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Beaton-Wells, C; Brydges, N --- "The cardboard box cartel case: Was all the fuss warranted?" [2008] UMelbLRS 2

Last Updated: 17 June 2009

The cardboard box cartel case: Was all the fuss warranted?

Caron Beaton-Wells and Neil Brydges[*]

The ACCC’s legal action for price fixing against the giant cardboard box company, Visy, and its billionaire owner, Richard Pratt, has captivated the media. This article investigates the significance of the case from a competition law enforcement perspective, examining various aspects of the Federal Court’s decision with respect to penalties, the implications of the case for the proposal to criminalise serious cartel conduct, and insights arising from the litigation by ‘victims’ of the cartel in relation to private enforcement of the competition provisions of the Trade Practices Act.

INTRODUCTION

The case by the Australian Competition and Consumer Commission (ACCC) against the Visy group of companies and their owner, Richard Pratt, in relation to collusion in the corrugated fibreboard packaging (CFP) industry has attracted an extraordinary amount of media attention. This was especially so in the second half of 2007, commencing with news of Pratt’s decision to settle the case in early October[1] and culminating in Heerey J’s decision less than a month later regarding appropriate penalties.[2]

From the media perspective there have been several aspects of the case that have made it particularly newsworthy. Foremost among these no doubt has been the “fall from grace” of a rich and powerful man: Richard Pratt.[3] Other aspects on which the media has focused have included the unusual events involving Visy’s competitor, Amcor, by which the cartel came to light;[4] the mechanics of the cartel including meetings in otherwise mundane places;[5] the reactions of the so-called cartel “victims”, large and small;[6] the size of the penalties and revival of a call for criminal sanctions for such behaviour by ACCC Chairman Samuel,[7] and the responses to all of the above by political leaders caught up in an election campaign.[8]

From a competition law enforcement perspective, only some of these facets of the Visy saga warrant close consideration. The causes, dynamics and effects of this cartel are arguably not much different to those witnessed in previous Australian cases – for example, in the express freight,[9] pre-mixed concrete,[10] fire protection[11] and electrical transformer industries.[12] However, the timing of the case in the context of the current debate about how to deter serious cartel conduct and more effectively enforce anti-cartel laws – a debate taking place around the world and not just in Australia[13] – is significant. After summarising briefly therefore the background to the litigation, the facts of the case as agreed between the parties and Heerey J’s reasons for approving the jointly submitted penalties and associated orders, this article focuses on three aspects of the Visy saga likely to resonate long after the media interest has died:

  • the penalties – in particular, the size of the penalties imposed, the absence of a separate pecuniary penalty for Pratt and the comments by Heerey J regarding penalty indemnities;
  • the implications of the case for the debate concerning the introduction of criminal sanctions for serious cartel conduct; and
  • the responses by “victims” of the cartel to the case and the tensions revealed between private and public enforcement of the competition provisions of the Trade Practices Act 1974 (Cth) (the Act).

LITIGATION BACKGROUND

The ACCC was alerted to the cartel in November 2004 when Amcor, Visy’s major competitor in the Australian market for CFP, approached the regulator with information exposing its arrangement with Visy and admitting its part in the conspiracy. In unrelated litigation, Amcor had sued former executives and obtained a court order for a search of their premises. Incriminating material, including tape recordings of conversations, had been discovered and it was consequent upon this discovery and subsequent legal advice that Amcor approached the Commission.[14] Amcor was granted conditional immunity pursuant to the ACCC’s leniency policy in force at that time.[15]

The ACCC commenced its action on 21 December 2005 against Visy Board Pty Ltd; two related companies; Richard Pratt, a director of Visy who with his family is the ultimate owner of the company; Harry Debney, the then Chief Executive Officer of Visy and Rod Carroll, the then General Manager of Visy.[16] While Pratt remains a director of Visy, Debney and Carroll have since resigned from their respective positions as a result of the case.[17]

In April 2006 plaintiff law firm, Maurice Blackburn, launched a class action against Amcor on instructions from a Queensland fruit packer, Jarra Creek Central Packing Shed, claiming that the overcharge averaged between 8% and 15% of box prices, and could total $700 million overall.[18] Visy was joined by Amcor as a cross-respondent to the claim.[19] In December 2006 Cadbury Schweppes launched its own action against Amcor, which subsequently joined Visy as a co-respondent, claiming $120 million in damages for inflated prices for corrugated boxes, as well as for PET containers and aluminium cans.[20]

