Australian Competition & Consumer Commission v Ithaca Ice Works Pty Ltd

2 There are relatively low barriers to entry into the market, apart from the cost of plant and equipment. However economies of scale achieved by large operators would render it difficult for a smaller operator to enter it. 3 The allegations centre on two meetings held on 13 August 1993 and 5 October 1993 (the "1993 meetings"). The meeting on 13 August 1993 was attended by the fifth and sixth respondents, (representing the first respondent), the seventh respondent, (representing the second respondent), the eighth and ninth respondents, (representing the third respondent), the fourth and tenth respondents and others. The meeting was organized and chaired by the fourth respondent who was then the president of the Packaged Ice Association of Australia ("PIAA"). The purpose of the meeting was to inaugurate a sub-branch of PIAA in Queensland with the aim of ending aggressive competition amongst ice manufacturers. The

agenda for the meeting included a proposal for a moratorium on approaches to the customers of other suppliers, price increases and minimum prices. In the course of the meeting, agreement was reached amongst the participants that: · they would not compete with one another to supply another participant's existing customers (the "customer aspect"); · from 13 August 1993 they would supply new customers at or above an agreed schedule of prices, the agreed prices being substantially higher than prices then current in the market (the "price aspect"); · from 13 August 1993 they would not supply the "first fill" of an ice cabinet free of charge when initially installing ice storage cabinets or chests at retailers' premises (the "free-fill aspect"). · if a participant were approached by a customer of another participant, seeking supply, the participant so approached would advise the other; · if a site previously supplied by any participant reopened with the same management, that participant would continue to supply the site; · conversely, if management changed at a site, any participant could tender to supply to that site at the agreed prices; · participants would, when quoting to renew contracts with existing customers, quote the agreed prices. 4 The second meeting, held on 5 October 1993, was attended by the fourth, sixth, seventh, eighth and eleventh respondents, as well as others. The fourth respondent again took the chair. Persons who had not attended the first meeting were advised of the agreement reached at the earlier meeting and agreed to abide by it. They were encouraged to give effect to the price aspect so as to avoid a "price war" similar to that experienced in Sydney. It was agreed that if any participant imposed a rental fee for ice storage cabinets supplied to customers, that fee would be $10 per month (the "rental fee aspect"). There was also discussion concerning notification to other suppliers in south-east Queensland of the agreement and the possibility of persuading them to adopt and adhere to it. Following these meetings, the participants implemented the agreement with varying degrees of effectiveness and enthusiasm until 1996. Other meetings occurred during that time. In 1996, the agreement collapsed as a result of a dispute between the first and second respondents. 5 It is asserted that the making of this agreement and its implementation contravened the provisions of subpars 45(2)(a)(i) and (ii) and 45(2)(b)(i) and (ii) of the Trade Practices Act 1974 (Cth) (the "Act"). Those paragraphs provide relevantly: A corporation shall not: (a) make a contract or arrangement, or arrive at an understanding, if: (i) the proposed contract, arrangement or understanding contains an exclusionary provision; or (ii) 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; or (b) give effect to a provision of a contract, arrangement or understanding, whether the contract or arrangement was made, or the understanding was arrived at, before or after the commencement of this section, if that provision: (i) is an exclusionary provision; or (ii) has the purpose, or has or is likely to have the effect, of substantially lessening competition. 6 The term "exclusionary provision" is defined in s 4D. In effect it includes any provision of a contract, arrangement or understanding between or amongst two or more persons who are competitors, which has the effect of preventing, restricting or limiting the supply of goods or services to, or the acquisition of goods or services from particular persons or classes of persons, or such supply or acquisition to or from persons or classes of persons in particular circumstances or on particular conditions. It is alleged that the corporate respondents have breached the Act and that the respondents who are natural persons have been knowingly involved in, have been a party to, induced, aided, abetted, counselled or procured such breaches.

7 I am presently concerned only with the second and seventh respondents, the tenth respondent and the fourth respondent. Each of these respondents has admitted complicity in the alleged misconduct and has made joint submissions with the applicant as to the extent of such complicity and as to appropriate penalty.

