Injury, loss or damage resulting from the offences
94 AOA placed significant reliance on a submission that the conduct had no effect on Australian consumers. Emphasis was placed on the agreed fact that pricing data in respect of SNBB medications sold to Australian pharmacies by three major wholesalers over the Relevant Period shows that, when adjusted for changes in the consumer price index, the average wholesale price in Australia for these medications decreased in real terms during the Relevant Period and did not show any discernible increase when the price of SNBB increased.
95 AOA accepted that affected foreign customers lost the ability to enjoy the potential benefits of competition between AOA and its competitors. However, it submitted that AOA's sales of SNBB in Australia during the Relevant Period were de minimis: AOA made a total of seven sales of SNBB, each of a non-commercial quantity, totalling approximately six kilograms (a total value of $25,641). This represents 0.02 percent of AOA's total sales. AOA also stated that: there is no material market for SNBB in Australia; SNBB manufactured by AOA was not used in Buscopan, only generic SNBB medications; and the value of the sales of generic SNBB medications by wholesalers to pharmacies in Australia during the period in which AOA gave effect to the relevant CAUs was modest, with a total value of $2,821,509. It was therefore submitted that the high watermark of the total commerce that may have been affected in Australia, that is the total revenue affected (of which loss or damage could only ever be a proportion), is $2,847,150. It was also submitted that this likely overstates the figure as it almost certainly includes generic SNBB medications manufactured using SNBB sold by persons who were not parties to any cartel arrangement at the relevant time.
96 AOA submitted that care must be taken not to take the headline figure of $2,821,509 as the measure of the economic effect in Australia, which, if properly analysed, was said to be significantly less. That headline figure is the total amount of sales of generic SNBB medications by wholesalers to pharmacies in Australia over a period of more than 6 years (including SNBB medications supplied by all SNBB manufacturers, one of which is AOA), and the cost of SNBB comprises only a very small proportion of the total over the counter cost of SNBB medications. AOA submitted:
Let it be assumed that a generic SNBB medication contains 10mg of SNBB; that there are 20 tablets in a packet; and that the price of a packet of 20 tablets at Pharmacy Online is $5.99. Taking the average price of SNBB across the relevant period, $2,727 per kg (see [32] SOAF), the cost of the SNBB in a packet of 20 tablets is $0.55. It represents only 9.18% of the overall price. 9.18% of the total figure of $2,821,509 amounts to about $259,014 - a relatively small sum, of which only a portion could possibly have been affected by the offending conduct (given that this sum of $259,014 represents the entire cost of SNBB and not the extent to which the price may have been inflated by reason of the offending conduct).
97 AOA submitted the facts establish an upper bound for the anticompetitive effect in Australia, being some proportion of the $259,014 outlined above. AOA submitted that this is in stark contrast to Vina Money Transfer and NYK, as to the total value of Australian commerce affected by the cartel conduct.
98 In respect to Count 2, AOA submitted that, although there may be a loss of competition in overseas markets, removing a potential source of production of Duboisia leaves does not result in any loss or damage to the Australian economy. This was said to be because while there would have been an effect on competition in the overseas markets to which Duboisia leaves are sold, considering when and in what form Duboisia leaves come back into Australia shows that there would have been a negligible, if any, impact on the Australian economy. Any other effect was said to be speculative.
99 The Director does not dispute the figures referred to above at [95], but does dispute their significance. It was submitted that those figures do not tell the whole story and that it is impossible to compare the effects of the cartel arrangements against a counterfactual scenario where the conduct did not occur because of the multiplicity of factors that may have borne upon prices. The Director submitted that the longstanding and widespread nature of the offending would have distorted the market for SNBB and derivative markets for SNBB medications. It was said that prices, quality and range of services throughout the market could realistically have been different but for the conduct, meaning it is wrong to proceed as if sales not subject to the cartel arrangements were not likely to have been affected by them. It was also said to be wrong to stop the assessment at 19 December 2018 given the longstanding and widespread nature of the offending, which made it improbable that the market for SNBB and derivative markets for SNBB medications would have snapped back to a state unaffected by the cartel arrangements upon the offending ceasing or when there was no cartel agreement being given effect.
100 The Director submitted that it does not follow from the fact the pricing for the medication decreased that the offending conduct had no anticompetitive effect, either generally or in Australia. It was said not to negate the possibility that prices for SNBB medications would have been lower still absent the cartel conduct. I accept that submission.