In March 2007 Heerey J ruled that Visy was not entitled to discovery of documents relating to the grant of immunity to Amcor and other documents including draft witness statements, upholding the ACCC’s claim of legal professional privilege.[21] This ruling was upheld by the Full Court of the Federal Court in September 2007.[22]

It was reported that from about August 2007 the ACCC began filing its outlines of evidence (some 120)[23] and it was at this point that the strength of the evidence against Visy and, in particular, against Pratt personally became fully apparent.[24] A critical point apparently was reached at a meeting in early September at which the ACCC indicated that the only way it would settle the case was if Pratt admitted liability.[25] That settlement was brokered by former High Court Justice McHugh[26] and announced on 8 October 2007, accompanied by a public statement by Pratt making admissions and apologising for the conduct.[27] A hearing as to penalties based on an agreed statement of facts took place on 16 October 2007.[28] On 2 November 2007 Heerey J delivered judgment, approving the penalties and associated orders agreed between the parties: ACCC v Visy Industries Holdings Pty Ltd (No 3) [2007] FCA 1617.

FACTS OF THE CASE

The facts set out below are extracted largely from the judgment of Heerey J who in turn derived them from the parties’ agreed statement of facts and submissions.

The market and its participants

Visy and Amcor are the major participants in the market for the supply of CFP, used to make cardboard boxes, in Australia. During the period of contravention, 2000-2005, the value of the market in Australia was estimated at close to $2 billion per annum (at [14]). A vast range of consumer goods is packaged in CFP including “groceries, beverages, dairy products, fruit, produce, meat poultry, seafood and confectionery” (at [9]). While alternative packaging products compete in some segments of the CFP market, there are no packaging materials that are readily substitutable for, or in close competition with, CFP products in relation to the packaging of the goods mentioned.

The customers in the market were distinguished in the case as either contract or non-contract customers. The former are generally major companies with annual purchases in the order of $20 million or more and include Inghams, Goodman Fielder, Fosters, Nestle, George Weston Foods, Gillette and Cadbury Schweppes (at [14]).[29] There are thousands of non-contract customers, which are generally smaller businesses and contribute approximately $212 million per annum in gross sales, constituting 30% in value of Visy’s customers (at [14]). With more than 90% market share between them in the CFP market, Amcor and Visy represent a classic example of what is referred to in economic literature as a duopoly.[30] As at 2000, the year in which the cartel commenced, Visy held 47% of the market, with Amcor holding 45%. By 2005, Visy held 55%, Amcor 36% (at [20]).

The conduct

The conduct admitted by Visy as constituting contraventions of the Act fell into the following four broad categories (at [3]).

First, in early 2000 Visy and Amcor arrived at what was referred to in the litigation as an “overarching understanding” (at [4], [41]). In the two-year period to late 1999 both Visy and Amcor had incurred significant trading losses due in part to a price war between them. The overarching understanding was a measure to reduce the intense competition between the two firms and to “increase CFP prices to more realistic levels” (at [43]). The overarching understanding involved Visy and Amcor agreeing to maintain their respective market shares and not to deal with each other’s customers.[31] If a customer did change suppliers, the firm receiving the new customer would provide one of its own to the other as a means of “compensation”.[32] Further, Visy and Amcor would collaborate with each other to increase prices. Visy would appoint Carroll as its nominated contact person with Amcor, and Amcor would nominate Edward Laidlaw (General Manager Sales) as its contact person with Carroll in the implementation of the understanding (at [41]).

To give effect to the overarching understanding over the period 2000-2005, representatives of Visy and Amcor (principally Carroll and Laidlaw) conducted a series of clandestine meetings at hotels, motels, and suburban parks, including Rockman’s Regency Hotel in Melbourne, the Tudor Motel in Box Hill, Westerfolds Park in Templestowe and Myrtle Park in North Balwyn (at [51]). These meetings were supplemented by conversations from public telephones and prepaid mobiles (at [51]). Towards the middle of 2001 Amcor became concerned that the overarching understanding was collapsing. A meeting was arranged at the All Nations Hotel in Richmond between Pratt and the then CEO of Amcor, Russell Jones, where the former communicated that Visy would continue to adhere to the overarching understanding (at [57]).

