Yazaki of the Drawing Prices to TMC gave effect to the prior arrangement or understanding.
188 The concept of "give effect to" includes to do an act or thing in pursuance of or in accordance with or enforce or purport to enforce (s 4(1)). I am satisfied that between 30 June 2003 and 7 July 2003 Yazaki gave effect to the provisions of the 2003 Agreement within s 45(2)(b)(i) and s 45(2)(b)(ii) of the Act and the Competition Code by discussing and agreeing the prices submitted to TMC, and on 7 July 2003 by submitting the prices to TMC.
189 Despite the arrangement or understanding between Yazaki and SEI, TMC in fact awarded the supply of the engine room main WH to SEI in all countries. With respect to the other WHs, TMC awarded supply in accordance with the agreement between SEI and Yazaki. When this became known, Mr Suzuki contacted Mr Shigi by telephone and accused SEI of double-crossing Yazaki. Mr Shigi told Mr Suzuki that SEI had submitted prices in accordance with the agreement between the two companies.
190 The ACCC alleges that Yazaki gave effect to the 2003 Agreement by three further acts or omissions and that AAPL gave effect to the 2003 agreement by two acts or omissions.
191 It is convenient at this point to turn to events in or involving Australia. As to these events, there is the evidence of Mr Nagasawa which, as I have said, I substantially accept, the documentary evidence and the evidence of Mr Ward.
192 I start with the evidence of Mr Nagasawa which dealt with the actions of SEWS-A and his communications with Mr Okumura of AAPL.
193 On 14 February 2003, Mr Nagasawa and Mr Urata, and perhaps others, gave a presentation on behalf of SEI and SEWS-A to TMCA in relation to the design, quality improvement and global production ideas for the 2006 Toyota Camry. This presentation was given in anticipation of a competitive RFQ process to select global suppliers for the 2006 Toyota Camry which would include the supply of WHs to TMCA in Australia.
194 Mr Urata asked Mr Nagasawa in Australia to provide him with information to enable him to prepare SEI's response to the 2006 Toyota Camry RFQ, including an analysis of the labour rate for the supply of WHs in Australia, including repackaging, the shipping costs associated with transporting the WHs to Australia for supply to TMCA, and advice as to the effect of import duties on SEI's quote. Mr Nagasawa provided information to SEI in late June and early July 2003.
195 In early October 2003, SEWS-A received an RFQ from TMCA. Mr Nagasawa was unsure about the reasons for an RFQ from TMCA in view of the decision which been made by TMC in Japan. He spoke to Mr Okumura on the telephone and Mr Okumura said that AAPL had also received an RFQ and that he too was unsure of the reasons for this. Both men agreed to consult their respective superiors in Japan. Mr Nagasawa spoke to Mr Urata and Mr Nakamura in Japan. He then spoke to Mr Okumura and they "confirmed" between themselves that each company would respect the decision made in Japan by only quoting in Australia for the business they had won, quoting the same prices as had been quoted in the 2006 Toyota Camry RFQ, and proposing the same VE proposals with the same pricing effect that SEI and Yazaki submitted in Japan. It is not clear on Mr Nagasawa's evidence when these conversations took place. However, it is clear that on 9 October 2003 Mr Male wrote to Mr Frost and advised him that he had received a formal direction that SEWS-A was asked to quote for the engine room main WH only and that the other drawings should be returned. Mr Nagasawa needed approval from SEI's TBO in Japan before lodging a quote for the engine room main WH with TMCA. He prepared a report for SEI in Japan and he had discussions with Mr Shigi and Mr Urata.
196 I do not accept the respondents criticism of Mr Nagasawa's evidence that he conveyed a false impression that SEWS-A only quoted for the engine room main WH because of an agreement with Mr Okumura, rather than because TMCA asked that SEWS-A do this.
197 SEWS-A submitted a quote for the engine room main WH of $141.15 before import duties. That was equivalent to a price of $155.26 after import duties had been added. This latter price was the price SEI quoted for the engine room main WH in its submission to TMC. The VE proposals in the SEWS-A quote were the same as they were in SEI's submission to TMC.
