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[2004] FCA 819
Federal Court of Australia
2004-04-07
Emmett J
Original judgment source is linked above.
THE COURT DECLARES THAT:
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
AND: ABB TRANSMISSION AND DISTRIBUTION LIMITED
The conduct of the Second Respondent in making an arrangement or arriving at an understanding with the Third and Fifth Respondents in or around March 1993 to mid 1993 that contained a provision that had the effect or likely effect of controlling the prices for some of the distribution transformers supplied by the parties to particular electricity utilities ("the 1993 Arrangement") constituted the making of an arrangement or the arriving at an understanding, which contained a provision that, by the operation of s 45A of the Trade Practices Act 1974 (Cth) (Act), is for the purposes of s 45 of the Act deemed to have the effect or likely effect of substantially lessening competition, in contravention of s 45(2)(a)(ii).
The conduct of the Second Respondent in implementing the 1993 Arrangement in the period from about late 1993 to April 1995, by exchanging by way of telephone conversations and/or facsimile transmissions the prices and/or assessed annual values that each of the parties to the 1993 Arrangement would tender for particular items in tenders called by particular electricity utilities constituted giving effect to an arrangement or understanding, which contained a provision that, by the operation of s 45A of the Act, is for the purposes of s 45 of the Act deemed to have the effect or likely effect of substantially lessening competition, in contravention of s 45(2)(b)(ii) of the Act.
The conduct of the Second Respondent in making an arrangement or arriving at an understanding with the Third, Fourth and Fifth Respondents in or around March 1994 to May 1995 that contained a provision that had the effect or likely effect of controlling the prices for some of the distribution transformers supplied by the parties to particular electricity utilities ("the 1995 Arrangement") constituted the making of an arrangement or the arriving at of an understanding, which contained a provision that, by the operation of s 45A of the Act, is for the purposes of s 45 of the Act deemed to have the effect or likely effect of substantially lessening competition, in contravention of s 45(2)(a)(ii).
The conduct of the Second Respondent in implementing the 1995 Arrangement in the period from about May 1995 to 31 December 1995 by exchanging by way of telephone conversations and/or facsimile transmissions the prices and/or assessed annual values that each of the parties to the 1995 Arrangement would tender for particular items in tenders called by particular electricity utilities constituted giving effect to an arrangement or understanding, which contained a provision that, by the operation of s 45A of Act, is for the purposes of s 45 of the Act deemed to have the effect or likely effect of substantially lessening competition, in contravention of s 45(2)(b)(ii).
The conduct of the First Respondent in implementing the 1995 Arrangement in the period from 1 January 1996 to about early 1999 by exchanging by way of telephone conversations and/or facsimile transmissions the prices and/or assessed annual values that each of the parties to the 1995 Arrangement would tender for particular items in tenders called by particular electricity utilities constituted giving effect to an arrangement or understanding, which contained a provision that, by the operation of s 45A of Act, is for the purposes of s 45 of the Act deemed to have the effect or likely effect of substantially lessening competition, in contravention of s 45(2)(b)(ii).
The Seventh Respondent engaged in conduct after he became managing director of the Second Respondent in May 1994, being conduct of the kind referred to in ss 76(1)(e) and 80(1)(e) of the Act by being indirectly knowingly concerned in the contraventions of the Act by the First and Second Respondents referred to in paragraphs 1 to 5 above.
The Eighth Respondent engaged in conduct after he became general manager of the distribution transformer division of the Second Respondent in mid 1993, of the kind referred to in ss 76(1)(e) and 80(1)(e) of the Act by being knowingly concerned in the contraventions of the Act by the First and Second respondents referred to in paragraphs 1 to 5 above.
The Ninth Respondent engaged in conduct after he became general manager of the distribution transformer division of the First Respondent in May 1998, of the kind referred to in ss 76(1)(e) and 80(1)(e) of the Act by being knowingly concerned in the contraventions of the Act by the First Respondent referred to in paragraph 5 above after May 1998.
The First Respondent pay to the Commonwealth of Australia a pecuniary penalty under s 76 of the Act in the sum of $5,500,000 within 60 days of the date of this order.
The Second Respondent pay to the Commonwealth of Australia a pecuniary penalty under s 76 of the Act in the sum of $3,000,000 within 60 days of the date of this order.
The Seventh Respondent pay to the Commonwealth of Australia a pecuniary penalty under s 76 of the Act in the sum of $100,000, such sum to be paid by 4 half-yearly instalments each of $25,000, with the first instalment to be paid within 180 days from the date of this order.
The Eighth Respondent pay to the Commonwealth of Australia a pecuniary penalty under s 76 of the Act in the sum of $60,000, such sum to be paid by 3 quarterly instalments each of $20,000, with the first instalment to be paid within 90 days from the date of this order.
The Ninth Respondent pay to the Commonwealth of Australia a pecuniary penalty under s 76 of the Act in the sum of $25,000 to be paid within 150 days of this order.
The First Respondent be restrained, for a period of 4 years, by its directors, servants and agents or otherwise howsoever, from:
(c) attempting to make or arrive at or give effect to; or
(d) inducing, or attempting to induce, any person to make or arrive at or give effect to; or
(e) being in any way, directly or indirectly, knowingly concerned in, or party to, the making or arriving at or giving effect to by any person of:
any contract, arrangement or understanding between manufacturers or suppliers of distribution transformers which contains a provision that has the purpose, or has or is likely to have the effect, of fixing, controlling or maintaining prices for the supply of distribution transformers submitted by such manufacturers or suppliers to electricity utilities or any other purchasers of distribution transformers.