Second, there were annual price increase understandings whereby increases in prices were agreed for non-contract customers in the years 2000, 2001, 2002 and 2003 as follows (at [5]):

Year
Agreed price increase
2000
7% (Amcor); 7% (Visy) (at [61])
2001
8.5% (Amcor); 8.25% (Visy) (at [69])
2002
3.75% (Amcor); 3.25% (Visy) (at [76])
2003
3.5% (Amcor); 3.25% (Visy) (at [83])

Third, there were customer price understandings whereby prices were agreed in respect of particular customers. In effect the customer price understandings were that Visy and Amcor would not seek to enter into contracts for the supply of CFP to each other’s principal customers. If a principal customer requested a competing quote from Visy or Amcor, the parties agreed that a higher quote would be provided, or if both Visy and Amcor already supplied the customer with CFP, they would submit tenders with substantially similar price increases. To give effect to the customer price understandings pricing information would be passed between Visy and Amcor so as to be able to quote a higher price (at [95]-[193]).

Fourth, there were compensation undertakings whereby, in respect of particular customers who had changed from one supplier to the other, that supplier would provide another customer or customers in exchange (at [7]). Heerey J described the compensation undertakings as working as follows (at [7]):

If, say, Amcor customer X decided to switch to Visy, Amcor and Visy would get together and decide on a Visy customer, say Y, who would be provided to Amcor as “compensation” for the loss of X. When Y’s contract came up for renegotiation, Visy and Amcor would exchange details of proposed prices and other terms so as to ensure that the deal offered to Y by Visy was much less attractive than Amcor’s. Y would then, as Visy and Amcor intended, accept Amcor’s offer.

The contraventions

Section 45(2) of the Act contains prohibitions on arriving at and giving effect to understandings that are anti-competitive by reason of containing an exclusionary provision, as defined in s 4D (subss (a)(i), (b)(i)) or a provision that has the purpose or effect of substantially lessening competition (subss (a)(ii), (b)(ii)). A price fixing provision, as defined in s 45A, is deemed to be a provision that has the requisite anti-competitive purpose or effect for the purposes of s 45(2)(a)-(b)(ii).

In arriving at the understandings with Amcor which concerned the fixing of prices, Visy was held to have contravened s 45(2)(a)(ii) of the Act, as it applies by virtue of s 45A (at [291]). Insofar as the understandings involved market sharing, swapping of customers and the like, they were held to have contained exclusionary provisions because they prevented or restricted the supply of goods by Visy and Amcor to particular customers. Thus, in arriving at such understandings, Visy was held to have contravened s 45(2)(a)(i) (at [291]). By its conduct in applying those understandings in the case of particular customers, Visy was held to have given effect to the unlawful understandings and thus contravened s 45(b)(i) and (ii) (at [291]).

Visy admitted to 69 contraventions of the Act (at [292]). However, s 76(3) provides that one person is not to be liable for more than one pecuniary penalty in respect of the same conduct. Therefore, Heerey J imposed penalties for a total of 37 contraventions by Visy (at [292]).

Under s 76(1)(e) of the Act a person who has been knowingly concerned in, or a party to, a contravention of certain provisions of the Act, including s 45, is liable to a pecuniary penalty. Under this provision of the Act, Carroll and Debney were held to have been knowingly concerned in, or a party to, 49 and 14 contraventions respectively (at [295]-[296]). By meeting with the Amcor CEO to confirm that Visy would adhere to the overarching understanding, Pratt also was held to have been knowingly concerned in Visy’s contraventions (at [293]-[296]).

HEEREY J’S REASONS

The maximum penalties applicable at the time of the contraventions were, in respect of each contravention, $10 million for a corporation and $500,000 for an individual.[33] As pointed out by Heerey J, in determining penalties, guidelines are provided in s 76 of the Act,[34] and other additional indicia are well-established in the case law.[35]

In the case of Visy, Heerey J approved a penalty of $36m. This figure was arrived at as follows (at [298]):

  • $7 million in respect of the overarching understanding;
  • $4 million in respect of the measures subsequently taken by Visy to give effect to the overarching understanding;
  • $2 million for arriving at the 2000 price increase understanding and the same amount again in relation to the 2001 price increase understanding; $1.5 million each for arriving at 2002 and 2003 price increase understandings. The penalties for 2000 and 2001 were regarded as being more serious given that in 2002 and 2003 the price increase understandings were expressly qualified to allow Visy and Amcor to make some exceptions. In the case of all four annual price increase understandings Visy was penalised a further $1.25 million each for giving effect to the understandings;
  • In respect of twelve instances of arriving at compensation understandings in relation to specific customers, and giving effect to them, a penalty of $13 million applied. Fifty per cent of the penalty in each instance was for arriving at the understanding and 50% was attributable to giving effect to the understanding. Each instance involved a pair of contraventions, independent from the fact that the same conduct constituted giving effect to the overarching understanding.