198 At some point between November 2003 and November 2004, Mr Male advised Mr Frost that SEWS-A had been successful in winning a considerable volume of business. By letter dated 15 November 2004, TMCA advised SEWS-A that it had been selected as the supplier of the engine room main WH, the engine WH and the battery cable or wire engine no. 2.
199 In one of the TMCA letters, it states that it did not issue competitive requests for quotes or RFQs in respect of the 2006 Toyota Camry. TMCA issued a request to AAPL on or about 9 October 2003 to quote for body WHs and, on or about the same day, a request to SEWS-A to quote for the engine room main WH. TMCA received the respective responses to these requests on or about 28 October 2003.
200 The ACCC issued notices to AAPL under s 155 and in its responses which were put in evidence, AAPL provided information about its relationship with Yazaki. AAPL said that Yazaki's TBU is responsible for bids for Toyota WH tenders for the Toyota Camry vehicle manufactured in Australia. Australian aspects of the global tender, such as providing local cost information to Yazaki, are managed by the sales and marketing department of AAPL. AAPL said that Yazaki's TBU is responsible for setting global prices for the Toyota WH business for the Toyota Camry. AAPL said that once the global tender is awarded, its sales and marketing department is responsible for preparing quotations to TMCA "which are based on the global tender but may have price adjustments due to local design requirements, exchange rate adjustments, import price variations etc.,". AAPL also said that the local RFQ issued by TMCA was an opportunity for it to confirm the unit prices which had been submitted as part of a global business quotation or submit a revised price if necessary due to local TMCA requirements. AAPL described the general process whereby it formulates its response to a request for tender from TMCA as follows. An initial quotation is prepared at a global level by Yazaki's TBU with AAPL providing data to the TBU detailing its factory costs and overhead requirements. The negotiating party for the initial quote is Yazaki. TMC awards the business and then TMCA or TMAP (Toyota Motor Asia Pacific) issues a separate RFQ to formalise the process at a local level.
201 In addition to the evidence from TMCA (by way of letter) and AAPL's response to the notice issued under s 155, the other documents put before the Court reveal the following.
202 On 28 July 2003, Mr Okumura sent the prices Yazaki had submitted to TMC in Japan to Mr Ward and another person at AAPL. On 1 October 2003, Mr Male sent an email to Mr Jim Frazer, who was employed by AAPL in its commercial division, seeking AAPL's prices for WHs. On 9 October 2003, Mr Male sent an email to Mr Frazer stating that he had received a formal direction that AAPL was requested to quote for nine WHs, but excluding the engine room main WH. Eight of the nine WHs were WHs which had been allocated to Yazaki by TMC. The engine room main WH had been allocated to SEI by TMC. On 28 October 2003, AAPL submitted prices to TMCA in relation to the nine WHs by an email from Mr Frazer to Mr Provost. For reasons I will give, I find that the prices submitted by AAPL to TMCA were, in the case of seven of the nine WHs (i.e., excluding parts numbered 82161 and 82171), the same (subject to minor rounding differences) as the prices agreed by Yazaki and submitted by Yazaki to TMC. That conclusion is reached by adding the VE reductions to arrive at the implicit base price for the Yazaki submission. The prices were the same except for the inclusion of a figure for tooling in the AAPL submission. Yazaki supplied WHs for the 2006 Toyota Camry throughout the period from at least 2006 to October 2011.
203 I turn now to consider the evidence of Mr Ward with respect to the 2003 Agreement. Mr Ward was employed by AAPL and, between 2003 and 2008, he was employed in a position described by the company as Business Unit Manager for TMCA and Mitsubishi and, between 2008 and 2011, he was the Department Manager for Sales. He gave evidence which was relevant to the local RFQ issued by TMCA in 2003.
204 Mr Ward said that he had always regarded SEWS-A as AAPL's biggest competitor for supply to TMCA. He had no knowledge of any collusive dealing between Yazaki and SEI, or between AAPL and SEWS-A until the ACCC issued a notice under s 155 in February 2010.