The Second Respondent be restrained, for a period of 4 years, by its directors, servants and agents or otherwise howsoever, from:
(c) attempting to make or arrive at or give effect to; or
(d) inducing, or attempting to induce, any person to make or arrive at or give effect to; or
(e) being in any way, directly or indirectly, knowingly concerned in, or party to, the making or arriving at or giving effect to by any person of:
any contract, arrangement or understanding between manufacturers or suppliers of distribution transformers which contains a provision that has the purpose, or has or is likely to have the effect, of fixing, controlling or maintaining prices for the supply of distribution transformers submitted by such manufacturers or suppliers to electricity utilities or any other purchasers of distribution transformers.
Each of the Seventh, Eighth and Ninth Respondents be restrained, for a period of 4 years, from being in any way directly or indirectly knowingly concerned in, or party to:
(a) the making or arriving at; or (b) the giving effect to; any contract, arrangement or understanding between manufacturers or suppliers of distribution transformers which contains a provision that has the purpose, or has or is likely to have the effect, of fixing, controlling or maintaining prices for the supply of distribution transformers submitted by such manufacturers or suppliers to electricity utilities or any other purchasers of distribution transformers.
The First Respondent pay the Applicant's costs as agreed or taxed.
The agreement between the First Respondent and the Applicant that, in consideration of, among other things, the Applicant's agreement to make submissions jointly with the First Respondent, that the pecuniary penalties set out in paragraphs 9 and 10 above are appropriate, reasonable and justified in the circumstances, the First Respondent will discharge by payment to the Commonwealth of Australia on behalf of the Second Respondent any liability on the part of the Second Respondent to pay pecuniary penalties in this proceeding and in proceeding V553 of 1999, to the extent that the pecuniary penalties imposed upon the First and Second Respondents in this proceeding and proceeding V553 of 1999 do not exceed $14 million in total. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
AND: ABB TRANSMISSION AND DISTRIBUTION LIMITED
FIRST RESPONDENT ABB POWER TRANSMISSION PTY LTD (IN LIQ)
SECOND RESPONDENT WILSON TRANSFORMER COMPANY PTY LTD
THIRD RESPONDENT SCHNEIDER ELECTRIC (AUSTRALIA) PTY LTD
FOURTH RESPONDENT AW TYREE TRANSFORMERS PTY LIMITED
FIFTH RESPONDENT ALSTOM AUSTRALIA LIMITED
REASONS FOR JUDGMENT 1 In each of these proceedings, the applicant, the Australian Competition and Consumer Commission ('the Commission'), claims declarations that the respondents have engaged in conduct in contravention of Part IV of the Trade Practices Act 1974 (Cth) ('the Act'), together with injunctions restraining them from engaging in such conduct in the future and orders for the payment of pecuniary penalties. The Court has been asked by certain of the parties to make orders by consent. The orders are consequential upon admissions made by the relevant respondents of facts and circumstances constituting contraventions. 2 Proceeding V553 of 1999 ('the Power Transformer Proceeding') relevantly involves ABB Power Transmission Pty Limited (In Liquidation) ('ABB Power'), Mr Douglas Pitt and Mr Chris Tape. That proceeding concerns the conduct of ABB Power and Messrs Pitt and Tape in relation to their involvement in the making and giving effect to anti-competitive arrangements during 1993 to 1995 not to compete with other manufacturers and suppliers for contracts for the supply of particular power transformers. 3 Proceeding V868 of 2000 ('the Distribution Transformer Proceeding'), relevantly concerns the conduct of ABB Power, ABB Transmission and Distribution Limited ('ABB Distribution'), Mr Pitt, Mr Graham Jones and Mr Russell Ellen in relation to their involvement in the making and giving effect to anti-competitive arrangements in the years 1993 to 1999 inclusive, not to compete with other manufacturers and suppliers for contracts for the supply of distribution transformers. 4 The Power Transformer Proceeding was commenced on 1 October 1999 and the Distribution Transformer Proceeding was commenced on 6 November 2000. Each proceeding has been disposed of as against a number of respondents in circumstances described below. If the Court makes the orders sought by all parties for whom the proceedings are still live, that will dispose of both proceedings in their entirety. 5 The proceedings have been conducted in parallel, although they relate to quite separate and distinct contraventions of the Act. However, there is substantial overlap between the proceedings in the sense that there are common parties and similar contraventions involved and the same principles are to be applied in the disposition of the balance of the proceedings still on foot.