In determining the above penalties as appropriate, Heerey J identified a number of factors that were relevant (at [312]-[321]):

  • The cartel went on for almost five years.
  • The conduct involved was inherently likely to cause loss across all facets of the Australian economy.
  • It was run from the highest level in a very substantial company.
  • It was deliberately and carefully concealed.
  • It was operated by men who were aware of its unlawful nature.
  • The principal positive defence pleaded and maintained until recently, namely that Visy had been engaged in “commercial tactics”, using its communications with Amcor to obtain “market intelligence”, had had limited prospects of success.
  • While it was appropriate to make some allowance for the respondents admitting liability, less weight is given when the admission of guilt comes late, or is bowing to the inevitable.
  • The corporate culture of Visy in relation to its obligations under the Act was non-existent.

For Debney, Heerey J approved a penalty of $1.5m. This figure was arrived at as follows (at [299]):

  • $0.4 million in respect of the overarching understanding;
  • $0.32 million in respect of the measures subsequently taken to give effect to the overarching understanding;
  • other conduct in arriving at six understandings incurred a penalty of $0.78 million ($0.13 million each).

Debney was a senior executive of Visy, the joint instigator of the cartel, directed Carroll to operate it, and was aware of its illegality (at [327]).

For Carroll, Heerey J approved a penalty of $0.5 million (at [300]-[301]). Carroll was the Visy executive appointed to the day-to-day management of the overarching understanding. As such he was involved in making or giving effect to 15 of the 16 sub-undertakings. However, Carroll was appointed to this position by Debney and was acting under his instructions and so was not an instigator of the cartel (at [327]).

In addition to the pecuniary penalties, Heerey J made orders in a form agreed by the parties, including declarations of the contraventions referred to above (at [292]) and injunctive orders permanently restraining Visy from engaging, and Pratt, Debney and Carroll from being knowingly concerned in or party to conduct of the same kind in the future. It was ordered further that Pratt and Visy implement and undertake for a period of three years, at Pratt’s expense, a trade practices compliance program that provides for implementation of the program to be audited by an independent auditor, and is in a form agreed with the ACCC.[36]

THE PENALTIES

That Heerey J approved the quantum of penalties jointly submitted by the parties is consistent with the long-standing practice of the court, recognising the value of negotiated penalties from an administration of justice perspective and endorsing them provided that they are appropriate in the sense that they fall within a permissible range in the circumstances of the case.[37] Heerey J made no specific reference to the objects of the penalty-setting process, except to observe generally that enforcement should convey a message of deterrence (“that the consequences of discovery are likely to outweigh the benefits, and by a large margin”) (at [306]) that s 76 imports “concepts of moral responsibility long known to the criminal law” and that “[o]rdinary sentencing principles apply” (at [304]). There was also nothing new or unusual in the factors applied by Heerey J in assessing the appropriate penalty amounts in the case.[38] The amounts of the penalties imposed, however, are significant. It is useful to deal with these first. It is also significant that a separate penalty was not imposed on Pratt. Finally, Heerey J made some interesting comments regarding proposed indemnification by Visy of the penalties imposed on Debney and Carroll.

Size of penalties imposed

The corporate penalty of $36 million is, as noted by Heerey J, “more than twice the highest previous penalty imposed by this court” (at [320]). Previously the highest corporate penalty was $15 million in the animal vitamin price fixing case.[39] The individual penalties imposed in the Visy case are similarly in a new league. The highest individual penalty imposed previously in a cartel case was $225,000[40] – less than half of the $500,000 penalty imposed on Carroll, and 15% of the $1.5 million imposed on Debney.

