Australian Competition & Consumer Commission v Cromford Pty Ltd & Ors [1998] FCA 113 (27 February 1998)

Last Updated: 2 March 1998

FEDERAL COURT OF AUSTRALIA

TRADE PRACTICES - restrictive trade practices - contracts, arrangements or understandings - attempts to make an arrangement or arrive at an understanding in contravention of s 45(2)(a)(ii) of Trade Practices Act 1974 - admission of liability

TRADE PRACTICES - enforcement and remedies - penalties - pecuniary penalties - principles of assessment of appropriate penalties

Trade Practices Act 1974 (Cth), ss 45(2)(a)(ii) and 76

Trade Practices Legislation Amendment Act 1992 (Cth)

Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 at 52,152, cited

Trade Practices Commission v Prestige Motors Pty Ltd (1994) ATPR 41-359 at 42,699, cited

Trade Practices Commission v Simsmetal Ltd (1996) ATPR 41-449 at 41,512, cited

Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 145 ALR 36, cited

Trade Practices Commission v TNT Australia Pty Ltd (1995) ATPR 41-375 at 40,167, cited

Trade Practices Commission v Axive Pty Ltd (1994) ATPR 41-368 at 42,795, cited

Mill v R [1988] HCA 70; (1988) 166 CLR 59, applied

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v CROMFORD PTY LIMITED, COLUMBUS MERCHANTS PTY LTD T/AS AUSTRALIAN FILM AND PIPE MANUFACTURERS, ANROSS BUILDING MATERIALS PTY LIMITED, NEVILLE MCDONNELL, KIM JONES, HOWARD WILKIE, MAURICE LEWIS, KENNETH ROSS MURRAY

NG 964 of 1995

LOCKHART J

SYDNEY

27 FEBRUARY 1998

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NG 964 of 1995

BETWEEN:	AUSTRALIAN COMPETITION & CONSUMER COMMISSION Applicant
AND:	CROMFORD PTY LIMITED First Respondent COLUMBUS MERCHANTS PTY LTD T/AS AUSTRALIAN FILM AND PIPE MANUFACTURERS Second Respondent ANROSS BUILDING MATERIALS PTY LIMITED Third Respondent NEVILLE McDONNELL Fourth Respondent KIM JONES Fifth Respondent HOWARD WILKIE Sixth Respondent MAURICE LEWIS Seventh Respondent KENNETH ROSS MURRAY EightH Respondent
JUDGE:	LOCKHART J
DATE OF ORDER:	27 FEBRUARY 1998
WHERE MADE:	SYDNEY

THE COURT ORDERS THAT:

1. Cromford Pty Limited pay to the Commonwealth a pecuniary penalty of $10,000 in respect of each of the attempts to contravene s 45(2)(a)(ii) of the Trade Practices Act 1974 described in orders 1, 2, 3 and 4 of the orders made by the Court on 5 February 1998.

2. Kim Jones pay to the Commonwealth a pecuniary penalty of $2,000 in respect of each act of aiding, abetting, counselling or procuring Cromford Pty Limited to attempt to contravene s 45(2)(a)(ii) of the Trade Practices Act 1974 , the four attempts being those mentioned in orders 1, 2, 3 and 4 of the orders made by the Court on 5 February 1998.

3. Cromford Pty Limited pay the costs of the Commission of the proceeding in so far as those costs relate to the Commission's case against it; and that Kim Jones pay the costs of the Commission of the proceeding in so far as those costs relate to the Commission's case against him.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	ng 964 of 1995

BETWEEN:	AUSTRALIAN COMPETITION & CONSUMER COMMISSION Applicant
AND:	CROMFORD PTY LIMITED First Respondent COLUMBUS MERCHANTS PTY LTD T/AS AUSTRALIAN FILM AND PIPE MANUFACTURERS Second Respondent ANROSS BUILDING MATERIALS PTY LIMITED Third Respondent NEVILLE McDONNELL Fourth Respondent KIM JONES Fifth Respondent HOWARD WILKIE Sixth Respondent MAURICE LEWIS Seventh Respondent KENNETH ROSS MURRAY EightH Respondent

JUDGE:	LOCKHART J
DATE:	27 FEBRUARY 1998
PLACE:	SYDNEY

REASONS FOR JUDGMENT

The Australian Competition and Consumer Commission ("the Commission") commenced this proceeding against the respondents alleging, inter alia, that certain of them attempted to make or arrive at contracts or arrangements or understandings which had or were likely to have the effect of fixing, controlling or maintaining or providing for the maintenance of prices for goods, principally polythene building film ("PBF") used in the commercial and domestic building industry as an underlay to concrete slab foundations. The conduct was said to be in contravention of s 45(2)(a)(ii) of the Trade Practices Act 1974 ("the Act"). The impugned conduct occurred between February and April 1995. The respondents who are natural persons are sued as persons who are knowingly concerned in and parties to the contravention.

