supplementary statement of agreed facts and supplementary joint submissions
34 I was troubled by the fact that in each proceeding neither the Principal Statement nor the Principal Submission addressed the following questions, even by giving reasons why they did not do so:
(a) By how much was each respondent better off as a result of its contraventions?; and
(b) What was the additional amount the market paid to each respondent as a result of its contraventions?
Accordingly, I caused each proceeding to be re-listed on 19 December 2000 and directed that the parties supply by 1 February 2001, a supplementary statement of agreed facts and supplementary joint submissions, or supplementary individual statements of facts and supplementary individual submissions in relation to these questions, as the case might permit. The parties to each proceeding have now supplied a Supplementary Statement of Agreed Facts ("Supplementary Statement") and Supplementary Joint Submissions ("Supplementary Submission"), although in one proceeding, N 1140 of 2000, BASFA has also provided a short individual submission. Annexed to the Supplementary Statements were "Confidential Annexures" and annexed to the Supplementary Submissions were "Confidential" documents. These documents contained further internal financial data relating to the respective respondents. I made further "confidentiality orders" in relation to such documents in each proceeding.
35 The Supplementary Statement in each case informs the Court that the accounting practices and records of the respondent do not enable it to provide the information required to answer precisely the questions posited, although the confidential documents contained such information as is available in the respondent's records from which inferences may be drawn relevant to the appropriateness of the level of penalty suggested.
36 The difficulties the respondents have in answering the questions are of two kinds. First, the profit generated by the sales of the relevant animal vitamins A and E, and pre-mix containing those two vitamins cannot be isolated. That is, although sales figures are available for those products during the relevant period, there do not exist figures for costs appropriate to be deducted from those sales figures to arrive at a "profit". Secondly, even if the profit attributable to those sales could be isolated, it would remain impossible to identify that part of the profit which would not have been made if the contravening conduct had not occurred, or to identify what additional amount the market paid above what it would have paid, absent the contravention.
37 In the cases of BASFA and AANA, not all relevant costs are known. In those cases, the parties have calculated "variable costs" but do not know the figures for all fixed costs. Accordingly, in those proceedings the parties have not attempted to estimate "net profit" or "operating profit" but have calculated a "gross margin" (or "contribution margin").
38 In the case of RVA, the relevant costs cannot be isolated from the general costs of RVA's "Vitamins and Fine Chemicals Division". Accordingly, in that case the parties have estimated the profitability of RVA's business arising from the subject sales of animal vitamins A and E and pre-mix containing them by using a percentage derived from figures relating to the Division as a whole. This has enabled the parties to that proceeding to provide figures for "indicative profits".
39 For convenience, I will use the expression "estimated profit" to refer to both the "gross margin" (or "contribution margin") of the BASFA and AANA proceedings and the "indicative profits" of the RVA proceeding.
40 The confidential documents provide, or enable me to calculate, the ratio or percentage relationship between estimated profit and sales. The ratio or percentage relationship between suggested penalty and sales was already available from the Principal Statement. In the light of the Supplementary Statement, it is now also possible to know the ratio or percentage relationship between suggested penalty and estimated profit. As well it is possible to compare the various ratios or percentages mentioned, as between the respective proceedings.
41 The following is an extract from the Supplementary Submission in proceeding N 1140 of 2000 - that against BASFA (the content of pars 13 to 24 are almost identical to passages to be found in the Supplementary Submission in the proceedings against RVA and AANA, but pars 25, 27 and 28 and parts of par 26 do not appear in the Supplementary Submission of the ACCC and RVA, while they appear, with the exception of par 28 which does not appear, in a modified form in the Supplementary Submissions of the ACCC and AANA):
13. The Parties submit that, as in this case where such information is unavailable or unable to be calculated for the purposes of answering His Honour's questions, the Court can nevertheless proceed to assess what the appropriate penalty should be by considering sales and profit figures of the kind set out in the Confidential Annexures to the Principal and Supplementary Statements.
14. There are a number of previous cases where the Court has taken this approach, where either there has been no evidence of the profits made as a result of contraventions of the Act or it has been accepted that it would be difficult, if not impossible, to calculate such profits. In Australian Competition and Consumer Commission v Pioneer Concrete (Qld) Pty Limited (1996) ATPR ¶41-457, where the Court imposed the highest penalties against any corporate contravener to date, the only material put to the Court on this issue consisted of the value of the sales of the pre-mix concrete the subject of the collusive arrangements admitted in that proceeding.
15. In ACCC v Tyco Australia Pty Ltd & Ors (2000) ATPR ¶41-740, where the Court imposed corporate penalties of $3.3 million and $1.4 million, as recommended by the parties, the Court noted that no "attempt had been made to give any estimate of the order of magnitude of the losses imposed by these anti-competitive arrangements on consumers ... " (page 40,573).
16. In ACCC v Foamlite (Australia) Pty Ltd (1998) ATPR ¶41-615, the Court, after finding that the loss or damage caused to customers could not be precisely determined, judged the deterrent effect of the corporate penalties suggested by the parties ($1.2 million and $600,000) by comparing such penalties to post tax profits.