205 Mr Ward said that TMC issued the 2006 Toyota Camry RFQ to Yazaki on 14 May 2003. He said that Yazaki gave a presentation to TMC in respect of the 2006 Toyota Camry on 7 July 2003. The design drawings for the 2006 Toyota Camry were based on the 770 Toyota Avalon. Yazaki submitted its initial quotation for the WHs for the 2006 Toyota Camry on 7 July 2003. Mr Ward said that that was done by Yazaki without any consultation with AAPL. On 23 July 2003, Mr Okumura sent an email to Mr Ward and Mr Johnson setting out the "submit price" of Yazaki in July 2003 for various WHs. The total price of 11 WH parts was $465.7978 or $416 when VE reductions are taken into account. Mr Ward agreed in cross-examination that Mr Okumura was the primary channel of communication to Yazaki's TBU in Japan in relation to pricing matters for Toyota WHs.
206 Mr Ward said that AAPL needed a better understanding of how the global design of the 2006 Toyota Camry would affect TMCA and itself. The 2006 Toyota Camry was the first model of the Toyota Camry which was to be based on a global design which was to apply with modifications to each region in which Toyota manufactured vehicles. Mr Ward and Mr Steve Dormer who was the general manager, WH engineering at AAPL, travelled to Japan with TMCA representatives on 19 August 2003 for this purpose. While in Japan, Mr Ward and Mr Dormer were told that Yazaki was likely to lose the engine room main WH and the engine WH to SEI. They were also told this unofficially by a person at TMCA. Mr Ward was concerned about AAPL not securing the engine WH and, more importantly, the engine room main WH.
207 On 17 September 2003, AAPL received a note from Yazaki's TBU which Mr Okumura had translated from Japanese to English advising Yazaki's related affiliates that TMC had unofficially advised that as far as the global 2006 Toyota Camry was concerned, the supply of the engine room WH would be awarded to SEI, and the supply of the instrument panel/floor, door and roof WHs would be awarded to Yazaki.
208 On or about 30 September 2003, TMCA issued an RFQ to AAPL for the 2006 Toyota Camry. On or about 1 October 2003, representatives of AAPL met with representatives of TMCA, and the representatives of TMCA issued target prices for the following WHs: engine room main, wire instrumental panel no. 1 and no. 2, wire floor no. 1 and no. 2, wire front door RH, wire front door LH, wire rear door no. 1 and wire rear door no. 2, and roof. The target prices were less than the prices Yazaki submitted to TMC for the WHs to be provided in Australia.
209 On 9 October 2003, TMCA withdrew its request for AAPL to provide a quotation for the supply of the engine room main WH. Mr Male wrote to Mr Frazer advising him that he had received a "formal direction" that AAPL was requested to quote for various parts, not including the engine room main, and that the drawings for the engine room main should be returned.
210 On 28 October 2003, AAPL submitted its quotation to TMCA. Mr Ward said that the prices submitted by AAPL to TMCA were greater than those submitted by Yazaki to TMC on 7 July 2003. By way of example, Mr Ward referred to the fact that Yazaki submitted a price of $123.2409 for the wire instrument panel no. 1 WH, whereas AAPL submitted a price of $139.60. However, it became clear during Mr Ward's cross-examination that the base prices in the case of both Yazaki and AAPL were the same, and the difference in the figures could be explained by the fact that AAPL was not prepared to submit to VE proposals to the same extent as Yazaki, and by a small allowance for tooling costs. As Mr Ward said, AAPL used the data provided by Yazaki, but "restacked it in a different way". Mr Ward agreed in cross-examination that AAPL would not submit prices to TMCA which were inconsistent with information provided by Yazaki's TBU in Japan without seeking authority from the TBU.