Earlier in the proceeding the second, third, sixth, seventh and eighth respondents admitted liability and came to an arrangement with the Commission concerning appropriate remedies, namely, declarations, injunctions and the imposition of penalties. The parties cannot determine the appropriate penalty by agreement; that is a matter for the Court. However, it is not uncommon when respondents are sued for alleged contraventions of the Act, that they arrive at an agreement for the settlement of the matter subject to the Court's concurrence. The course taken by the courts is to themselves examine the matter and determine the appropriate penalty, but taking into account the parties' submissions on the appropriate penalty. The Court considered the arrangement between the parties and came to the conclusion that in all the circumstances it was a sensible one and that the penalties suggested were appropriate. In these circumstances the Court made orders in accordance with the arrangement.

The fourth respondent came to a similar arrangement with the Commission, but not on the question of penalty. The Court considered the cases of the Commission and the fourth respondent on penalty and, although making orders by consent of the parties involving the making of declarations and the grant of injunctions, decided to impose no penalty upon the fourth respondent in the special circumstances of that case.

This leaves the Commission's case against the first respondent, Cromford Pty Limited ("Cromford") and the fifth respondent, Kim Jones ("Jones").

Cromford and Jones also came to an arrangement with the Commission involving the admission of liability and the making of declarations and granting of injunctions. The parties were not in agreement on the question of penalty. The evidence on penalty was by affidavit supplemented by the tendering of documents.

Cromford has admitted liability concerning four separate contraventions of s 45(2)(a)(ii) of the Act which occurred between February and April 1995. These contraventions are essentially the matters pleaded in paragraphs 53, 54, 55 and 56 of the Second Further Amended Statement of Claim. In essence, Cromford has admitted that it attempted on four separate occasions during the period February to April 1995 to make an arrangement or arrive at an understanding which contained a provision which had the purpose, or which would be likely to have had the effect, of fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining of, the price of PBF supplied by Cromford, Columbus Merchants Pty Limited (trading as Australian Film and Pipe Manufacturers) ("AFP") and Gem Plastics International Pty Limited ("Gem").

Jones was at material times the National Sales Manager of Cromford and is now its General Manager. Jones has admitted that he was knowingly concerned in, and a party to, the contraventions admitted by Cromford (ss 76(1)(e) and 75B of the Act). Jones played a key role in the conduct the subject of this proceeding.

There is no dispute between the parties about the relevant market. It was common ground that the market in which the relevant conduct took place was the market for the manufacture and supply of PBF. Whether the market was Australia-wide or a State market does not matter in this case, although the extent to which the participants were involved in the relevant market varies from State to State. I agree with counsel for the parties that the precise geographic boundaries of the market are not crucial.

In New South Wales the principal manufacturers/suppliers of PBF were Cromford and AFP before Gem entered the market. Gem commenced production in late September/early October 1994 and its entry had an adverse affect upon Cromford and AFP, both as to the volume and the value of sales of the product manufactured and supplied by them. Cromford appears to have suffered the more adverse impact. It was, and remains, a much larger supplier of PBF than AFP. Cromford is the largest supplier of PBF in New South Wales.

The market was at all material times competitive. Price discounting was aggressive, in particular at the distributor level. This discounting was one of the matters which led to the conduct the subject of this proceeding. Pressure was applied to Cromford to reduce prices to its distributors for the purpose of enabling them to compete more effectively on price without losing their own profit margins; and this led to Cromford seeking the security of a commitment from Gem to raise its prices, especially to distributors, so that the raised prices would broadly conform to the level of prices charged by Cromford and AFP for comparable products.

I agree with the submission of counsel for the Commission that this is a case where the influence of a competitive stimulus in a price sensitive market was sought to be stultified in an attempt to achieve and maintain profits at a level which would otherwise be denied by competition; it was an attempt to render ineffective the process of competition occurring naturally in the market.