THE LEGISLATIVE BACKGROUND 6 Section 45(2)(a)(ii) of the Act provides that a corporation must not make a contract or arrangement or arrive at an understanding if a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition. Section 45(2)(b)(ii) provides that a corporation must not give effect to a provision of a contract, arrangement or understanding, if that provision has the purpose, or has or is likely to have the effect, of substantially lessening competition. 7 Section 45A(1) relevantly provides that a provision of a contract, arrangement or understanding (existing or proposed) is to be deemed for the purposes of s 45 to have the purpose, or to have or to be likely to have the effect, of substantially lessening competition, if the provision has the purpose, or has or is likely to have the effect, as the case may be, of fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining of, the price of goods supplied or to be supplied by the parties to the contract, arrangement or understanding or the proposed parties to the proposed contract, arrangement or understanding. 8 Sections 76(1)(a)(i) and 76(1)(e) of the Act relevantly provide that, if the Court is satisfied that a person has contravened a provision of Part IV of the Act or that a person has been in any way, directly or indirectly, knowingly concerned in, or party to the contravention by another of such a provision, the Court may order the person to pay to the Commonwealth such pecuniary penalty in respect of each act or omission by the person to which the section applies, as the Court determines to be appropriate having regard to all relevant matters. 9 Section 76 provides that the relevant matters include:
THE QUESTION FOR THE COURT 12 The Commission and the respondents for whom the proceedings are still 'live' have jointly requested the Court to make declaratory orders as to the unlawfulness of certain conduct, grant injunctions pursuant to s 80 of the Act and to make other orders including the imposition of pecuniary penalties pursuant to s 76 so as to dispose of the proceedings as against those respondents. The Commission and those respondents have reached agreement as to the suggested penalties, the terms of injunctions and related orders. In accordance with that agreement, the parties have filed statements of admissions on the pleadings by each of the relevant respondents, statements of non-contentious facts and proposed short minutes of orders. 13 The Commission and the respondents acknowledge that it is for the Court to determine what relief should be ordered and the quantum of any pecuniary penalties to be imposed. However, submissions have been made to assist the Court in its assessment of the appropriate penalties. The submissions set out the conduct that is the subject of the proceedings and reasons why the orders proposed are considered appropriate. 14 The pecuniary penalties that the Commission and the remaining respondents say would be appropriate are significant. In relation to the Power Transformer Proceeding they are:
THE OTHER RESPONDENTS 15 The corporate respondents to the Power Transformer Proceeding included, in addition to the respondents presently before the Court, Alstom Australia Ltd ('Alstom') and Wilson Transformer Company Pty Ltd ('Wilson Transformer'). In addition, there were individual respondents who were officers or executives of those other corporate respondents, including Mr RG Elliot the managing director of Alstom and Mr Robert Wilson the managing director of Wilson Transformer. 16 On 5 April 2001 penalties were imposed and other orders were made in respect of Alstom and Mr Elliot in the Power Transformer Proceeding. The penalty imposed on Alstom was $5,500,000 and that on Mr Elliot was $150,000. On 3 May 2002 penalties were imposed on Wilson Transformer and Mr Wilson in the sums of $1,500,000 and $100,000 respectively. Finally, on 3 May 2002 a pecuniary penalty of $35,000 was imposed on Mr David Toogood, who was an executive of ABB Power. 17 In relation to the Distribution Transformer Proceeding, a penalty was imposed on Alstom on 5 April 2001 in the sum of $1,500,000. The other parties who were originally respondents to the Distribution Transformer Proceeding, apart from Alstom and Wilson Transformer, included Schneider Electric Australia Pty Ltd ('Schneider') and AW Tyree Transformers Pty Ltd ('Tyree'). On 3 May 2002 penalties were imposed on Wilson Transformer and Mr Wilson in the sums of $2,500,000 and $125,000 respectively. On the same day penalties were imposed on Tyree and Mr Raymond Boyce, the managing director of Tyree, in the sum of $3,500,000 and $150,000 respectively. On 3 May 2002 penalties were also imposed on Schneider and Mr Russell Stocker, the chairman of Schneider, in the sums of $7,000,000 and $150,000 respectively. Following an appeal by Schneider to the Full Court, the penalty payable by Schneider was reduced to $5,500,000. 18 All of those respondents also consented to the making of declarations concerning their contravention or involvement in contraventions of Part IV of the Act and to the ordering of injunctions restraining further contravention. That disposed of the proceedings so far as those other respondents were concerned. There were other individual respondents who were alleged to have been involved in contraventions. The proceedings were disposed of against those respondents without penalties being imposed.
THE REMAINING RESPONDENTS 19 Various Australian manufacturers produce transformers varying from very small transformers with power through-put ratings as low as 10 kVA to very large power transformers with ratings of up to 600 MVA and primary voltages of up to 500 kV. The industry is generally divided into two segments, being the manufacture and supply of power transformers to Australian and overseas customers, and the manufacture and supply of distribution transformers to Australian and overseas customers. In the Australian industry, power transformers are generally considered to be those with ratings at or above 10 MVA and having primary voltages at or above 11 kV. Distribution transformers are generally considered to be smaller transformers with ratings not greater than 10 MVA and generally having primary voltages of 11, 22 or 33 kV. Typically, distribution transformers have a rating between 10 kVA and 2000 kVA. 20 The ABB group entered the Australian power and distribution transformer industry in early 1990 when it acquired, by way of a series of share acquisitions, a company then known as Tyree Industries Ltd, together with the subsidiaries of that company. ABB Power was originally known as Tyree Electrical Company Pty Ltd, having been incorporated in 1951. At all material times it was a subsidiary of ABB Distribution, which was the company formerly known as Tyree Industries Ltd. 21 During the period from 1990 to 31 December 1995, ABB Power was the main operating company of the ABB Group in Australia so far as the manufacture of power and distribution transformers was concerned. However, on 1 January 1996 the business undertaking and all of the staff and assets of ABB Power were transferred to ABB Distribution as part of a corporate restructuring. Thereupon, ABB Distribution became the operating company in relation to the ABB group's business of manufacturing power and distribution transformers. 