211 I did not think Mr Ward had a particularly good recollection of events. For example, I found it surprising that he could not remember much about his state of mind as at 30 July 2003. I take into account that it was a long time ago, but I would have expected that the email itself, when put to him in cross-examination, would have given him a clue. Furthermore, I do not think his statement that the prices submitted by AAPL to TMCA were greater than those submitted by Yazaki to TMC on or about 7 July 2003 tells the full story. The fact is that AAPL used the Yazaki prices but was more cautious about VE proposals and added a small amount for tooling costs. I find that the prices submitted by AAPL to TMCA were essentially the prices agreed under the 2003 Agreement ("the 2006 Toyota Camry agreed prices"). The contrary was not seriously argued by the respondents.
212 The ACCC's case is that between 17 September 2003 and 28 October 2003 Yazaki directed AAPL to submit the 2006 Toyota Camry agreed prices to TMCA and that that constituted a "giving effect to" of the 2003 Agreement. The respondents submit that there is no evidence of an express written or oral direction. They further submit that AAPL submitted the prices because of TMCA's RFQ as later qualified by Mr Male's email of 9 October 2003. They further submit that there was no competitive process in Australia and, as they said in the context of whether there was a market in Australia, the submission of prices at a local level was by way of formality only.
213 The reasons for the issuing of a local RFQ by TMCA are not clear. If, as appears to be the case, the supply decision for Australia was made by TMC in Japan, it is not clear why TMCA issued a local RFQ to the local subsidiaries of Yazaki and SEI. There is nothing in the evidence to suggest the reasons for the actions of TMC/TMCA. There can be no doubt that Yazaki expected AAPL to submit the 2006 Toyota Camry agreed prices to TMCA (albeit "restacked" in the way identified by Mr Ward), and that AAPL understood that it was to proceed in this way. I think at all times AAPL understood that the decision as to the allocation of supply was made as part of a process involving Yazaki and TMC in Japan.
214 A direction may be express or implied. It may be a general direction of a longstanding nature. The fact of a direction may be inferred from all the circumstances. The fact that a customer, in this case TMCA, wanted prices submitted to it does not mean that there was no direction from AAPL's holding company. The situation is not an either/or one in this sense.
215 Although there is no direct evidence of an express direction, I am satisfied that, in this case, Yazaki gave a direction to AAPL to submit the 2006 Toyota Camry agreed prices to TMCA. AAPL was sent those prices and it effectively submitted them to TMCA. There was no question of AAPL submitting any other prices. It was not going to act independently in the matter and, in fact, both Yazaki and AAPL submit in another context that AAPL submitted the prices to TMCA by way of formality only. In my opinion, it is likely Yazaki TBU gave Mr Okumura a direction when he spoke to the TBU after his conversation with Mr Nagasawa (see [195] above). In my opinion, an inference that a direction by Yazaki was given to AAPL is irresistible.
216 I am satisfied that the third alleged act by Yazaki of giving effect to the 2003 Agreement is made out. That act occurred in Australia (Bray v F Hoffman-La Roche Ltd and Others [2002] FCA 243; (2002) 118 FCR 1 ("Bray v Hoffman-La Roche") at 45-46 [145]-[147] per Merkel J).
217 The above analysis is relevant to the fourth alleged act by Yazaki of giving effect to the 2003 Agreement, that is, the submission of prices by its alleged agent, AAPL to TMCA. I think that AAPL was acting on behalf of and as an agent of Yazaki within s 84(2) of the Act and the Competition Code in submitting the prices to TMCA. The phrase "on behalf of" is not one which has a strict legal meaning (R v Portus and Another; Ex parte Federated Clerks Union of Australia (1949) 79 CLR 428 at 435 per Latham CJ). It covers a wide range of relationships (Walplan Pty Ltd v Wallace (1985) 8 FCR 27 at 37 per Lockhart J; NMFM Property Pty Ltd and Others v Citibank Ltd (2000) 107 FCR 270 at 550 [1243]-[1244] per Lindgren J). As the respondents themselves submit (albeit in another context), the resubmission of prices at the local level was "by way of formality only". AAPL exercised no independent decision-making in deciding whether to submit the prices to TMCA. In those circumstances, it was an agent and the case relied on by the respondents of Consolo Ltd and Others v Bennett (2012) 207 FCR 127 ("Consolo v Bennett") is distinguishable. The fourth alleged act by Yazaki of giving effect to the 2003 Agreement is made out.