101 The Director also submitted that cartel arrangements have a range of impacts on a market beyond the mere price of goods. The arrangements in this case were said to be longstanding and widespread and to have reduced competition. The benefits of competition can manifest in terms of lower prices but also in terms of higher quality and range of services. It is of the nature of cartel arrangements that they generate a real risk that these benefits will be denied. The Director also submitted, as noted above, that there is a possibility that prices for SNBB medications would have been lower still absent the cartel conduct.
102 The Director does not dispute that loss or harm to the Australian community is of central concern to the CCA and thus to the instinctive synthesis, but submitted that AOA's submissions go too far in relying upon that importance to diminish the gravity of its offending. The Director submitted that s 2 of the CCA refers to "the welfare of Australians", not just Australian "consumers". Cartels are corrosive to the economy generally and to international confidence in Australian businesses. General deterrence was therefore said to remain important. To regard AOA's conduct as less deserving of denunciation because it mostly affected overseas consumers was said to potentially allow such behaviours to take root and spill over to more domestic markets, which cannot be allowed. It was also submitted that the Crimes Act does not compel the Court to disregard victims who are overseas, nor does the CCA, citing Australian Competition and Consumer Commission v Qantas Airways Ltd [2008] FCA 1976; (2008) 253 ALR 89 at [39] (Qantas Airways) per Lindgren J:
[39] Nonetheless, the commission submits, and I accept, that over and above the jurisdictional connection required by s 5 of the Act, the degree of connection to Australia is relevant to the quantum of penalty. Section 2 of the Act states that the object of that Act is to enhance the welfare of Australians through the promotion of competition. Achievement of that objective is not inconsistent with preventing contraventions by Australian entities that injure non-Australians, but it is appropriate to focus primarily upon the effects of a contravention in Australia: compare the reference to "loss or damage" in s 76. Surcharges imposed on flights to and from Australia would be likely to have the most direct connection with loss or damage suffered by businesses or consumers in Australia.
103 The Director also submitted that the conduct the subject of Count 2 directly affected competition in Australia. Mr Thamm was an Australian grower. By eliminating him as a viable Australian source of Duboisia to other SNBB manufacturers, competition in Australia was said to be diminished. That was a direct injury to the Australian economy, including because it stultified the efficiency gains that competition would otherwise promote.
104 It was also submitted that the attempt which is the subject of Count 3 could have affected the sale of Duboisia by Australian growers had it been completed. It would have imposed a limit on the replanting of Duboisia trees.
105 It may be accepted that the direct victims of AOA's offending conduct were primarily overseas customers to whom AOA exported SNBB. The vast majority of these victims are thus outside of Australia, and may have had little, if any, direct connection to Australia. It may also be accepted that loss or harm to the Australian community is of central concern to the CCA. However, it should be noted that it was common ground between the parties that the effect on overseas customers was relevant. The live issue was the significance and extent of each.
106 AOA's submission is primarily premised on its calculations referred to above at [96], said to be the impact on the Australian consumers. It also relies on the limited amount of SNBB in SNBB medications, such that there will be no impact on the Australian consumer (because any increase in price of SNBB could not affect the price of SNBB medications). AOA also referred to the small amount of sales of SNBB in Australia during the Relevant Period.
107 AOA's approach to assessing any loss or damage is unduly narrow and artificial.
108 It is appropriate to recall that in the context of considering the application of ss 16A(2)(d) and (e) of the Crimes Act in WWO, Wigney J stated at [242]:
[242] It would be wrong, however, to approach this offence as if it were a victimless offence, simply because no specific individual or quantified loss can be identified. The cartel offence in s 44ZZRG(1) is part of a suite of provisions in the CCA that are designed to protect the integrity of Australia's markets and economic system: see also s 2 of the CCA. Australia's economy, like other free-market economies, is based on the philosophy that private enterprise and competition will foster productivity, efficiencies and innovation for the greater good of the economy and the community generally. Cartel conduct, like other anti-competitive behaviour, is inimical to, destructive of and may lead to a loss of public confidence in, Australia's markets and economic system. That is so even where the conduct, as here, is eventually uncovered and punished.
109 Also see K-Line at [313] to similar effect, and Vina Money Transfer citing the passage with approval at [113].
110 AOA's submission is that those observations in WWO as to the inherent effects of cartel conduct do not apply in this case because the impact on the Australian economy is known, being confined to the impact of the price of SNBB on the price of generic SNBB medications in Australia. I do not accept that submission.
111 The inherent impact of cartel behaviour has also been discussed in the context of the need for general deterrence. The observations are apt in addressing this issue.