The attempts to make an arrangement or arrive at an understanding containing a provision which had the purpose, or which would be likely to have had the effect, of fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining of, the price of PBF supplied by Cromford, AFP and Gem took place on four separate occasions:-

* On 20 February 1995 during a meeting at a restaurant within the Penrith Leagues Club attended by the seventh respondent (Maurice Lewis) on behalf of AFP, Jones on behalf of Cromford and Geoffrey Ian Attwood and Anestis Apostolas on behalf of Gem. The meeting was called specifically for the purpose of coming to an arrangement concerning the selling prices of PBF. Jones indicated his support for such an arrangement. Jones in essence said that if Gem did not increase its prices Cromford would enter into a price war and dump additional product onto the market which it had been buying in order to maintain selling prices. I agree with the submission of counsel for the Commission that this meeting was part of other strategies to maintain the level of selling prices and involved the possibility of rigging the market by Cromford, AFP and Gem each dealing exclusively with particular customers to enhance the successful enforcement of the price fixing arrangement that was envisaged.

* There was a meeting on 3 March 1995 between Jones on behalf of Cromford, Lewis on behalf of AFP and Attwood on behalf of Gem. It concerned an attempt to fix the price of PBF product IR3 which was to conform to a new Australian Standard (then) shortly to be promulgated. Jones also suggested that the parties should edge up their prices before the new Australian Standard came into effect.

* On 16 March 1995 there was a telephone conversation between Jones on behalf of Cromford and Attwood on behalf of Gem. In essence Jones said that Attwood had to control Harry K Evans Building Supplies Pty Limited ("Harry Evans"), one of the distributors in the market, and stop him from approaching Cromford's customers. Jones told Attwood to raise Gem's price to Harry Evans and stand firm and that Cromford and AFP would refuse to supply Harry Evans. Jones warned Attwood not to approach a Cromford customer, namely, Newman Steel, and he demanded that Gem raise its price for the relevant product or Gem could forget about any co-operation from Cromford. This was an attempt to stifle price competition both at the manufacturer/supplier level and at the distributor level and it was aimed at the competitive behaviour of Harry Evans. The suggestion was plain that Harry Evans should be boycotted if he could not be made to conform.

* On 21 April 1995 there was a meeting between Jones on behalf of Cromford and Attwood and Apostolas on behalf of Gem. Jones warned that unless Gem raised its PBF prices Cromford would start a price war. Jones offered to stop denigrating Gem's product to Gem's customers if Gem raised its prices, and Jones indicated that he would continue to denigrate Gem's product until it raised its prices. The meeting was plainly an attempt to secure agreement from Gem to raise its prices to within $2.50 of Cromford's published price list, except for Premium Orange which Cromford required Gem to sell at the same prices as Cromford sold it. The attempt was also accompanied by the suggestion that increased prices could be enforced by Gem decreasing its then current manufacturing levels.

These were the essential components of the discussions that occurred relevant to the attempts to fix or control prices of PBF.

The relevant principles governing the imposition of penalties under s 76 of the Act are well established. The Court must have 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 contravener has previously been found by the Court in proceedings under Part VI of the Act to have engaged in similar conduct (s 76(1)). The maximum pecuniary penalty payable by a body corporate is not to exceed, for each relevant act or omission to which s 76 applies, $10 million and in the case of a person other than a body corporate must not exceed $500,000 for each relevant act or omission.

Deterrence is the primary purpose in imposing penalties under s 76. The relevant cases include Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 at 52,152; Trade Practices Commission v Prestige Motors Pty Ltd (1994) ATPR 41-359 at 42,699; Trade Practices Commission v Simsmetal Ltd (1996) ATPR 41-449 at 41,512; Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 145 ALR 36 at 43-47.

It has been said that penalties are not intended to express indignation or outrage, but on the other hand they should not countenance defiance of the law: Trade Practices Commission v TNT Australia Pty Ltd (1995) ATPR 41-375 at 40,167.

It must be noted that the level of penalty was substantially increased by the Trade Practices Legislation Amendment Act 1992 reflecting the view of the Parliament that the then penalties for breaches of the Act were inadequate and that there was clearly a need to increase the level of those penalties, a matter to which Sheppard J referred in Trade Practices Commission v Axive Pty Ltd (1994) ATPR 41-368 at 42,795.

If the contravention consists of an attempt to engage in prohibited conduct (the present case) the Act draws no specific distinction between an attempt to do an act and the doing of the act itself, in relation to the contravention. However, where the contravention consists of the attempt rather than in the successful consummation of the attempt, there may be no loss or damage suffered as a result of the relevant attempt, a factor which must be taken into account in determining penalty.