218 The fifth alleged act by Yazaki in giving effect to the 2003 Agreement was, in fact, a group of acts and omissions comprising the following: it continued from mid-2003 to at least late 2009 to supply the 2006 Toyota Camry WHs in accordance with the award of supply made by TMC, it did not inform TMC of the 2003 Agreement, it did not inform any regulatory authority of the 2003 Agreement and it did not attempt to compete with SEI to acquire all or part of SEI's market share of the 2006 Toyota Camry WHs. In response, the respondents plead that any operation of, or giving effect to, the 2003 Supplier Selection Agreement concluded when Yazaki and SEI submitted Drawing Prices to TMC on or about 7 July 2003. They "admit" that from in or about July 2006, AAPL supplied WHs to TMCA in respect of the 2006 Toyota Camry in accordance with the award of supply made by TMC, that from mid-2003 to at least late 2009, Yazaki did not inform any regulatory authority of the 2003 Supplier Selection Agreement, and that from mid-2003 to at least late 2009, Yazaki did not acquire all or part of SEI's market share of the 2006 Toyota Camry WHs.
219 I divide these allegations into two classes. The first class is that of one positive act, being that of continuing to supply, and the second class is that of failures, being a failure to inform and a failure to compete.
220 The problem for the ACCC in relation to the continuing to supply allegation is that the only evidence of continued supply related to supply in Australia, and the supplier in Australia was AAPL, not Yazaki. I do not think Yazaki's position as AAPL's shareholder means that it was the supplier (Consolo v Bennett at 143 [91]).
221 As to the alleged failures, I do not think that the fact that the various matters were not provisions of the 2003 Agreement (as I have previously found) is fatal to the ACCC's submission. I think a corporation or person could give effect to an arrangement or understanding by carrying out an act even though the carrying out of the act was not a specific term of the agreement or a provision of the arrangement or understanding. The real issue is whether the failures to act amounted to giving effect to the 2003 Agreement.
222 The definition of "give effect to" in s 4(1) is subject to any contrary intention, but there is no suggestion that there is a contrary intention in s 45. The definition itself is an inclusive one. On the face of it, the definition requires the performance of an act or thing, and it would not include an omission or failure to act such as failure to report the arrangement or understanding or a failure to compete in a way not contemplated by the arrangement or understanding.
223 In Hughes v Western Australian Cricket Association (Inc) and Others (1986) 19 FCR 10 at 47, Toohey J said that the words "give effect to" are not technical words and should be given their ordinary meaning. In Tradestock Pty Ltd v TNT (Management) Pty Ltd and Others (1978) 17 ALR 257, Smithers J addressed an argument that "in accordance with" required proof of the reason the actor acted as he or she did. His Honour rejected this submission. He said (at 269-270):
Since the Trade Practices Act 1974 has been operative it has been the will of Parliament that contracts arrangements or understandings such as that now alleged should not be made and if made should not be given effect to. And Parliament has said that in relation to a provision of a contract arrangement or understanding the words "give effect to" are to include "do an act or thing in pursuance of or in accordance with or enforce or purport to enforce" (s 4(1)). It is to be observed that an act done by way of implementation of a contract arrangement or understanding would necessarily be done "in pursuance thereof". If the only acts struck at by the Act are those done by way of implementation of the contract arrangement or understanding then there is no work left to be done by the words "or in accordance with". And there is good reason for thinking that those words are intended to cover the situation where what is done is or may be done for reasons other than to implement the understanding. In such circumstances proof of the real or dominant motive or reason actuating the actor is likely to be a matter of great difficulty and may in many cases be impossible. To adopt the view submitted by Mr Rogers would be to conclude that Parliament which has stated its disapproval of the relevant contract arrangement or understanding and the kind of action for which it provides was content to allow such action to proceed as though it were lawful in circumstances where the evidence was insufficient to prove the precise motive for or actuating reason of the conduct in question.
Franki J accepted this proposition in Trade Practices Commission v TNT at 68, although he suggested that a failure to report was probably not sufficient (at 69).