22 On 15 September 1997 a resolution was passed by the members of ABB Power under s 491 of the Corporations Law for a members' voluntary winding up. On 4 December 1998, in the course of the winding up of ABB Power, the sum of $9,461,759 was paid to ABB Distribution by way of return of assets in specie and realisation and distribution of assets. Following its winding up, ABB Power had no assets, no employees and carried on no business. Eventually ABB Power was deregistered on 10 May 1999. However, on 1 May 2000, as a result of an application by the Commission, the Supreme Court of New South Wales made an order that ABB Power be reinstated pursuant to s 601AH(2) of the Corporations Law. On the same day, leave was given by that court for the Commission to commence and continue the Power Transformer Proceeding against ABB Power. 23 In its last year of operation, ABB Power had approximately 680 employees, approximately 286 of whom worked in the distribution transformer business. Approximately 200 of them worked in the power transformer business. In the year ended 31 December 1995, ABB Power had a total revenue of approximately $142.5 million. Approximately $38 million of that represented its distribution transformer business and approximately $18.1 million represented the power transformer business. 24 From 1996 to 1999 ABB Distribution was one of the main operating companies in the ABB group in Australia with approximately 734 employees, approximately 215 of whom worked in the distribution transformer business. In the year ended 31 December 1998 ABB Distribution had total revenue of approximately $219.5 million, approximately $33.9 million of which represented its distribution transformer business. In 1999 ABB Distribution employed approximately 145 employees in the power transformer business. In the year ended 31 December 1999 the revenue of ABB Distribution in respect of its power transformer business was approximately $16 million. 25 The ABB group of companies has at all material times operated factories in Australia in which transformers are manufactured. Distribution transformers were manufactured at factories located at Darra in Brisbane and Osborne Park in Perth. One factory was previously located in Adelaide but closed down in about 1992. Up to 2002 power transformers were manufactured at a factory located at Moorebank in Sydney. In early 2002 that factory was closed, resulting in the loss of approximately 140 jobs. 26 In May 1994 Mr Pitt became the managing director of ABB Power and, following the corporate restructure at the end of December 1995, became the managing director of ABB Distribution. Mr Graham Jones was the general manager of the distribution transformer division of ABB Power and subsequently of ABB Distribution from March 1993 to April 1998. He reported to Mr Pitt after Mr Pitt became managing director in May 1994. Mr Russell Ellen succeeded Mr Jones as general manager of the distribution transformer division of ABB Distribution in May 1998, reporting to Mr Pitt. 27 Mr Tape was the managing director of ABB Power from early 1990 to about 31 December 1993. He left the employment of ABB Power at that time and is currently a consultant to a privately owned company in Thailand involved in the business of electric motors. It is Mr Tape's intention to continue to work in that capacity in Thailand indefinitely and he has no plans to return to Australia in the immediate future. 28 Mr David Toogood was the national business development manager of ABB Power from 1993 until December 1995. Mr Toogood reported to Mr Pitt.
THE CONTRAVENTIONS OF THE ACT 29 In the period from 1991 to 1993, there was substantial excess capacity in both the power transformer industry and the distribution transformer industry in Australia. In the early 1990s the market for both types of transformer experienced significant downturn in demand. The depressed market conditions and excess supply resulted in poor profit performances for the Australian manufacturers of both distribution and power transformers. 30 The purpose of ABB Power and ABB Distribution in entering into the arrangements to which I shall refer shortly was to ensure adequate factory loading and to preserve the jobs of those employed in the factories. The facts constituting the contraventions and the admissions that have been made by the respondents in relation to the contraventions are set out in some detail in the admissions and agreed facts previously referred to. Those matters are summarised below.
THE POWER TRANSFORMER PROCEEDING 31 In about October 1993, ABB Power, Wilson Transformer and Alstom became parties to an arrangement or understanding ('the 1993 Power Transformer Arrangement') not to compete with each other for certain contracts let to tender by electricity utilities and industrial companies for the supply of power transformers, so as to maintain the respective market shares, by value of those companies, in relation to the power transformers supplied by them in Australia and New Zealand. 32 The participants in the arrangement gave effect to it, first of all by senior executives of each participant attending private meetings to monitor market shares and agree which of them should be the successful tenderer in respect of some tenders. Secondly, effect was given to the arrangement by each participant informing the other participants of the total cost at which it proposed to tender for the supply of power transformers in relation to specific tenders. In the case of ABB Power, Mr Toogood was the senior executive who gave effect to that arrangement. 33 The 1993 Power Transformer Arrangement continued until late 1995, during which period the parties gave effect to the arrangement in respect of some 23 tenders to various utilities and industrial companies. The Commission, however, did not begin investigation into the conduct until mid 1999. ABB Power has admitted that its making of and giving effect to the 1993 Power Transformer Arrangement, constituted making and giving effect to arrangements in contravention of ss 45(2)(a)(ii) and 45(2)(b)(ii) of the Act. 34 Mr Pitt has admitted that he was indirectly, knowingly concerned in the contraventions by ABB Power after he became managing director of ABB Power in May 1994. Mr Tape has admitted that from about November 1993 until 7 December 1993 he was indirectly, knowingly concerned in contraventions by ABB Power that occurred during that period.
