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Federal Court of Australia |
COURT
IN THE FEDERAL COURT OF AUSTRALIACATCHWORDS
Trade Practices - Anti-competitive arrangements or understandings - price fixing arrangement by a group of service station proprietors - arrangement of short duration and limited effect - nature of orders and penalties that should be imposed - quantum of penalties discussed.HEARING
ADELAIDECounsel for the applicant: Mr R. Cameron
Solicitors for the applicant: Australian Government Solicitor
Counsel for 2nd and 5th respondents: Ms R. Layton
Solicitors for 2nd and 5th respondents: Mellors
Counsel for 3rd and 6th respondents: Mr T. Kavanagh
Solicitors for 3rd and 6th respondents: Caldicott and Co.
ORDER
Each of the Second, Third, Fifth and Sixth Respondents shall pay to the Commonwealth of Australia a pecuniary penalty in the amount set out below with respect to each such respondent in respect of their contraventions of s.45 of the Trade Practices Act 1974 ("the Act") respectively:-West Star (Australia) Pty. Limited: $4,400Commission on behalf of the Commonwealth of Australia against each of the said respondents for the sum so set out with respect to each such respondent respectively.
Nicholas Paul Papas: $ 500
Owen Richard Sayer: $ 550Pursuant to s.77 of the Act, judgment is entered for the Trade Practices
Unless otherwise agreed each of the second and fifth respondents of the one
part and each of the third and sixth respondents on
the other part shall
jointly and severally pay one-third of the Commission's taxed costs of and
incidental to these proceedings up
to and inclusive of 20 December 1990 and
one-half of the Commission's taxed costs in respect of the proceedings on 21
December 1990
and this day and in respect of consequential matters relating to
the sealing and entry of the orders of the Court made this day.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
DECISION
The Trade Practices Commission ("the Commission") has instituted proceedings by way of application and statement of claim against three companies and three natural persons; each natural person was and is respectively the principal officer of the relevant company for the purpose of the matters to which these proceedings relate.2. The proceedings, which were instituted pursuant to the provisions of s.76 of the Trade Practices Act (1974) ("the Act"), deal with allegations of arrangements or understandings that restricted dealings or affected competition in the retailing of petrol by service stations. The first of the respondents, J.J. and Y.K. Russell Pty. Limited, ("Russell Co") and the fourth respondent, Jeffrey James Russell ("Mr Russell"), a director of Russell Co, have denied all allegations of impropriety and proceedings against them are still on foot. However the remaining respondents have made certain admissions and have submitted themselves to the orders of the Court. Accordingly, for the purposes of these reasons, all findings of facts are restricted to the following respondents: C.A. Papas and Sons Pty. Limited ("Papas Co") and its director Nicholas Paul Papas ("Mr Papas") and West Star (Australia) Pty. Limited ("West Star") and its director Owen Richard Sayer ("Mr Sayer"). Any reference to Russell Co or Mr Russell will only be in the form of narrative for the better understanding of the facts that have been agreed between the Commission and the abovenamed four respondents or of the facts as otherwise found by me with respect to the same four respondents.
3. Papas Co and West Star have, at all material times carried on business as service station proprietors and petrol retailers at Pooraka and Salisbury, outer northern suburbs of Metropolitan Adelaide. Each company sold and supplied petrol by retail to the general public from their respective service station premises.
4. On Tuesday 23 May 1989, Mr Papas, Mr Sayer and several other retailers (or their representatives) from the same area attended a meeting at a local hotel. I am satisfied that neither Mr Papas nor Mr Sayer nor their respective companies organised this meeting. Even so, the four respondents with whom I am presently concerned have admitted that at that meeting or arising out of that meeting Papas Co and West Star became parties to an arrangement or understanding (in respect of which a number of other petrol retailers were also parties), the effect of which was that, as from about 12 noon on the following Thursday, 25 May 1989, the price at which petrol would be offered for sale by the parties to the arrangement or understanding would increase to 64.9 cents per litre. It is further admitted that the two companies increased their prices on that day in accordance with the arrangement or understanding.