Heerey J acknowledged that parity between penalties is a relevant consideration in penalty setting (at [320]). The principle of parity or “equal justice” requires that “like should be treated alike, but that if there are relevant differences, due allowance should be made for them”.[41] However, Heerey J also emphasised that each case must turn on its own facts and this case, he asserted, “must be, by far the most serious cartel case to come before the court in the 30 plus years in which price fixing has been prohibited by statute” (at [320]). While apt for media consumption, that statement, as a matter of legal precedent, is contestable. Certainly it is not to be contested that each case does turn on its own facts and that, in assessing penalties (a mostly intuitive exercise), judges must consider those facts as a whole rather than undertaking an artificial exercise of comparing each variable in the case with the corresponding variable in preceding cases. That said, when the rhetoric is put aside and the factors identified by Heerey J as explaining the penalties in the Visy case are each examined in turn, the justification for imposing sums so far exceeding any that have gone before is not immediately obvious.

Heerey J characterised the cartel as being one with the potential for “the widest possible effect” given that “[e]very day every man, woman and child in Australia would use or consume something that at some stage has been transported in a cardboard box” (at [312]). However, there have been other cartels with equal if not greater reach in terms of their damaging effects – not least of all the recent cases involving price fixing in the petrol industry.[42] Notwithstanding the absence of any allegation of loss (discussed below), Heerey J pointed out that the conduct involved in the case was “inherently likely to cause loss” (at [314]). The same can be said of almost every cartel case (excepting cases of attempted collusion, of course) and, indeed, in many there have been allegations and, in some, even proof of actual loss.[43] The cartel went on for almost five years (at [315]) – but there have been others of equal and longer duration, for more than a decade even.[44] If not accidentally exposed, “it would probably still be flourishing” (at [315]). The same observation again could be made of almost all cartels, except for the fact that it is more usual for the exposure to be deliberate, at the hands of an informer from within the cartel’s ranks.[45] The Visy cartel was operated at the most senior levels of management (at [315]). Those managers knew of its illegality and took the steps necessary to ensure that it remained concealed (at [315]). None of these attributes single out this cartel as unusual in the history of corporate collusion in this country. Indeed, the deliberate and secretive nature of most cartels is what has been said recurringly to justify tough (even criminal) penalties, so as to send a message of general deterrence.[46] That any discount available for settlement of the proceeding should be reduced by the fact that the admissions came late and that the proposed defence had had limited prospects of success (at [316]-[318]) is also in keeping with precedent.[47] Finally, Visy is hardly the first Australian company caught in a cartel about which it could be said that a compliance culture was entirely lacking (at [319]).[48]

In its submissions, the ACCC sought to depict the proposed Visy penalty as consistent with the penalties handed down in previous high penalty cases (specifically, ACCC v Pioneer Concrete Ltd (1995) ATPR 41-457, ACCC v Roche Vitamins Australia Pty Ltd [2001] FCA 150; (2001) ATPR 41-809 and ACCC v ABB Transmission and Distribution Ltd (No 2) [2002] FCA 559; (2002) ATPR 41-872) on several grounds.[49] However, the only one of these grounds on which the Visy case can be distinguished meaningfully from the others is on the size of the market affected by the cartel and even on that ground the difference between at least the market in pre-mixed concrete case and the CFP market is not substantial. In the latter it was said to be between $1.8-$2 billion over the period 2000-2004, whereas in the former, in the period 1989-1994, the concrete market was said to be worth $1.1 billion.[50] Inflation adjusted to enable proper comparison this would mean that the CFP market was worth $2.1 billion and the pre-mixed concrete market $1.7 billion in 2007 dollars.

Heerey J’s justification of the penalties against Debney and Carroll was much briefer than in relation to the Visy corporate penalty – a mere paragraph for each. In the case of Debney, the judge emphasised his critical role in initiating and, at times, personally participating in execution of the arrangement with Amcor; his seniority in a large company the operations of which have far-reaching effects; and his blatant disregard for the law (at [327]). In the case of Carroll, he was said to have “engaged over a long period in knowingly unlawful conduct” (at [332]) but to have been “less blameworthy” than Pratt or Debney having occupied a lower position in the company and not to have been an instigator of the conspiracy (at [332]). There is nothing in these descriptions of Debney and Carroll’s conduct that explains why it warranted penalties so far exceeding penalties imposed in previous similar cases as arguably to make a mockery of the parity principle.