112 For example, in Visy Industries, Heerey J at [306]-[307] stated:
[306] Cartel behaviour of the kind with which this case is concerned is extremely destructive of the competition on which the prosperity of a free market economy depends. Often the profits can be immense, and the risk of detection slight. Of its nature, cartel behaviour is likely to occur in secret and between parties who seek mutual benefit…
[307] … Price fixing and market sharing are not offences committed by accident, or in a fit of passion. The law, and the way it is enforced, should convey to those disposed to engage in cartel behaviour that the consequences of discovery are likely to outweigh the benefits, and by a large margin.
113 In Australian Competition and Consumer Commission (ACCC) v Leahy Petroleum Pty Ltd (No 3) [2005] FCA 265; (2005) 215 ALR 301 at [47], Goldberg J accepted that very nature that the contravening conduct results in "distorted trade, created inefficiencies, wasted resources and resulted in a reduction in consumer and total welfare".
114 The following was said in the second reading speech for the Bill introducing criminal offences for cartel conduct (Commonwealth, Parliamentary Debates, House of Representatives, 3 December 2008, 12,309 (Chris Bowen MP)):
Competition is the primary means of ensuring that consumers get the best product or service for the lowest price possible. Competition enhances Australia's welfare generally, because the efficiencies it creates lead to improved productivity and ultimately increased standards of living.
Cartels are widely condemned as the most egregious forms of anticompetitive behaviour. At its heart, a cartel is an agreement between competitors not to compete. Cartel conduct harms consumers, businesses and the economy by increasing prices, reducing choice and distorting innovation processes.
The total annual cost of such conduct is difficult to quantify because the effects are dispersed and it is by its nature secretive, but it is likely to exceed many millions of dollars to the Australian economy each year, and many billions worldwide.
This bill makes much needed changes to the Trade Practices Act 1974 [since renamed as the Competition and Consumer Act 2010 (Cth)] and will operate to deter cartel conduct by widening the range of regulatory responses available. Furthermore, it will bring Australia into line with its major trading partners and developed nations. In the international context, 15 OECD members, including the United States, Canada and the United Kingdom, have criminal sanctions for cartel conduct.
115 I accept the Director's submission that s 2 of the CCA refers to enhancing "the welfare of Australians" and not just Australian "consumers". The latter, which was focused on by AOA, is a narrower concept.
116 As is apparent from the passages recited above, breaches of Australia's competition laws are destructive of competition on which the market economy depends. It is recognised that it is in the nature of the cartel conduct to protect inefficiency and cause market distortions. That is so even when the direct purchasers of goods and services are located outside of Australia. Cartel conduct engaged in by Australian businesses is corrosive to the economy generally and to international confidence in Australian businesses. That necessarily impacts on the Australian economy and the welfare of Australians. On the other hand, competition enhances the welfare of Australians.
117 AOA's submission fails to acknowledge the broader destructive impact of anti-competitive conduct. The narrowness of that submission is illustrated by the communication recited at [180] of the SOAF between AOA, Alchem, Alkacorp and Linea in relation to the CAU the subject of Count 2. In an email exchange it was stated: "… all the farmers have been advised that should the market collapse they will lose at least 50 cents per kilo of the leaf". SNBB is derived from Duboisia plants, which are grown in Australia. In that context, as illustrated by that exchange, there was a real likelihood that lessening competition at the SNBB level of the market would have consequential impacts upon Duboisia growers in Australia.
118 This simply gives insight as to the breadth of impact of this anti-competitive conduct. It reflects that merely looking at the price of the generic SNBB medication eventually sold in Australia is unduly narrow.
119 Even leaving aside the broader impact of cartels, AOA's analysis in respect to the effect on the prices of SNBB medications in Australia fails to grapple with the unknown factors determining those prices. The prices of other ingredients, and factors such as manufacturing costs all bear on the price. In other words, it is impossible to compare the effects of the cartel arrangements against a counterfactual scenario where the conduct did not occur because of the multiplicity of factors that may have borne upon prices. As explained above, the decreased price in real terms could have been greater but for the cartel conduct. Further, AOA's approach fails to take into account any distortion of the price of SNBB based on the longstanding nature of the offending conduct.
120 The conclusion in WWO at [245], that "there was a risk that Australian consumers would be impacted in some way by the cartel behaviour", as a minimum, similarly applies in this case. Contrary to AOA's submission, that conclusion is not to reverse the onus of proof.