5. Sub-paragraphs 45(2)(a)(ii) and (b)(ii) of the Act provide:-
"A corporation shall not -6. Sub-section 45A(1) of the Act specifies that the requisite purpose or effect of substantially lessening competition shall be deemed to be present if:-
(a) make a contract or arrangement, or arrive at an
understanding, if -
(i) ...
(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) ...
(ii) has the purpose, or has or is likely
to have the effect, of substantially
lessening competition."
"... the provision has the purpose, or has or is likely to7. The four respondents have admitted that the material provisions of the arrangement or understanding to which they were parties are provisions to which s.45A of the Act applies.
have the effect, as the case may be, of fixing, controlling
or maintaining, or providing for the fixing, controlling or
maintaining of, the price for... goods or services supplied
or acquired or to be supplied or acquired by the parties to
the contract, arrangement or understanding."
8. Sections 45 and 45A both form part of Part IV of the Act; and s.76
provides (inter alia) as follows:-
"(1) If the Court is satisfied that a person -9. Papas Co and West Side have each acknowledged that their presence at the meeting on 23 May 1989 and their participation in the understanding or arrangement combine to constitute a breach of the provisions of sub-para 45(2)(a)(ii) of the Act. They have each further admitted that their action on Thursday 25 May 1989 in increasing the price of petrol to 64.9 cents per litre represented conduct that gave effect to an arrangement or understanding in contravention of sub-para 45(2)(b)(ii). For their part, both Mr Papas and Mr Sayer admit that their involvement first at the meeting and the making of the understanding or the arrangement and secondly in the conduct of their company in the increase of the petrol price on the following Thursday, means that in respect of each event each man must be classified, within the language of paragraph 76(1)(e) as a person who has been directly and knowingly concerned in the contravention by his company of the provisions of sub-paras 45(2)(a)(ii) and (b)(ii).
(a) has contravened a provision of Part IV;
(b) ...
(c) ...
(d) ...
(e) has been in any way, directly or indirectly,
knowingly concerned in, or party to, the
contravention by a person of such a provision;
or
(f) ...
the Court may order the person to pay to the Commonwealth
such pecuniary penalty (not exceeding $50,000 in the case of
a person not being a body corporate, or $250,000 in the case
of a body corporate, in respect of each act or omission by
the person to which this section applies) as the Court
determines to be appropriate having regard to all relevant
matters including the nature and extent of the act or
omission and of any loss or damage suffered as a result of
the act or omission, the circumstances in which the act or
omission took place and whether the person has previously
been found by the Court in proceedings under this Part to
have engaged in a similar conduct.
(2) ... (3) If conduct constitutes a contravention of two or more
provisions of Part IV, a proceeding may be instituted under
this Act against a person in relation to the contravention
of any one or more of the provisions but a person is not
liable to more than one pecuniary penalty under this section
in respect of the same conduct."
10. Further contraventions of the Act have been admitted by West Star and Mr Sayer. These are also said to involve Mr Russell and his company (about which I express no opinion) but they do not include Papas Co or Mr Papas. West Star and Mr Sayer have admitted that on the Friday, that is, the day after the petrol prices were increased, Mr Sayer attended at the service station of a Mr Stone and that West Star there became a party to an arrangement or understanding to the effect that Mr Stone would increase his retail petrol price to 64.9 cents per litre. West Star accepts that this constitutes another breach of sub-para 45(2)(a)(ii) (and so another breach of paragraph 76(1)(a)) and Mr Sayer accepts that his involvement constitutes another breach of paragraph 76(1)(e) of the Act.
11. Notwithstanding the admissions that have been made, Mr Cameron, counsel for the Commission, made it clear that the Commission viewed the events of the meeting on the Tuesday and the subsequent increase in the price of petrol on the Thursday as one course of conduct warranting only one penalty in respect of each company and one penalty in respect of each man. In my opinion this is an appropriate way of assessing the conduct of all respondents. Mr Cameron did however press for separate or, alternatively, higher penalties against West Star and Mr Sayer because of the events on the Friday at Mr Stone's premises and, of that, I will say more later.