THE DISTRIBUTION TRANSFORMER PROCEEDING 35 In or about early or mid 1993 ABB Power, Wilson Transformer and Tyree became parties to an arrangement or understanding ('the 1993 Distribution Transformer Arrangement') not to compete with each other for some contracts let to tender by electricity utilities for the supply of distribution transformers in Queensland, New South Wales, South Australia, Tasmania, the Northern Territory and the Australian Capital Territory. The purpose was to ensure that the party that had an existing contract to supply distribution transformers to a particular utility would retain that contract. 36 The participants in the 1993 Distribution Transformer Arrangement agreed, as part of the arrangement, that it was to be implemented by their doing one or more of the following: (a) refraining from tendering for an existing contract of another participant let to tender; (b) engaging in discussions as to prices so as to ensure that the participant that had an existing contract would be in a position most likely to win the tender; and (c) submitting tenders in accordance with and in the knowledge of the above discussions. 37 The parties to the 1993 Distribution Transformer Arrangement gave effect to it by exchanging, by way of telephone conversations and/or facsimile communications, the price and/or capitalised cost that their respective companies would submit for particular items in a tender. In early 1994, as part of the 1993 Distribution Transformer Arrangement, ABB Power and Alstom arrived at an arrangement or understanding not to compete with each other for the supply of distribution transformers in respect of a tender that was the subject of the 1993 Distribution Transformer Arrangement. 38 The 1993 Distribution Transformer Arrangement continued until early or mid 1995, during which period the parties exchanged prices and/or capitalised costs for five tenders. In or about early or mid 1995 the 1993 Distribution Transformer Arrangement was extended when the original participants recommitted to it, together with Schneider. The making of the new arrangement ('the 1995 Distribution Transformer Arrangement') followed Schneider's entry into the market. The new arrangement was in the same terms as the 1993 Distribution Transformer Arrangement. 39 In mid 1996 as part of the 1995 Distribution Transformer Arrangement, ABB Distribution entered into a further arrangement or understanding with Alstom not to compete for the supply of distribution transformers in respect of a tender that was the subject of the 1995 Distribution Transformer Arrangement. After ABB Distribution succeeded to the undertaking of ABB Power, ABB Distribution in substance gave effect to the 1995 Distribution Transformer Arrangement. 40 The 1995 Distribution Transformer Arrangement continued until early 1999, during which period the participants exchanged prices and/or capitalised costs for some fifteen tenders. ABB Power has admitted that its making of and giving effect to the 1993 Distribution Transformer Arrangement and the 1995 Distribution Transformer Arrangement constituted making and giving effect to arrangements in contravention of ss 45(2)(a)(ii) and 45(2)(b)(ii) of the Act. ABB Distribution has admitted that giving effect to the 1995 Distribution Transformer Arrangement constituted contravention of s 45(2)(b)(ii) of the Act. 41 Mr Pitt has admitted that he was indirectly knowingly concerned in the contraventions by ABB Power and ABB Distribution after he became managing director of ABB Power in May 1994. Mr Jones has also admitted that he was knowingly concerned in contraventions by ABB Power and ABB Distribution. Mr Ellen has admitted that he was knowingly concerned in contraventions by ABB Distribution after he became general manager of the distribution transformer division in May 1998. 42 All of the present respondents accept that their conduct, constituting, as it did, contraventions of Part IV of the Act, was very serious. They accept that such contraventions must be seen as amongst the most serious of the non-criminal contraventions of the Act. The Commission also regards the contraventions as very serious, since they were deliberate, covert and involved senior management of a large national corporation, which is part of a multinational conglomerate.
COOPERATION WITH THE COMMISSION 43 After it became aware of the contravening conduct in mid 1999, the Commission approached ABB Distribution and requested its agreement in principle to cooperate with the Commission's investigation. The Commission requested a report in relation to the conduct under investigation by no later than 3 August 1999. By letter of 16 July 1999, ABB Distribution gave its agreement to cooperate. On 3 August 1999 the Commission was provided with a preliminary report and on 3 September 1999 a comprehensive report admitting conduct that was not disclosed in the previous report was provided to the Commission. The involvement of Mr Pitt was first referred to in that second report. 44 As I have said, the Power Transformer Proceeding was commenced on 1 October 1999. On 8 December 1999 Messrs Pitt and Ellen each attended a voluntary interview with officers of the Commission in relation to conduct relating to distribution transformers. On 14 January 2000 Mr Jones, who has resided out of Australia since 1999, attended a voluntary interview with officers of the Commission. The Distribution Transformer Proceeding was then commenced on 6 November 2000. 45 Neither ABB Power nor ABB Distribution had a trade practices compliance program during the times of the contraventions under consideration. However, the ABB group has subsequently introduced a trade practices compliance program. The steps taken by ABB Distribution in introducing the program include the following: (a) creation in July 2000 of the position of compliance counsel within the ABB legal department, now described as the ABB Legal and Compliance Department; (b) reissuing to all staff on 31 August 1999 a group directive clearly stating that compliance with anti-trust laws is mandatory for all staff; (c) development and issue to all employees in July 2000 of a new trade practices compliance policy; (d) development of a new compliance manual in conjunction with external legal advisers; (e) ongoing compliance seminars conducted by compliance counsel in each operating unit in Australia; (f) informing all employees that a failure to abide by the compliance requirements may result in termination of employment and that compliance will be a factor in periodic performance appraisals for all senior employees from the level of managing director down; (g) requiring the director of legal services and compliance counsel for the Asia/Asia Pacific region to report to each board meeting in relation to the progress of implementation of trade practices compliance policy throughout the group in Australia.
THE PRINCIPLES FOR ASSESSING PENALTIES 46 One object of the penalties to be imposed under s 76 is deterrence. There appears to be some difference in views expressed by members of the Court as to whether one object of the penalties under s 76 is to penalise. I have some difficulty in seeing how there could be any doubt that one of the objects of s 76 is to penalise those who have engaged in contravention. The question of deterrence is simply one that goes to the quantum of the penalty to be imposed to ensure two things: first, specific deterrence in relation to the actual contravener, and, secondly, general deterrence of others who may be disposed to engage in prohibited conduct of a similar kind. 47 In imposing penalties under s 76 the Court should leave no room for any impression of weakness, in order to ensure deterrence, not only of the parties actually before it, but also of others who might be tempted to think that contravention would pay. Contraventions of the sort presently under consideration commonly occur in secret and the risk of detection is therefore often low. On the other hand, the potential gain to contraveners and the potential damage to the community may be very large. Accordingly, the penalties need to be correspondingly high. 48 In assessing a penalty under s 76(1) the Court may have regard to a number of factors beyond those mentioned specifically in s 76(1), including the following:
THE APPROPRIATE PENALTIES IN THIS CASE 57 Against that background, I will now consider the matters relevant to the penalties proposed for the respondents still before the Court.