Given the above, what then explains the penalties imposed in this case and how might they be assessed on a stand-alone basis in the current climate favouring a tough approach to cartel law enforcement? From the ACCC’s perspective it is hard not to conclude that, with its high public profile, the case was seen as an important and timely opportunity to renew the focus on cartels as the top priority in the commission’s enforcement agenda since Samuel took the reins in 2003.[51] As discussed further below, it also evidently was regarded by Samuel as a means by which to increase pressure on the government to get on and introduce criminal sanctions for serious cartel conduct.[52] More specifically, given the traditionally low levels of cartel penalties in Australia,[53] the case almost certainly was viewed as an opportunity to lift the penalty benchmark to a new level in the hope that this will have a flow-on effect, emboldening judges in future cases to impose penalties that have a greater deterrent impact than the penalties imposed to date.

There may have been an element of this too in Heerey J’s thinking. If so, it would be consistent with judicial statements in recent cases, expressing concern that past penalties have been inadequate to deter serious cartel conduct in Australian industry.[54] It could be expected further that Heerey J would have taken account of the government’s stated intention to criminalise serious forms of cartel conduct, as an indication of the gravity with which it views such conduct. This is suggested by the reference that was made by Heerey J to the government’s proposal and to the fact that criminal sanctions are now a feature of many competition law regimes around the world (at [309]-[311]).

In addition, while not doubting Heerey J’s independent consideration of the features of the case, the fact that the penalties were the subject of a settlement between the parties must have played an important part in his deliberation. Given that the Visy respondents had agreed to the penalties and given the substantial media coverage and significance of the case from a deterrence perspective in the broader scheme of competition law enforcement, it would have been very surprising, even shocking, had Heerey J chosen to impose lower penalties. Similarly, even if Heerey J had toyed with the idea of imposing higher penalties or deviating from the settlement agreement in some other way (for example, by imposing a separate penalty on Pratt, as discussed below), he would have been conscious of the difficulties that this would pose for the ACCC in negotiating similar settlements in the future.

Putting aside the parity principle and the pressures imposed by the settlement, there are in fact good reasons for thinking that the Visy penalties were too low. This is particularly so given the maximum penalty levels stipulated by the Act and the numbers of contraventions admitted to in this case. In relation to the corporate penalties, for example, a total sum of $36 million was imposed for 37 contraventions, that is just under $1 million for each contravention – approximately 10% of the statutory maximum ($10 million). This result flies in the face of the High Court’s recent warning that sentencing judges should pay careful attention to maximum penalties, not just “because the legislature has legislated for them”, but also “because they invite comparison between the worst possible case and the case before the court at the time”.[55] If this was indeed, “by far the most serious cartel case” in Australian trade practices history, as Heerey J asserted, then taking the High Court’s lead on the respect to be paid to the legislated maximum, one would have thought it warranted a corporate penalty in the hundreds of millions.

The Visy penalties are also extremely low by international standards. In the United States the Sentencing Guidelines set the base fine for corporations in respect of specific antitrust law offences (bid rigging, price fixing and market allocation agreements) as “20% of the volume of affected commerce”.[56] Applied in the Visy context, 20% of the $2 billion CFP market would mean a base fine (that is, the starting point not taking account of aggravating factors) of $400 million. In Europe, recent data shows that for the period 1998-2007, the average fine imposed by the European Commission was Euro 37.2 million per participating cartelist, reduced to Euro 23 million after leniency in accordance with the Commission’s Penalty Guidelines and Leniency Notices, while the maximum fine imposed on an undertaking was Euro 396.6 million.[57] Fines imposed by the European Commission are set to increase further under its 2006 Guidelines,[58] which require the calculation of a basic fine for each undertaking involved in the cartel based on a percentage of the before tax value of the undertaking’s sales to which the infringement directly or indirectly relates in the relevant geographic area. The percentage applied will depend on the gravity of the infringement according to a range of factors but will generally be up to 30% (and for hardcore cartels, will tend to be at the higher end of the scale). The amount thus determined will then be multiplied by the number of years of participation in the infringement, so as to take account of the duration of the cartel. In addition, for hardcore cartels, the commission will include in the basic fine a sum of between 15% and 25% of the value of affected sales.[59]