224 The ACCC also referred to the following passage from the work of Beaton-Wells C and Fisse B, Australian Cartel Regulations Law, Policy and Practice in an International Context, (Cambridge University Press, 2011) at 69:
The words 'give effect to' in the cartel prohibitions are not technical words and bear their ordinary meaning. Conduct that 'gives effect to' a provision includes:
• a single act or omission or a series of acts or omissions
• unilateral conduct or conduct in concert
• conduct by persons who are not parties to the contract, arrangement or understanding but who implement the provision.
...
In terms of physical elements, 'give effect to' is defined in the TPA in relation to a provision of a contract, arrangement or understanding as including 'to do an act or thing in pursuance of or in accordance with or enforce or purport to enforce'. These various options for interpretation can be construed as follows:
• 'in pursuance of' the provision in the sense of implementation of the provision
• 'in accordance with' the provision in the sense of conduct that is in conformity with the provision and which may be actuated by an intention or motive other than to implement the provision
• 'to enforce or purport to enforce' the provision in the sense of conduct that seeks to achieve compliance with the provision.
Thus, giving effect to a price-fixing provision would appear to include:
• discussion of prices and upcoming tenders pursuant to a price-fixing provision in an initial cartel arrangement
• submission of inflated tenders (or deciding not to submit a tender) pursuant to price-fixing provision in an initial cartel arrangement
• entry into contractual arrangements pursuant to a price-fixing or exclusionary provision in an initial cartel arrangement.
Significantly also, giving effect to a price-fixing provision would seem to include the performance of and the receiving of a benefit from a supply contract to which the provision relates. Performance of the contract of supply and the receipt of payment for the items are 'in accordance' with the price fixing provision.
...
An omission may give effect to a price-fixing provision, as in the situation where there is a refusal to deal at a price level lower than that controlled by a price-fixing provision. However, it is far from clear that a failure to intervene to stop effect being given to a price-fixing provision amounts in itself to a giving effect to the provision.
225 Whilst I think a continuation of supply may constitute a giving effect to of a contravening arrangement or understanding, I do not think that a failure to report or a failure to compete does so. The authorities are sparse, but I think that that is the effect of such authority as there is.
226 The fifth alleged act (comprising of a group of acts and omissions) by Yazaki of giving effect to the 2003 Agreement has not been made out.
227 In making the arrangement or arriving at the understanding constituting the 2003 Agreement, Yazaki gave effect to the Overarching Cartel Agreement in contravention of s 45(2)(b)(i) and s 45(2)(b)(ii) of the Act and the Competition Code.
228 The ACCC alleges that AAPL gave effect to the 2003 Agreement by submitting the 2006 Toyota Camry agreed prices to TMCA on 28 October 2003. AAPL was not a party to the 2003 Agreement. Although a wholly owned subsidiary of Yazaki, AAPL was a third party in terms of the 2003 Agreement.
229 On the face of s 45(2), there is no reason why a third party cannot give effect to a prohibited arrangement or understanding so as to contravene the section. The respondents do not dispute that a third party can give effect to a prohibited arrangement or understanding, but they submit that knowledge of the arrangement or understanding is an essential element of a third party's liability. They point to the following matters. First, the ACCC has assumed the obligation of proving knowledge by pleading it in its Amended Statement of Claim. I do not accept this proposition. If knowledge is not necessary as a matter of law, I do not think a party is required to prove it simply because it has pleaded it. Secondly, the respondents referred to the analogous contravention of aiding and abetting where proof of knowledge would be necessary (s 75B of the Act; Yorke and Another v Lucas (1985) 158 CLR 661 at 667). There is force in the submission. Thirdly, the respondents submit that it could not have been the intention of Parliament to make liable the courier driver or typist who unwittingly does an act which gives effect to a prohibited arrangement or understanding. There is force in this submission.
230 The ACCC submits that knowledge is not required and that it is sufficient if there is a connection between the party and the "third party". There is a connection in this case, not only because AAPL is a wholly owned subsidiary of Yazaki, but also by reason of the matters I identify later in these reasons in relation to the extra-territorial application of the Act and the Competition Code.