THE CORPORATE RESPONDENTS 58 ABB Distribution was in substance the successor of ABB Power. It succeeded to the whole of ABB Power's undertaking. There was a single enterprise conducted at different times by different corporate entities. It is appropriate, therefore, to treat the two corporations as a single entity for the purpose of assessing penalty. The practical effect of the agreement between ABB Distribution and the Commission is that ABB Distribution will accept responsibility for any penalty that ABB Power is ordered to pay to the Commonwealth. 59 The effect of the proposals is that ABB Distribution will pay the sum of $5.5 million in respect of the contraventions concerning power transformers and $8.5 million in respect of the contraventions involving distribution transformers. That represents a total of $14 million. 60 There were three acts in contravention of s 45(2)(a)(ii), constituted by entering into arrangements. No penalty can be imposed in respect of certain of those acts because of the time bar. There were thirteen contraventions of s 45(2)(b)(ii) in respect of power transformers and sixteen contraventions of s 45(2)(b)(ii) in respect of distribution transformers, in giving effect to the arrangements. The conduct in relation to power transformers relates to twenty-three tenders, but only thirteen of those fall within the period in relation to which a penalty can be imposed. 61 While the arrangements concerning power transformers and distribution transformers are discrete and separate and involve different parties, they are of the same character. Similarly, the contraventions of s 45(2)(b)(ii) involving giving effect to the arrangements are all of the same character insofar as they were done in the furtherance of similar anti-competitive arrangements entered into for the same purpose, namely, of ensuring adequate factory loading and preserving the jobs of those employed in the factories. 62 As a matter of theory, the total penalties that could be imposed, if the maximum were imposed in respect of each contravention within the limitation period, would be close to $300 million. That figure, of course, is quite unrealistic in the context of the total revenue of ABB Power and ABB Distribution in the amounts to which I have already referred. It is even more unrealistic in relation to the revenue derived from the manufacture and supply of power transformers and distribution transformers. Set against the amounts to which I have referred, a total penalty of $14 million is very substantial. I consider that that figure is one that would constitute ample deterrence to ABB Distribution from entering into similar arrangements and as such is very likely to deter others from doing the same thing. 63 Most of the tenders in question resulted in substantial contracts to supply power transformers to publicly owned Australian electricity distribution utilities or private companies. The average of the prices tendered was approximately $1.4 million, although those prices do not necessarily reflect the value of any contract actually entered into and performed. It is relevant that, when the participants in the arrangements acted in concert in respect of the arrangements, they would have controlled in excess of 90 per cent of the market, both for power transformers and distribution transformers. 64 None of the parties has attempted to quantify the amount of any loss or damage caused by the arrangements. The parties have not obtained any determinative evidence of the benchmarks or criteria by reference to which to estimate the hypothetical costs at which participants in the arrangements would have tendered for the supply of transformers, had the arrangements not been put into effect. Both the Commission and the respondents have informed the Court that they have taken the view that there would be considerable expense attached to obtaining such evidence and that the avoidance of such expense and the contested issues between the parties that might arise contributed to the agreement to make joint submissions on penalty to the Court. 65 The conduct in question took place in the context of a recently deregulated and declining market with substantial over-capacity. The Commission acknowledges that the respondents believed that, by participating in the 1993 Power Transformer Arrangement, they would limit the losses of ABB Power and maintain minimum levels of work to avoid possible closure of the Sydney manufacturing facilities. 66 The Commission accepts that it is unlikely that ABB Power or ABB Distribution had a significant degree of power in the transformer markets. None of the respondents presently before the Court has previously been the subject of proceedings alleging contravention of Part IV of the Act. That is a relevant factor specifically provided for in s 76. 67 As I have indicated, the ABB group is a substantial one. In 1998 it employed 4000 people and had an annual turnover of approximately $1 billion. Currently the ABB group in Australasia employs approximately 2000 people and has an annual turnover of approximately $700 million. In the year ended 31 December 1998 ABB Distribution had total revenue of approximately $219.5 million and was one of the operating companies in Australia with approximately 700 employees. In 1998 the distribution transformer division of ABB Distribution represented approximately 15.5 per cent of its total business in terms of sales revenue and the power transformer division represented approximately 1.3 per cent of business in terms of total sales revenue. 68 The collusive conduct in question was engaged in by senior executives, with the knowledge, particularly in the case of Mr Pitt, that it was likely to contravene the Act. The secrecy that attended the various communications between the participants demonstrates the deliberateness of the conduct. In relation to both arrangements, meetings were generally held outside the workplace at hotels or before or after industry meetings. In relation to distribution transformers, meetings also took place at the private residence of Mr Wilson. 69 In the case of power transformers, the collusive arrangements extended over 2.5 years beginning in 1993. They were coordinated by numerous meetings and telephone conversations between senior executives of the participants in the arrangements. The conduct of ABB Power in respect of which penalties can be imposed extended over a fifteen month period from September 1994 to December 1995, during which period the participants gave effect to the arrangements for about thirteen tenders. 70 The contravening conduct for which penalties can be imposed in respect of distribution transformers extended over a five year period from November 1994 to early 1999, during which period, information was exchanged in relation to sixteen tenders. Each of Messrs Pitt, Toogood and Jones at all material times occupied senior management positions. Mr Ellen assumed the role of Mr Jones from May 1998. At the time during which he was indirectly knowingly concerned in the relevant conduct, Mr Pitt held the position of managing director. 