SECOND AND SEVENTH RESPONDENTS 8 The seventh respondent represented the second respondent at the two meetings and thereafter. Between 1993 and 1996, the second respondent gave effect to the agreement reached at those meetings by quoting agreed prices to customers and by refraining from approaching existing customers of other participants. This was partly because it did not believe that it could service an extended customer base at that time. It did not implement the free-fill aspect or the rental fee aspect. It had not previously offered free-fills. In about 1994 the seventh respondent agreed with Anthony John Mee (representing the first respondent) that the second respondent would not supply ice to a customer of the first respondent who was in arrears, knowing that the first respondent proposed to refuse supply until payment was received. The second and seventh respondents deny that the rental fee agreement was in breach of the Act. The applicant accepts that any penalty should be fixed without regard to that alleged breach. 9 Clearly, the second respondent was aware from an early stage that its conduct was unlawful, and the seventh respondent was directly and knowingly involved in it. There can be no doubt as to the seriousness of the misconduct. It continued over a period of three years whilst the second respondent was the second-largest supplier in the market-place, although its market share was only a fraction of that enjoyed by the first respondent. There were blatant and deliberate breaches of the Act which no doubt caused significant loss to customers who were deprived of the benefit of competition in the market-place. By way of mitigation, the second and seventh respondents have offered a high degree of co-operation in the investigation and voluntarily abandoned the practices, although for reasons which had little to do with remorse. As is observed in the joint submissions, price-fixing is conduct which is difficult to detect. The primary purpose to be served by the penalty to be imposed is one of deterrence. The maximum penalty for each act or omission in contravention of Pt 4 of the Act is, in the case of a corporation $10 million and, in the case of a natural person $500,000. 10 The second respondent is a relatively small, family-owned and operated company, its directors being the seventh respondent and his wife. Its average annual turnover for the period from August 1993 to September 1996 was about $1.1 million. Its turnover for 1998/1999 was about the same. Its assets, as at 30 June 1999, were slightly less than $1 million and its total liabilities about $1.25 million. It is said that in the year to 30 June 1999, it made an operating loss (before income tax) of $284,813.64. The seventh respondent is fifty-five years of age, and his current salary is less than $40,000 per annum, plus a superannuation contribution of $2,733.50 per annum. His principal asset is his house which he owns jointly with his wife. 11 The parties submit that in the case of the second respondent, there should be a pecuniary penalty of $25,000 and that no other penalty should be imposed upon the seventh respondent. The applicant does not seek an order as to costs. Of course, it is for the Court to fix the appropriate penalty, but it is by no means uncommon to give weight to a substantial measure of agreement reached by the parties in the course of making their submissions. See Trade Practices Commission v Allied Mills (No 4) (1981) 37 ALR 256 per Sheppard J at 259. In the present case, as I have said, there are a number of different respondents, all of whom will presumably be dealt with at some stage. It is important in the administration of justice that proportionality be maintained in the various penalties imposed. 12 I do not mean to underestimate the other relevant factors in the present case by saying so, but I am of the view that the most serious factors for present purposes are that the second respondent was a substantial force in the relevant market, although not the largest, that the conduct was deliberate and that it extended over a substantial period of time. In mitigation, there is the very substantial co-operation offered by the second and seventh respondent, leading to the joint submissions made in this matter. In those circumstances the agreed penalty of $25,000 would be sufficient to constitute a deterrent to others, to reflect reasonably the seriousness of the offence and to take appropriate account of the second respondent's capacity to pay. I see no reason to depart from this figure. 13 Given that the seventh respondent and his wife have limited assets and that they are, in effect, the owners of the second respondent, it would be harsh and quite artificial to impose any further penalty upon him. I will make orders in terms of the draft minutes attached to the submissions.

TENTH RESPONDENT 14 The tenth respondent is the co-owner and manager of Caboolture Ice Works. He attended both 1993 meetings and other meetings held between 1993 and 1997. His participation in the agreements extended only to refraining from approaching competitors' customers or seeking to undercut their prices. He derived a benefit from their not approaching his customers. This conduct continued from 1993 to 1996 when the agreement collapsed. The business enjoyed only a small market share. Between 1993 and 1996 it supplied about 150 tonnes per annum, well under 5 per cent of the market. It continues to supply less than 5 per cent of that market. At all material times, the first and second respondents, between them, controlled 75 per cent or more of the market. It is not necessary that I repeat the observations made in connection with the second and seventh respondents. Although the tenth respondent was knowingly concerned in, and party to the agreement, he probably had little choice in the matter considering his relatively small market share. Further, the active steps taken by him in implementation of the various agreements were quite limited. Nonetheless he undoubtedly derived some benefit from the arrangement and to that extent, inflicted some harm upon customers. During the period in question, the tenth respondent lost customers to another competitor, Kleer Ice Supplies, which was not a party to the agreement. The average annual turnover of the Caboolture Ice Works between 1993 and 1996 was about $65,000. Its turnover in the year 1998/1999 was $78,000. About 7 per cent of its supplies were purchased from the first respondent rather than manufactured by itself. The tenth respondent has offered substantial co-operation to the applicant, leading to the joint submissions made in this matter. 15 The tenth respondent is aged seventy-three years. He and his wife own the family home and receive income from the business. The net assets of the business, as at 30 June 1999, were approximately $300,000, of which about one-half represented the value of the premises. In those circumstances it is proposed that a penalty of $7,500 be imposed and that the tenth respondent also pay the applicant's costs of the proceedings fixed at $2,500. 16 Given the economic nature of the inducement to enter into conduct of the kind presently under consideration, it is difficult to see how any adequate deterrent can be provided other than by imposing a significant financial penalty. That presently proposed is, in my view, the minimum which is likely to be effective as a deterrent. Nonetheless it is appropriate that the Court err on the side of leniency, having regard to the tenth respondent's advanced years, his asset position, his co-operation with the applicant and the limited role played by him in the market, and therefore in the implementation of the various agreements. I am prepared to make orders in terms of the draft minutes attached to the submissions.