231 I was not referred to any authorities on this point. The two considerations identified by the respondents, the vagueness of a test involving a connection, and the fact that pecuniary penalties attend a contravention of s 45(2), lead me to conclude that knowledge of the prohibited arrangement or understanding is an essential element.
232 The ACCC submits that if, contrary to its principal submission, knowledge is necessary, it is established by not only knowledge of all the essential elements, but also by a combination of knowledge of suspicious circumstances and a failure to inquire. I think the test is more accurately expressed in terms of the following being sufficient: wilful blindness, deliberately shutting one's eyes to a relevant fact or deliberately abstaining from obtaining knowledge by making an inquiry for fear of learning the truth. Recklessness is not sufficient (Giorgianni v The Queen (1985) 156 CLR 473 at 487 per Gibbs CJ; at 495 per Mason J (as his Honour then was); at 508-509 per Wilson, Deane and Dawson JJ).
233 The ACCC started by making a general submission that the practice of collusion between Yazaki and SEI was so widespread that it must have been known by many persons within Yazaki. I accept that the practice of collusion was widespread and must have been known to a number of persons within Yazaki. However, I think it is going too far to infer from that fact that one or more of AAPL's four Japanese directors knew of the practice and then to infer from that that they knew of the 2003 Agreement and the 2008 Agreement.
234 The ACCC then sought to attribute knowledge to particular individuals employed by AAPL. It must be remembered that there is knowledge of different matters, including knowledge of a practice to discuss and coordinate prices in response to Price Down Requests, or of a practice not to compete during the production cycle of a particular model of motor vehicle, or of a practice to discuss and agree prices when a new model is to be produced, and knowledge of the 2003 Agreement and of the 2008 Agreement. Of course, a person might know of all of these things, but equally they may know of only one of them.
235 Mr Ukita could not have known of the 2003 Agreement and the 2008 Agreement such that his knowledge could be attributed to AAPL. He commenced his employment with AAPL on 5 October 1997 and finished on 19 September 2002.
236 The ACCC relies on the knowledge of Mr Okumura. The position Mr Okumura occupied in AAPL is not entirely clear on the evidence. It seems to have been as a translator and liaison officer between Yazaki's TBU and AAPL's Australian employees. Mr O'Donohue gave a description of his role (see [324] below). I think it is reasonable to infer from the evidence concerning the 2002 Toyota Camry Minor RFQ Agreement that Mr Okumura knew something of an arrangement or understanding between Yazaki and SEI about not competing during the production cycle of a current model and liaising when price down requests were issued, but the evidence falls short of establishing that he knew of the 2003 Agreement. I should add that Mr O'Donohue, Mr Woods and Mr Ward all gave unchallenged evidence that they were unaware of any anti-competitive conduct until the ACCC commenced its investigation. In the circumstances, I do not need to consider the issue of whether Mr Okumura's knowledge could be attributed to the company. That issue is far from clear.
237 Mr Ito knew no more than Mr Okumura, and on the evidence probably less, and I have already found that Mr Okumura's knowledge was not sufficient.
238 The ACCC submits that I can infer knowledge in AAPL from the fact that, for the most part, Yazaki submitted prices, including prices for the supply of WHs for Australia to TMC without consulting AAPL. I do not think that is sufficient basis to draw the inference of knowledge. It seems very likely that Yazaki kept a close eye on prices in all TMC manufacturing locations, the prices it did submit do not seem to have been far off the mark and, in any event, there was always the possibility of adjustments for local conditions.
239 Although AAPL submitted the 2006 Toyota Camry agreed prices to TMCA, it did not have knowledge of the 2003 Agreement and, therefore, did not give effect to the agreement in doing so.
240 For the same reason, AAPL did not give effect to the 2003 Agreement by continuing to supply WHs to TMCA, by failing to inform or by failing to compete. In the case of the failure to inform and failure to compete, the ACCC's case fails for the additional reason that I do not think that these are matters which can constitute giving effect to an arrangement or understanding.