12. For the purpose of assessing penalties, the Commission has fairly
acknowledged that the price fixing was of limited duration;
there was,
apparently, an outcry from people in the area and prices were reduced by the
following Monday at the latest. In his affidavit
that was sworn on 19
December 1990 Mr Sayer listed his company's daily prices at its two service
stations as follows:-
Salisbury Downs Pooraka13. These figures were not challenged and I accept them as indicators that the proscribed activities were of short duration.
Monday 22.5.89 .599 .569
Tuesday 23.5.89 .569 .569
Wednesday 24.5.89 .569 .569
Thursday 25.5.89 .599 .569
Friday 26.5.89 .649 .649
Saturday 27.5.89 .649 .649
Sunday 28.5.89 .599 .649
Monday 29.5.89 .599 .599
Tuesday 30.5.89 .599 .565
Wednesday 31.5.89 .565 .565
14. Ms Layton, counsel for these respondents, informed the Court that Mr Papas is aged 38 and is married with two young children; he has been involved in the petrol industry for about five and a half years. Although other members of his family are also directors of the company, Mr Papas effectively manages the business alone. However, his wife also works for the company and both she and Mr Papas draw weekly salaries.
15. I accept that Mr Papas attended the meeting on 23 May for the innocent purpose of discussing the formation of an association of service station proprietors in the northern suburbs; he did not attend for the purpose of discussing price fixing. So far as he was concerned, that was another issue which surfaced unexpectedly towards the end of the meeting. I also accept that he knew that price fixing was illegal but that, in his naivety, he at first thought that it was permissible to discuss and agree upon "profit margins".
16. As Ms Layton pointed out, it was an open meeting that was held in a
public place - about 25 members of the industry attended.
She said and I
accept that there was nothing secretive or clandestine and that the agenda
items were all lawful subjects directed
towards stabilizing the industry in
the outer northern suburbs. Nevertheless, the fact remains that Mr Papas left
the meeting, if
not knowing, then at least, expecting, that there would be a
move to increase the price of petrol sometime during the following Thursday.
On that day, Mr Papas drove around the area; he noted that some, but not all,
service stations were then selling at the increased
price of 64.9 cents per
litre. He therefore returned to his station and increased his price
accordingly.
West Star and Mr Sayer
17. Mr Sayer and his friend and partner Mr Robinson are both qualified motor mechanics. They formed West Star and have worked together in the industry for many years. In mid 1989 they were operating two service stations.
18. Mr Sayer is married with three young children; he is aged 33. I accept that he, like Mr Papas attended the meeting for innocent purposes and that he like Mr Papas should properly be classified, for the purposes of these proceedings, as a follower and not as a leader. However, he left the meeting with the same expectation as Mr Papas.
19. Mr Kavanagh, counsel for West Star and Mr Sayer, described the events of the meeting and the subsequent few days as "a misguided attempt at survival". I can appreciate and understand what he meant. Petrol discounting has, over a period of many years, reached absurd proportions. Somebody in the wider spectrum of the petrol industry has much to answer for because of the intense frustration and annoyance that so many members of the public have suffered. And the unfairness to the service station proprietors is so obvious. No right thinking person would deny them the right to earn a reasonable profit and make a reasonable living out of their business.
20. It is not without significance to note that the Commission did not allege that the price of 64.9 cents was an unfair or unreasonable price or that it was too high: the complaint is limited to the arriving at the arrangement or understanding and the giving effect to it. But it must be remembered that the philosophy of the Act prevents any form of agreement or understanding that is likely to have the effect of substantially lessening competition. Hence, arriving at and giving effect to an understanding to sell petrol at a price which will give the seller a reasonable return can, in appropriate circumstances, still amount to or have the effect of substantially lessening competition.
21. Having regard to the mobility of the average motorist, any attempt by a local group of service station proprietors to band together and hold an agreed price for petrol must be doomed to failure within a short time - the motorist will simply drive a few extra miles to get his petrol in another locality. When, as happened here, not all traders in the locality increased their prices, it is hardly surprising that the scheme aborted almost overnight.
22. I accept that both corporate respondents noted a drop in the number of
their customers after they increased their prices; there
is no suggestion that
any respondent made any financial gain from this ill-fated exercise.