Where multiple contraventions are concerned, the penalty for each contravention must not be

determined as an overall penalty and then divided amongst the various components. The penalty for each contravention should be imposed at a level appropriate for each contravention, and at the end of the exercise consideration must be given about whether the aggregate is appropriate for the total contravening conduct: Mill v R [1988] HCA 70; (1988) 166 CLR 59; Safeway Stores at 52-53.

I have taken into account all the relevant circumstances and the submissions of counsel for the parties. Included in those matters are the following:

* The conduct the subject of the contraventions consists of attempts to engage in the contraventions which did not result in the doing of the act the subject of the attempts. Nevertheless, it is important that the Court express its disapproval of the contravening conduct.

* Cromford was and still is the largest manufacturer/supplier of PBF in New South Wales and is engaged in other markets. The relevant market has been competitive and the product is price sensitive.

* The acts of Jones (therefore Cromford) were deliberate and persistent and were made with an awareness of wrongdoing. The conduct was directly concerned to interfere with and stultify the competition otherwise naturally occurring in the market. Jones was the National Sales Manager of Cromford and therefore a very senior man in the Cromford organization. There is no evidence that Cromford or its holding company, Washington H Soul Pattinson and Company Limited, has introduced a scheme or taken any measures to ensure compliance with the Act. On the other hand, Cromford is a small company and the relevant offending conduct was engaged in by Jones, a senior executive, and it is not suggested that members of the board of Cromford (and therefore Washington H Soul Pattinson and Company Limited, the membership of the board being the same) were aware of the offending conduct.

* Washington H Soul Pattinson and Company Limited is a large listed public company of which Cromford is a wholly owned subsidiary. Nevertheless, the offending conduct is engaged in by Cromford, not the parent, despite the correspondence of the membership of the board.

* Cromford and Jones have consented to the declarations and injunctions being made against them concerning their relevant conduct. The consent was given, however, after the commencement of the proceeding.

* The offending conduct extended over a relatively short period of time.

The four attempts to make an arrangement or arrive at an understanding which contained the prohibited provision in relation to price fixing of PBF were made on 20 February 1995, 3 March 1995, 16 March 1995 and 21 April 1995. There is something to be said for the view that they were not four separate attempts but should be viewed overall as different stages of the one attempt. However, on balance I think the correct analysis of the conduct is that there were four separate attempts, albeit that they related broadly to the same subject matter. My approach is also consistent with the approach adopted by the parties in their argument and in the form of orders made by the consent of the parties (that is the Commission, Cromford and Jones) on 5 February 1998.

Accordingly, I approach the determination of penalty on the basis of there being four contraventions, the penalty to be determined separately for each. But having reached the conclusion of the appropriate penalties, I have then considered whether the aggregate is appropriate for the total contravening conduct.

In my opinion it is appropriate that the Court impose pecuniary penalties against Cromford of $10,000 in respect of each of the four attempts; and in the case of Jones the sum of $2,000 for each act of aiding and abetting.

Accordingly, the Court orders that:

1. Cromford Pty Limited pay to the Commonwealth a pecuniary penalty of $10,000 in respect of each of the attempts to contravene s 45(2)(a)(ii) of the Trade Practices Act 1974 described in orders 1, 2, 3 and 4 of the orders made by the Court on 5 February 1998.

2. Kim Jones pay to the Commonwealth a pecuniary penalty of $2,000 in respect of each act of aiding, abetting, counselling or procuring Cromford Pty Limited to attempt to contravene s 45(2)(a)(ii) of the Trade Practices Act 1974 , the four attempts being those mentioned in orders 1, 2, 3 and 4 of the orders made by the Court on 5 February 1998.

3. Cromford Pty Limited pay the costs of the Commission of the proceeding in so far as those costs relate to the Commission's case against it; and that Kim Jones pay the costs of the Commission of the proceeding in so far as those costs relate to the Commission's case against him.

I certify that this and the preceding eight (8) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Lockhart

Associate:

Dated: 27 February 1998

Counsel for the Applicant:	Mr B W Walker SC Mr D M Yates SC
Solicitor for the Applicant:	Australian Government Solicitor
Counsel for the First and Fifth Respondents:	Mr R V Gyles QC Mr P W Gray Ms A G Pearman
Solicitor for the First and Fifth Respondents:	Deacons Graham & James
Date of Hearing:	12 February 1998
Date of Judgment:	27 February 1998