71 Messrs Jones and Ellen were, at the respective material times, general managers of relevant divisions reporting to Mr Pitt. Mr Toogood, as previously stated, also reported to Mr Pitt. The involvement of senior executives and the awareness of Mr Pitt of the likely illegality indicate that, at the relevant time, there was a lack of a corporate culture of compliance. ABB Distribution accepts that, despite the size of its operations, it had no compliance program at the relevant times, although, it has subsequently introduced such a program. 72 The present respondents did not approach the Commission of their own volition. It was only after the Commission became aware of the contravening conduct in mid 1999 that it made the approach to ABB Distribution on 13 July 1999 and requested cooperation. The Power Transformer Proceeding was commenced, as mentioned above, on 1 October 1999. On 27 September 2000 ABB Power and Mr Pitt filed defences in which they made admissions and acknowledged liability. In his filed defence Mr Tape put in issue many matters that were subsequently admitted, nevertheless he ultimately made admissions. 73 A respondent making admissions and acknowledging liability is entitled to special consideration in relation to the reduction of the amount of the penalty that would otherwise be assessed, even where the admissions arise by withdrawal of a denial, a substantial time after the proceedings were launched. It is on the basis of admissions no more extensive than those contained in the defences originally filed on 27 September 2000 that the Commission and the respondents have now reached agreement as to the penalty to be submitted to the Court for its approval. 74 ABB Power is in liquidation and has no assets. However, as previously mentioned, an agreement has been entered into between ABB Distribution and the Commission, which the parties have asked the Court to note. The agreement is that in consideration of, among other things, the Commission's agreement to make the submissions that it has now made, that the pecuniary penalties to which I have referred are appropriate, reasonable and justifiable in the circumstances, ABB Distribution will discharge by payment to the Commonwealth on behalf of ABB Power any liability on the part of ABB Power to pay pecuniary penalties in either the Power Transformer Proceeding or the Distribution Transformer Proceeding, to the extent that the penalties do not exceed $14 million in total. ABB Distribution is able to pay the total penalties proposed, of $14 million. 75 The involvement of Wilson Transformer and Alstom in the contraventions concerning power transformers and the involvement of Wilson and Tyree in the contraventions involving distribution transformers was no less serious than that of the ABB enterprise, consisting of ABB Power up to the end of 1995 when ABB Distribution succeeded to it, and ABB Distribution thereafter. 76 Measured against the penalties imposed on Wilson Transformer and Alstom of $1.5 million and $5.5 million in relation to power transformers, the proposed penalty of $5.5 million for ABB Power is on a par with these earlier penalties. Measured against the penalties of $2.5 million and $3.5 million imposed on Wilson and Tyree in relation to distribution transformers, the penalty of $8.5 million proposed for the ABB enterprise is, if anything, excessive. Certainly, in relation to distribution transformers, the penalties of $5.5 million and $1.5 million imposed on Schneider and Alstom respectively for lesser involvement are on a par with the $8.5 million proposed for the ABB enterprise. 77 Certain of the penalties imposed on other participants in the contravening conduct were imposed by consent. Others were imposed after contested hearings. Be that as it may, the penalties proposed for the ABB enterprise of $5.5 million and $8.5 million for the Power Transformer Proceeding and Distribution Transformer Proceeding respectively, totalling $14 million, are at least comparable with, if not in excess of, the penalties borne by the other participants in the contravening conduct.
the individual RESPONDENTS 78 As mentioned above, Mr Pitt was general manager of the distribution transformer division of ABB Power from January 1990 to March 1993. From then until April 1994 he was general manager of the power transformer division of ABB Power. In May 1994 he became managing director of ABB Power and then of its successor ABB Distribution. Mr Pitt was aware of the 1993 distribution transformer arrangement and the 1995 distribution transformer arrangement and failed to take any steps to ensure that illegal conduct ceased. He was aware that the conduct was likely to contravene the Act. 79 In his position as managing director, Mr Pitt was ultimately responsible for the conduct of Messrs Jones and Ellen. By failing to stop the collusive conduct he in effect sanctioned the involvement of his subordinates. There was no acknowledgment of Mr Pitt's involvement in the collusive conduct in the preliminary report furnished to the Commission on 3 August 1999. However, it was expressly stated not to be final and in the second report provided on 3 September 1999 Mr Pitt's involvement was disclosed. Mr Pitt admitted liability as soon as a defence was filed. 80 Further, Mr Pitt has cooperated with the Commission in its investigations, including submitting to a voluntary interview with the Commission on 8 December 1999. Mr Pitt was informed in general terms of the 1993 Power Transformer Arrangement by Mr Toogood on three or four occasions from the time of his appointment as managing director in early 1994 until late 1995. He acknowledges that he failed to take positive steps to stop the participation of ABB Power in the arrangement. However, Mr Pitt did not originate the 1993 Power Transformer Arrangement, nor was he involved with the day-to-day implementation of it. He did not direct his subordinates to make or give effect to the arrangement, although he was ultimately responsible for the conduct of Mr Toogood. 81 The conduct of Mr Tape involved the allocation of two tenders, which were the first tenders allocated pursuant to the 1993 Power Transformer Arrangement. The contracts with respect to those tenders had an approximate value of $1.7 million. While Mr Tape was involved in the conduct for a period of only about two months, considerable weight should be given to the fact that Mr Tape, the most senior executive of ABB Power, allowed a subordinate to engage in the relevant conduct on behalf of ABB Power. He was in a position to stop the conduct and chose not to do so. The secrecy involved in the communications to which Mr Tape must have been a party demonstrates the deliberateness of his conduct. Mr Tape did not approach the Commission of his own volition. He did not make any admissions in his defence originally filed on 19 December 2000, although shortly before this hearing he filed an amended defence making admissions. 