Furthermore, information was placed before
the Court that showed that the
financial position of both respondent companies was poor. Operating, as they
do, on overdraft accommodation,
I am satisfied that their financial future is
bleak. In fact, West Star wishes to sell its two stations but cannot even
find a business
agent who is prepared to take a listing.
The events of Friday 26 May 1989
23. In respect of these events, the parties have agreed that the facts upon
which the Court is asked to impose penalties and make
orders are those
contained in sub-para 16(a) (as amended) of a statement of agreed facts that
was handed up by counsel. That sub-paragraph
reads as follows:-
"An arrangement or understanding was made or arrived at24. I do not know from the statement of agreed facts why Mr Sayer attended at Mr Stone's premises nor what conversation took place between the men. On the other hand, Mr Sayer's affidavit of 19 December 1990, was tendered without objection. In paragraph 27 he said:-
between the First Respondent, the Third Respondent and
Stone, to the effect that Stone would shortly thereafter
increase the retail price at which he offered for sale and
sold petrol at Stone's Service Station to 64.9 cents per
litre in conformity with the retail price at which petrol
was then being offered for sale and sold by the First
Respondent and the Third Respondent at their respective
service stations."
"On the 26th day of May, 1989 I was in the driveway of the25. I fail to see how the facts deposed to in the affidavit could amount to the making of an arrangement or the arriving at an understanding to the effect "that Stone would shortly thereafter increase" his price of petrol. At the most, they could only be the physical manifestation of giving effect to the arrangement or understanding that had been made at the meeting on the preceding Tuesday. Be that as it may, the Commission has alleged and West Star and Mr Sayer have admitted the making of some agreement or the arrival at some understanding with Mr Stone about the price of petrol on that Friday; but that, as I have earlier said, is all I know and hence it is upon those limited facts that I must consider such penalties and orders as may be appropriate. The Commission, no doubt for good and valid reasons, saw fit not to put any further information before the Court. But the consequence, in this particular case, is that the respondents thereby benefit from the lack of information. In my opinion, the minimal information before the Court does not warrant separate penalties being imposed on West Star and Mr Sayer for their activities on the Friday. It will be sufficient to impose penalties that are slightly higher than those imposed upon Mr Papas and his company. In all other respects I consider that the offending of Mr Papas and his company to be of the same quality as that of Mr Sayer and his company and the slightly higher penalties will therefore reflect Mr Sayer's visit to the premises of Mr Stone on the Friday.
Pooraka site. I was wearing my Caltex uniform. I had not
planned to meet Russell and did not know he was coming. He
explained to me that Doug Stone was alone at his Caltex
Service Station at Ingle Farm and wanted to increase the
price of his petrol, but needed some help. Russell asked me
to help Stone, as I was wearing a Caltex Uniform. I thought
the request unusual but I agreed. I arrived at Stone's
Service Station. I asked him if he needed a hand to alter
his price boards, and he indicated in the affirmative and
requested that the price of 64.5 cents per litre be put in
place. I changed Stone's price boards in accordance with
Stone's instructions. Russell did not assist me, but
watched."
26. I turn then to consider the question of what penalties and orders might be appropriate. Mr Cameron argued that in addition to orders that the respondents should pay their fair share of costs (which he calculated might be as high as $15,000 in respect of all six respondents to date), the Court should impose penalties which, as he described them, would be in "the middle range". In addition, Mr Cameron argued that injunctions against all four respondents were warranted.
27. I will deal first with the question of costs. None of the respondents opposed the making of an order for costs but they expressed concern about the amount suggested by Mr Cameron and about being at risk for more than their fair share. Both those matters can be accommodated. There will be orders that, unless otherwise agreed, the Commission shall tax its costs to date and that Papas Co and Mr Papas shall jointly and severally pay one-third of all such costs up to and inclusive of 20 December 1990 and one half of the Commission's costs in respect of the proceedings on 21 December 1990 and this day and in respect of consequential matters relating to the sealing and entry of the orders of the Court made this day. There will be similar orders against West Star and Mr Sayer.