FOURTH RESPONDENT 17 The fourth respondent was, until 1999, the co-owner and manager of the business, North Coast Ice which manufactured and supplied ice in and around northern New South Wales, including Tweed Heads and for a distance of about one kilometre into Queensland. As president of PIAA, he organized and chaired the 1993 meetings, although he was requested to do so by Mr Tony Mee, an employee of the first respondent. He also drafted the agenda for the first meeting, incorporating suggestions from others. At the second meeting, he urged those attending to avoid a price war similar to that experienced by suppliers in Sydney. Further meetings occurred between 1993 and 1997. It is common ground that the fourth respondent traded principally outside the boundaries of the relevant market. His average turnover within the market was only about $26,000 per annum. 18 Between 1993 and 1996 the fourth respondent refrained from approaching existing customers of other participants in the agreement, mainly because he did not think that there was sufficient return to be gained from doing so. He appears to have derived some benefit from this in that his business in Tweed Heads and adjacent areas was not subjected to competition. Nonetheless, as in the case of the tenth respondent, the fourth respondent's involvement in the conduct in question and his benefit from it were very limited. No doubt because of his position with PIAA, he took an active role in fostering the meetings, albeit at Mee's instigation. His own relevant market share was 1 per cent or less. It is likely that only minimal damage was caused to customers by his conduct simply because of this very small market share. However, by his conduct in encouraging and being a party to the agreement, he certainly encouraged others in conduct which may have caused substantially more damage. It is also asserted that he encouraged manufacturers in New South Wales to engage in similar arrangements. 19 The business was, until 1999, owned and operated by the fourth respondent and his wife, with seven or eight staff. Between 1993 and 1996, its average annual turnover was about $610,000. In the year ended 30 June 1999, it was about $1.2 million. As at 30 June 1999 the assets of the business were about $370,000, and it made an operating profit before tax of about $82,000. The fourth respondent received drawings in excess of $41,000. The business was sold in December 1999. The fourth respondent is now retired. Again, there has been substantial co-operation with the applicant. 20 The parties propose that the fourth respondent pay a pecuniary penalty of $30,000 in respect of all contraventions and costs agreed at $12,500. I find it very difficult to accept that proposal, given the penalties imposed upon the second and tenth respondents. This is particularly so in view of the substantially greater market share enjoyed by the second respondent. His share was also substantially less than that enjoyed by the tenth respondent. He seems to be somewhat better off financially than the tenth respondent, but while incapacity to pay may militate against a heavy penalty, capacity to pay should not compel a higher penalty. Of course, his involvement in the 1993 meetings was greater than was that of the tenth respondent, although their actions pursuant to the agreement were similar. Whilst it may be appropriate to attribute additional culpability to him because of his role as convener and chairman, one should not take that matter too far, given that he was acting at the behest of Mr Mee who represented the major supplier in the market. Similarly, care is needed in attributing weight to his alleged encouragement to New South Wales manufacturers to engage in such conduct. If they acted upon his advice, then he may be liable to a penalty in respect of that conduct, but that is a separate matter, to be separately alleged and proven if he is to be punished for it. 21 Having regard to the penalties imposed upon the second and tenth respondents, my view is that the penalty for the fourth respondent should be fixed at $15,000. In fixing that penalty, I consider that I am taking a stringent view of his conduct, attributing to him a substantial role in fostering the meetings and the agreement arising from them, but also recognizing his limited role in implementation of it and the limited benefit derived by him. With that variation I would make the orders proposed in the draft minutes attached to the submissions, including the order for costs. 22 I have considered at some length the appropriateness of departing from the penalty agreed between the parties, but it was conceded that I should do so if I considered that a different approach was indicated. I suspect that the agreed submissions placed undue weight upon the fourth respondent's involvement in the New South Wales activities, failed to appreciate the very small benefit derived by him from the misconduct in question and over-estimated his role in convening and chairing the meetings. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Dowsett.

Associate: Dated: 26 July 2000 Counsel for the Applicant: Mr Gibson QC Ms Ford

Solicitor for the Applicant: Australian Government Solicitor

Solicitor for the Second and Seventh Respondent: Phillips Fox

Solicitor for the Tenth Respondent: Laurie Watling

Date of Hearing: 31 March 2000

Date of Judgment: 26 July 2000