121 The limits of AOA's analysis in respect to Count 1 are demonstrated by its reliance on a similar submission in respect to Count 2. AOA's submission on Count 1 was that because SNBB only comprises approximately 10 percent of SNBB medications, any increase in its price can have no practical effect on the price of SNBB medications, and therefore on the Australian consumer. Its submission regarding Count 2 was that there would have been negligible, if any, impact on the Australian economy considering when and in what form Duboisia leaves come back into Australia. However, Count 2 involved a competitor being taken out of the market by a CAU, directly impacting the Australian economy. By eliminating Mr Thamm as a viable Australian source of Duboisia to other SNBB manufacturers, competition in Australia was diminished. That was a direct injury to the Australian economy, including because it stultified the efficiency gains that competition would otherwise promote. AOA, by confining in its submissions the impact to that experienced by consumers of generic SNBB medications, ignores that injury.
122 I accept the Director's submissions that the CAUs in this case: were, on any view, longstanding; had widespread effect; and aimed to reduce competition. I also accept that benefits from competition can manifest in terms of both lower prices and higher quality and range of services.
123 Moreover, as AOA accepted, the effect of the conduct on overseas customers may also be a relevant consideration, and a matter that can be taken into account in the sentencing process. AOA accepted that affected foreign customers lost the ability to enjoy the potential benefits of competition between AOA and its competitors. The terms of ss 16A(2)(d) and (e) of the Crimes Act do not confine any to injury, loss or damage from offending, to Australia. Indeed, a consideration of Commonwealth offences to which the Crimes Act applies on sentence, reflect that a number of them, by their nature, are such that the impact must necessarily, at least in part, be felt overseas.
124 Further, Lindgren J's observation in Qantas Airways at [39], that "[a]chievement of that objective [in the CCA] is not inconsistent with preventing contraventions by Australian entities that injure non-Australians, but it is appropriate to focus primarily upon the effects of a contravention in Australia" (see above at [102]), although not in the context of the Crimes Act, supports that conclusion.
125 That said, AOA submitted that the principal focus should be on loss or damage in Australia and, as referred to above, the Director accepted that loss or damage was central. There is no basis to assess the loss or damage outside Australia. Suffice to say that there was necessarily a loss because foreign customers lost the ability to enjoy the benefits of competition between AOA and its competitors over a substantial period of time. It is readily apparent that the CAUs being given effect to resulted in customers paying, at least at times, higher SNBB prices than there would have been but for the CAUs.
126 In so far as AOA referred to investigations that have been and are being undertaken in relation to its conduct in other jurisdictions, that fact does not advance its submissions on this topic. At this stage, AOA has not been charged or penalised in those jurisdictions. This is to be contrasted to the situation in NYK where penalties had been imposed overseas; see NYK at [276]-[283]. In any event, given the lack of information about the extent of the loss or damage overseas, it can only be taken into account at the level of generality described above.
127 Finally on this topic, it is necessary to address AOA's submission as to the significance of the consideration of loss or damage. The submission, premised on an acceptance that there was no or minimal impact to the Australian economy, fails to appreciate the significance of the other relevant sentencing considerations. For example, as previously explained at [22], given the circumstances, deterrence is a primary sentencing consideration for this offending. Cartel conduct is notoriously difficult to detect, investigate and prosecute: NYK at [272]. There is a need to deter those who may see a possible penalty as a cost of doing business: Vina Money Transfer at [189]; NYK at [173]. As Wigney J observed in WWO at [170]:
[170] It is trite to observe that cartel conduct generally involves anti-competitive conduct of a very serious nature that should be emphatically condemned and deterred by the imposition of appropriately stern penalties. Prior to 2009, cartel conduct attracted only civil penalties. The fact that cartel conduct was criminalised in 2009 no doubt reflects the fact that Parliament regarded it sufficiently serious as to attract "opprobrium and societal condemnation in a way that the imposition of a civil penalty cannot": CDPP v NYK at [215]-[216], also at [1] which reproduces the Minister's Second Reading Speech; CDPP v K-Line at [275], [278].
128 That is so, regardless of whether any loss or damage is able to be established.
129 Bearing in mind, any effect of its conduct, or purported lack thereof, which AOA relies on is entirely fortuitous. There is no evidence that AOA had any concern at all as to the impact of its conduct, including on the prices of the generic brand SNBB medications in Australia. Rather, as explained above, the conduct was motivated by financial gain. Although AOA's submission as to the extent of loss or damage is a matter to be taken into account, it must be with some caution because, as indicated above, it does not provide the whole picture. The submission must be assessed in its proper context, while also recognising that this consideration is only one of a number of sentencing considerations.
130 In summary: the loss or damage is greater than contended for by AOA; the importance of general deterrence remains; and each of the offences is objectively very serious.