28. The injunctions sought are in the form of orders restraining the
respondents from breaching any of the provisions of sub-s.45(2)
of the Act.
It is not uncommon to make such orders, particularly in those cases where a
respondent has unsuccessfully maintained that a course
of conduct was not
offensive: e.g. Mikasa (NSW) Pty. Ltd. v Festival Stores [1972] HCA 69; (1971-1972) 127 CLR
617. The power to grant the injunctive relief, which is contained in
sub-s.80(4) is quite extensive; that sub-section stipulates that
the power may
be exercised:-
"(a) whether or not it appears to the Court that the29. In this case the offending conduct occurred briefly - for a period of a few days - over 20 months ago. Both Mr Sayer in his affidavit and Mr Papas, when giving evidence, have given to the Court their assurances that neither they nor their companies will engage in this sort of conduct again. In those circumstances one questions what might be achieved by the making of orders in the form of injunctions. In Trade Practices Commission v Mobil Oil Australia Ltd. [1984] FCA 363; (1984) 4 FCR 296, a case dealing with resale price maintenance by an Oil Company, Toohey J. had this to say of the provisions of sub-s.80(4) at p 300:-
person intends to engage again, or to continue
to engage, in conduct of that kind;
(b) whether or not the person has previously engaged
in conduct of that kind; and
(c) whether or not there is an imminent danger of
substantial damage to any person if the
first-mentioned person engages in conduct of that
kind."
"It is clear therefore that in determining whether to grant30. Having regard to the degree to which the respondent had co-operated, Toohey J. concluded that an injunction was neither necessary nor appropriate, a conclusion that was contrary to that reached in Commissioner of Trade Practices v Caltex Oil (Aust) Pty. Ltd. (1974) ATPR 40-000 where it was said of the Oil Company that its attitude was "to tolerate, without safeguards, a situation in which retail price pressures by its field officers, including and apart from those proved, were more than probable" (per Smithers J. at p 17-0071). Trade Practices Commission v Commodore Business Machines Pty. Ltd. (1989) ATPR 40-976 was another case of resale price maintenance where the degree of activity of the respondent was such that Einfeld J. concluded that injunctions were appropriate.
an injunction the court is not restricted because the
factors mentioned in subs (4) are absent. The question must
still be asked - where those factors are absent, what
purpose is an injunction intended to serve? The imposition
of an injunction may, in an appropriate case, be an
additional sanction to a pecuniary penalty. For instance,
in the case of a particularly flagrant breach, even though
there was no evidence to indicate the offender's intention
to continue the offending conduct, it might be appropriate
to mark the court's disapproval by an injunction as well as
a monetary penalty."
31. It is not possible to lay down guidelines identifying when orders by way of injunctions should or should not be granted: too much depends upon the individual facts of each case. However the Courts have from time to time noted matters that are relevant to a consideration of this issue. Foremost among them is the manner in which the respondent has reacted subsequent to the act of offending. In this case, market forces quickly showed all respondents that they could not sustain their arrangement or understanding and I am satisfied that subsequent events, culminating in these proceedings, have taught them a bitter lesson. These respondents were small retailers following the lead of some unidentified retailer or retailers in their area. They acted stupidly but not maliciously. They were motivated not by greed, but by a desire to stabilize the industry in their area and earn themselves a decent living. On the facts as presented to the Court I have a strong measure of sympathy for them. I do not believe that it is necessary to impose injunctions.
32. There remains finally the question of pecuniary penalties. Despite my feelings of sympathy, I can not ignore the law - the Act treats breaches of Part IV most seriously. So much is made clear from s.76 of the Act which allows for pecuniary penalties of up to $250,000 in the case of a body corporate and up to $50,000 for a natural person.
33. Ms Layton and Mr Kavanagh both relied heavily upon the decision in Trade Practices Commission v Culley (1983) ATPR 40-399. That was a case involving service station proprietors and price fixing where a fine of $500 was imposed. But as Mr Cameron pointed out, there was a material difference in the facts in Culley's case - although an arrangement had been made at a meeting to persuade service station proprietors to reduce the level of discounting, the decision was never implemented - no respondent gave effect to any arrangement or understanding.