82 Mr Jones was general manager of the distribution transformer division of the ABB enterprise from March 1993 to April 1998. He was involved in the 1993 Distribution Transformer Arrangement and the 1995 Distribution Transformer Arrangement from the inception and continued to be involved until they broke down in 1999. He was the principal facilitator of the arrangements on behalf of the ABB enterprise and was the contact point for exchanging of cover prices. He attended numerous meetings to discuss the arrangements. However, Mr Jones has cooperated with the Commission in its investigations, including by submitting to a voluntary interview with the Commission on 14 January 2000. 83 Mr Ellen was appointed general manager of the distribution division of ABB Distribution in May 1998. Mr Ellen gave effect to the 1995 Distribution Transformer Arrangement from May 1998 onwards. He engaged in the conduct knowing that it was not acceptable and did not think that it was consistent with fair trading. On the other hand, Mr Ellen has cooperated with the Commission in its investigations, including by submitting to a voluntary interview with the Commission on 8 December 1999. 84 The total penalty proposed for Mr Pitt is $200,000, being $100,000 in respect of his involvement in each of the power transformer and distribution transformer contraventions. Mr Wilson, the managing director of Wilson Transformer, suffered penalties of $100,000 and $125,000 respectively for the contraventions involving power transformers and distribution transformers. Mr RG Elliot, the managing director of Alstom, suffered a penalty of $150,000 in respect of the power transformer contraventions by Alstom but no penalty in respect of Alstom's distribution transformer contraventions. 85 Mr Boyce suffered a penalty of $150,000 in respect of his involvement in the Tyree contraventions in respect of distribution transformers and Mr Russell Stocker suffered a penalty of $150,000 in respect of his involvement in the contraventions by Schneider in respect of distribution transformers. Each of those officers was involved in all of the contraventions by his corporation. By contrast, certain of the present individual respondents were not the chief executives of their respective corporations. On the other hand, they all held responsible positions. 86 The penalty proposed for Mr Jones is $60,000 payable by three equal quarterly instalments of $20,000 to be paid within five months respectively. The penalty proposed for Mr Ellen is $25,000 payable within five months of this order. The penalty proposed for Mr Tape in relation to the contraventions involving power transformers is $60,000 payable by four equal half yearly instalments, the first instalment to be paid within six months. Each of the proposed penalties is a substantial sum for an individual to bear. These penalties are on a par with those imposed on the chief executives of the other corporate respondents involved in the contraventions when one takes into account the respective degrees of responsibility involved. 87 Messrs Pitt, Jones, Ellen and Tape accept that they are in a financial position to pay the agreed penalties, subject to time being allowed for payment as indicated.
OTHER ORDERS 88 The parties have also asked the Court to make declarations as to the contraventions and order injunctions as to future conduct. The declarations and injunctions follow the scheme of similar orders made in respect of other respondents. 89 It is desirable, when making declarations, that the conduct that is said to constitute a contravention is identified with a degree of particularity. The declarations proposed utilise the language of ss 45 and 45A in describing the effect of the conduct admitted to have occurred. However, they are specific in referring to conduct in relation to transformers. I am satisfied that the making of the declarations by consent is an appropriate exercise of the Court's power. 90 The injunctions restrain the relevant respondents in terms that also employ the language of the Act. It is generally undesirable for injunctions to be granted that do no more than require compliance with the law. Such orders constitute a recipe for dispute if there is subsequently a charge of contempt for non-compliance with the orders. For that reason orders ought normally to be expressed in specific terms. 91 The parties have attempted to include a certain degree of specificity in the injunctions proposed. The difficulty of course is in drafting sufficiently specific restraints that will still have the effect of prohibiting in substance the conduct about which concern arises. 92 The proposed injunctions are specific insofar as they refer to contracts, arrangements or understandings fixing, controlling or maintaining prices for the supply of transformers. The injunctions proposed are to operate for a period of four years. It is not immediately apparent to me why there should be a limit, other than perhaps the generality of the language used in the drafting of the proposed orders. On balance, I am satisfied that the proposed orders are appropriate as injunctions to be made by consent.
CONCLUSION 93 In all the circumstances, I consider that the penalties proposed on behalf of the Commission and all of the remaining respondents in respect of the contraventions described in both proceedings are appropriate. In that regard, I am mindful that in effect the penalty imposed on ABB Distribution for the conduct of the ABB enterprise in contraventions in relation to transformers generally is in effect $14 million. 94 The parties have agreed on orders for costs. I have taken into account that ABB Distribution has agreed to consent to an order for the payment of the costs of the Commission in the Distribution Transformer Proceeding, insofar as those costs have been incurred in the prosecution of that proceeding against the present respondents. ABB Distribution has also agreed with the Commission to discharge by payment to the Commonwealth on behalf of ABB Power any order for costs made against ABB Power in the Power Transformer Proceeding. 95 I therefore propose to make declarations and orders in accordance with the short minutes of orders prepared by the parties and submitted to the Court. I certify that the preceding ninety-five (95) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Emmett.
V553 of 1999 Counsel for the applicant Mr B R McClintock SC and Mr S T White Solicitor for the Applicant: Australian Government Solicitor Counsel for the Fifth Respondent: Mr A Leopold Solicitor for the Fifth Respondent: Pricewaterhouse Coopers Legal Counsel for the Eleventh & Twelfth Respondents Mr N Young QC, Mr R Wright SC and Mr T M Faulkner Solicitor for the Eleventh & Twelfth Respondents Blake Dawson Waldron
V868 of 2000 Counsel for the applicant: Mr B R McClintock SC and Mr S T White Solicitor for the Applicant: Deacons Counsel for the First, Second, Mr N Young QC, Mr R Wright SC and Mr T M Faulkner Seventh, Eighth & Ninth Respondents: Solicitor for the First, Second, Seventh, Eighth & Ninth Respondents: Blake Dawson Waldron Date of Hearing: 7 April 2004 Date of Judgment: 7 April 2004
Australian Competition & Consumer Commission
ABB Power Transmission Pty Ltd
(1997) 75 FCR 238