No penalty for Pratt

As part of the settlement agreed between the ACCC and the respondents, no separate penalty was sought against Pratt. The reasons offered by the parties for this were: Pratt was involved personally in only one contravention (constituted by his meeting with the Amcor CEO at which he communicated Visy’s continuing commitment to the cartel); the penalty imposed on Visy would be funded by Pratt; and the penalty that the court otherwise would have imposed on Pratt was incorporated in the penalty imposed on Visy.[60] Notably this explanation did not involve an attempt to diminish the seriousness of Pratt’s conduct. To the contrary, the submissions highlighted Pratt’s awareness of the arrangement from 2001 and the fact that his meeting with Jones was critical to ensuring that the cartel continued for another three years after it had been at risk of collapsing.[61] They further made clear that there was no suggestion that Pratt was unwittingly or ignorantly caught up in the collusion and that he was aware of all of the essential facts and elements of Visy’s contravention.[62] It was stressed that as owner and Chairman of the Visy group, “the significance of him giving his imprimatur to the Overarching Understanding is very great”.[63]

Heerey J too emphasised these aspects of Pratt’s involvement, pointing out that it was “of major importance to the operation of the cartel”, that he had given his “personal sanction to this obviously unlawful arrangement and an assurance of its continued operation” and that “[i]t would not have continued without his approval” (at [323]). He also agreed that there was no doubt that Pratt knew of the unlawfulness of the arrangement (at [325]). But Heerey J went further, criticising Pratt’s public statement regarding the settlement of the proceeding, pointing out that it had appeared to revive Visy’s meritless defence (in the statement that “Visy’s actions were motivated by a desire to take advantage of our competitor”) and thus was “hardly consistent with a frank admission of wrongdoing” (at [324]). The judge was also sceptical about the sincerity of Pratt’s statement of contrition – indicating his view that “contrition here probably has a substantial element of regret at being found out” (at [322]). Finally, Heerey J made the point that the cartel operated for the personal benefit of Pratt as the owner or part owner of Visy; that this thus was “not the case of an employee acting out of some misguided sense of corporate loyalty” (at [326]).

Given Pratt’s evident concern to limit the reputational damage inflicted by the case and his self-confessed obsession with preserving his personal legacy,[64] it is almost certain that the agreement not to seek a separate penalty against him constituted one of the critical elements, if not the “deal-breaker”, in the settlement with the ACCC. However, as a matter of both precedent and principle, it is troubling. It was submitted, and Heerey J accepted, that there is precedent for the avoidance of double-counting where an individual contravener is an owner of a corporate contravener,[65] and without further elaboration, Heerey J stated that this should be so in the present case (at [294]). However, the precedents relied on by the parties and the judge are hardly compelling. As noted rather meekly in a footnote to the ACCC’s submissions in ACCC v Ithaca Ice Works Pty Ltd [2000] FCA 997; (2000) ATPR 41-777, in making orders for a $25,000 penalty to be imposed on a relatively small family-owned corporate respondent and for no separate penalty against a director by whom it had acted (and whose salary was less than $40,000 per annum), Dowsett J had said: “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.”[66]

The comparisons with Pratt and Visy could not be greater. The other “precedent” cited by the parties was ACCC v ABB Transmission and Distribution Ltd (No 2) [2002] FCA 559; (2002) ATPR 41-872 and, in particular, the statement made by Finkelstein J at [45] in relation to his assessment of the appropriate penalty against Mr Wilson as the owner of Wilson Transformer Company Pty Ltd:

The relationship between Mr Wilson and his company is a matter that must be taken into account when assessing his penalty. I have already made clear the view that I hold of executives who make a deliberate decision to breach antitrust legislation. The position is worse when the executive is the managing director and chairman. Senior managers are often encouraged to become involved in antitrust violations in the belief that their conduct will not be frowned upon by the board. After all, it is the corporation that stands to benefit from the conduct. But when it is a board member, or worse still the managing director, who is responsible for the violation there is no incentive on other executives to abide by the law. It will only be with the imposition of very high penalties that this conduct will be stamped out. That said, I will not ignore the fact that Mr Wilson is the principal shareholder in WTC, and the diminution of its assets that will result from the imposition of a pecuniary penalty is a loss that will ultimately be borne by Mr Wilson. If I do not make allowance for this when assessing Mr Wilson’s penalty he will, in effect, be punished twice over.[67]