17. In ACCC v Tubemakers Australia Pty Ltd (2000) ATPR ¶41-745, the Court looked to the overall size of the relevant market in dollar terms and to the sales of the corporate respondents of the relevant product in assessing and approving the recommended penalties of $1.2 million and $550,000.
18. On at least one occasion the Court has imposed a substantial penalty where it was clear from the evidence that there could have been no actual loss to customers or profit made by the corporate respondent as a result of the contravening conduct because that conduct consisted of an unsuccessful attempt to enter into a market sharing arrangement: TPC v Simsmetal & Ors (2000) ATPR ¶41-764. In that case the Court imposed a $2 million penalty on the corporate respondent, as jointly recommended by the parties.
19. Other cases where the Court has imposed penalties without, it appears from the reported judgments, making any estimate of the profits made or losses sustained as a result of contraventions of the Act, include TPC v TNT & Ors (1995) ATPR ¶41-375 and TPC v Hymix Industries (1995) ATPR ¶41-369 and (1996) ATPR ¶41-465.
20. In ACCC v NW Frozen Foods (1996) ATPR ¶41-515, the Court noted that "[i]n view of the period of conduct in question it is not possible to determine what the price would have been were it not for the price fixing agreements." (page 42,442) The Court did however have access to invoice material that indicated what prices had been when discounted, which were significantly lower than the agreed prices. These were not matters that were subject to the subsequent appeal in NW Frozen Foods v ACCC (1997) 71 FCR 285.
21. In TPC v Simsmetal & Ors (1996) ATPR ¶41-449, the Court was "satisfied that the penalties that have been agreed by the respondents and the TPC have a sufficient deterrent effect to counter balance the profit apparently derived from the contravening conduct." (page 41,512) It is not clear from the reported judgment whether any specific profit figures were received into evidence.
22. The Parties acknowledge that in other cases the Court, on the basis of the evidence before it, has been able to identify the profits made or loss occasioned as a result of contraventions of the Act and has had the advantage of using such information to assess the appropriate level of penalty to be imposed. Even in these cases, however, the Court has recognised that the identified profits and losses constitute only one of the factors to be considered by the Court when assessing the appropriate level of penalty to be imposed, which factors are comprehensively listed in paragraphs 24 to 26 of the Principal Submissions.
23. Such cases, which usually involve the contravening parties agreeing on specific identifiable increases to prices, include TPC v CC (NSW) Pty Limited & Ors (No 2) (1995) ATPR ¶41-406; TPC v CC (NSW) Pty Limited & Ors (No 4) (1995) ATPR ¶41-431; ACCC v George Weston (2000) ATPR ¶41-763 (unsuccessful attempt to induce an increase of prices by a specific amount); and ACCC v Alice Car & Truck Rentals Pty Ltd & Ors (1997) ATPR ¶41-582 (where the parties agreed not to discount prices by an identifiable amount). In ACCC v J McPhee & Son (Australia) Pty Ltd (1998) ATPR ¶41-628, the Court was able to compare the value of a successful competitive quote to assess the loss that would have been sustained had the customer been induced to accept the respondent's higher quote (page 40,896).
24. In contrast in the present case, there is no evidence before the Court of any benchmarks or other criteria by which to estimate the hypothetical prices at which the parties to the Arrangements would have sold the vitamin products in question had the Arrangements not been made and put into effect. The Parties have not uncovered evidence of this kind, such as evidence of the prices during periods when the Arrangements may have broken down or the prices of other competitors not parties to the Arrangements.
25. It is clear from the Principal Statement that tenders for the supply to certain major pre-mix customers were the subject of the Arrangements, as was the price of the animal vitamin A and E components in such pre-mix. It is not clear, however, to what extent tenders to other pre-mix customers were the subject of the market sharing provisions of the Arrangements, albeit that there is no dispute that the animal vitamin A and E components of such pre-mix were the subject of the price fixing provisions of the Arrangements. The Parties have not be able to uncover evidence on precisely what proportion of all tenders submitted by [BASFA] during the relevant period were the subject of the market sharing provisions of the Arrangements.
26. Accordingly, the Parties submit that any attempt to arrive at hypothetical estimates of the prices at which [BASFA] would have sold the vitamin products in question had the Arrangements not been made and put into effect would involve a time consuming, complex and expensive accounting exercise, the results of which would be, at best, speculative or unreliable and possibly even misleading.
27. Further, if such a task were undertaken it would involve adducing evidence from experts and third parties. It would also require the parties to gather pricing and costing information over a lengthy period of time from both Australia and elsewhere including: fluctuations in exchange rates between the currency of the country of origin of the vitamins and the Australian dollar; the effects of inflation; the price elasticity of the products affected by the Australian Arrangements. Information about barriers to entry and production capacity would also be needed. The Parties do not currently have much of this kind of information available to them and the information may not be readily available or even available at all.
28. As indicated in paragraph 6 of the Supplementary Statement, the above exercise requires the application of certain assumptions to the relevant information. The Parties have no basis on which to form a view and come to an agreement on such assumptions."