34. Another case dealing with service station proprietors and the price
fixing of petrol is Trade Practices Commission v Parkfield
Operations Pty.
Ltd. (1985) ATPR 40-639. That case was unusual in the sense that the
Commission's application for penalties and orders was dismissed at first
instance.
However, it appealed successfully to a Full Court. The joint
judgment of the Court indicates that the substance of the Commission's
case
was that the respondent, Parkfield, through its manager, Chapman:-
"... attempted to make an arrangement or arrive at an35. Hence, unlike Culley's case, in which an arrangement had been made, there was only an attempt to arrive at an understanding in Parkfield's case. Even so, the Full Court imposed penalties of $9,000 and $1,000 on Parkfield and Chapman respectively. It would seem to me that Parkfield's case, being later in point of time, and a decision of a Full Court, should be used as a starting point for the determination of penalties in lieu of Culley's case.
understanding between itself, XL and other petrol retailers
in the Newcastle and Maitland areas whereby the retail price
of petrol charged in those areas by the proposed parties to
the arrangement or understanding would be increased." (p 47-187)
36. Some of the factors that are relevant to penalty are contained in
sub-s.76(1) of the Act, it requires the Court to have regard:-
"... to all relevant matters including the nature and extent37. There is no evidence before the Court to suggest that any loss or damage was suffered by any person as a result of the increase in price. No doubt, a few motorists paid a few dollars more than was necessary to fill up their tanks; but as I have earlier remarked, the mobility of the average motorist and the failure of all service stations to increase their price must have meant that the sheer weight of market forces would have minimised losses.
of the act or omission and of any loss or damage suffered as
a result of the act or omission, the circumstances in which
the act or omission took place and whether the person has
previously been found by the Court in proceedings under this
Part to have engaged in a similar conduct."
38. There are, in addition to the matters specifically referred to in sub-s.76(1), other factors to be taken into account when fixing penalty. These have been referred to extensively in several judgments of this Court which are conveniently summarised by Einfeld J. in Commodore Business Machines (supra). Hence, it reacts to the benefit of the respondents to note that the potential harm to the public interest, the period during which the course of conduct occurred and the level of activity were all minimal. None of the respondents have previously contravened the Act and the circumstances in which these contraventions took place were born out of intense commercial difficulties. Unlike many offenders, these respondents were small business people; they are to be distinguished from major business-houses who, by virtue of their size, play an important and - at times - dominant role in the market. Shorn of the corporate veils, I am dealing with two young men who are hard workers striving to survive in a very difficult industry. They and their companies face heavy awards of costs over and above any penalties that I might impose. They have admitted their contraventions and that, in my assessment, entitles them to a substantial "discount". That factor alone, is sufficient to reduce the penalties below those that were imposed in Parkfield's case.
39. Mr Cameron handed up a list of 35 cases containing a brief summary of the relevant facts and the penalties and orders imposed and made; these cases all dealt with breaches of Part IV of the Act but only a few related to price fixing or attempted price fixing. They were instructive for they established that this type of offending by this type of offender attracts penalties in the lower range. Nevertheless, it is most important that the size of the penalty, even a penalty in the lower range, be sufficient, not only to deter the respondents from similar conduct in the future, but also to deter others who might otherwise be inclined to act in a similar fashion.
40. Taking these factors into account, the orders of the Court are as
follows:-
1. Each of the Second, Third, Fifth and Sixth Respondents shall pay to the
Commonwealth of Australia a pecuniary penalty in the
amount set out below with
respect to each such respondent in respect of their contraventions of s.45 of
the Trade Practices Act 1974 ("the Act") respectively:-
Second Respondent: C.A. Papas and Sons Pty. Limited: $4,0002. Pursuant to s.77 of the Act, judgment is entered for the Trade Practices Commission on behalf of the Commonwealth of Australia against each of the said respondents for the sum so set out with respect to each such respondent respectively.
Third Respondent: West Star (Australia) Pty. Limited: $4,400
Fifth Respondent: Nicholas Paul Papas: $ 500
Sixth Respondent: Owen Richard Sayer: $ 550
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