What is ironic about the parties’ reliance on this statement in support of the submission that Pratt avoid a personal penalty is that Finkelstein J went on to impose a penalty of $125,000 against Wilson, and $2.5 million against his company (in a separate related proceeding, he imposed a further $100,000 on Wilson and $1.5 million on his company).[68] Thus while Finkelstein J reduced the penalties against Wilson on the ground that he ultimately would bear the corporate penalty also, it was quite evident that this was not regarded by the judge as a ground on which to refrain from penalising the individual respondent altogether. To the contrary the judge went to some lengths to explain why the involvement of a board member is especially grave and warrants the “imposition of very high penalties”.[69] Prior to Visy, the Wilson penalties stood as the highest individual penalties to date.[70]

Not surprisingly, Heerey J did not cite ABB as a precedent supporting his failure to penalise Pratt separately. Rather, in addition to the Ithaca case (which, as pointed out, is clearly distinguishable), Heerey J cited ACCC v Commercial and General Publications (No 2) [2002] FCA 1349; (2002) ATPR 41-905. That was a decision of his own; however, it is arguably even more clearly distinguishable than Ithaca in that it was a case in which an individual defendant was found guilty of charges under s 58(b) of the Act relating to the acceptance of payment for services where there were reasonable grounds for believing that the defendant would not be able to supply them. In ACCC v Commercial & General Publications (No 2) [2002] FCA 1349; (2002) ATPR 41-905 Heerey J expressed considerable sympathy for the defendant on account of his otherwise being a reputable businessman with a legitimate and socially beneficial business; the destruction of the business as a consequence of the ACCC’s action; his ill-health; parlous income position and the devastating impact of the proceedings on his personal life (at [15]-[25]). Heerey J imposed a fine of $1,000 on the defendant (at [24]) and declined to impose a separate penalty on his company (in which he was the sole shareholder) on the grounds that the corporate defendant was the alter ego of the individual defendant (at [27]). The company had no assets but, if it had, Heerey J was of the view that it would be unjust to punish in effect the individual defendant twice over (at [29]). Again, the contrast between these facts and those of the Visy case is stark.

As a matter of principle, the failure to impose a penalty separately on Pratt is flawed because it confuses his role as the directing mind and will of the company[71] with his role as an accessory to its breach. For constitutional reasons the Act directs its prohibitions and associated penalties at bodies corporate. The liability of these entities is direct. It is not vicarious based on the actions of the company’s officers and employees. The liability of the latter in turn is accessorial. It is thus legally and conceptually distinct from the liability of the company. It was this very distinction that was emphasised by the High Court in Hamilton v Whitehead [1988] HCA 65; (1988) 166 CLR 121 in allowing an appeal against a decision not to penalise a managing director for offences under the then Companies Code (WA) on the basis that his acts were identical to the acts relied upon to found the offences against the company and for which the company was penalised. The court observed that there were similarities between the accessorial liability provisions of the Act (s 75B) and the provisions of the Companies Code and that, notwithstanding anything said in Yorke v Lucas [1985] HCA 65; (1984) 158 CLR 661, there would be no warrant for reading them down to exclude persons from liability (or, by extension, penalties) on the basis that their actions are in effect the actions of the company.[72]

In addition, the decision not to penalise Pratt separately is objectionable because it undermines the principle that individuals are responsible and should be held to account for their individual conduct – referred to generally as the Nuremberg principle and long-enshrined in Western democracies.[73] It is this principle that underpins both the integrity and effectiveness of a penalty regime. The potency of such a regime is very much dependent on its capacity to impose responsibility directly on the individuals who have implicated themselves in the contravention, especially those who, like Pratt, have played a leading role. Indeed, it is this consideration that is commonly invoked in the argument for criminal sanctions and imprisonment, in particular, for serious cartel conduct.[74] Ironically also it was a point specifically made by Heerey J when he said (at [308]-[309]):

Critical to any anti-cartel regime is the level of penalty for individual contraveners. We tend to overlook the fact that corporations are constructs of the law; they only exist and possess rights and liabilities as a consequence of the law. Heavy penalties are indeed appropriate for corporations, but it is only individuals who can engage in the conduct which enables corporations to fix prices and share markets.

Many countries with free market economies have recognized this reality by enacting laws which make cartel conduct by individuals subject to criminal sanctions, including imprisonment.

It is difficult (impossible?) to reconcile this statement with Heerey J’s decision not to impose a penalty separately on Pratt. These weaknesses in his decision lend support to the argument that, while saving on enforcement costs, the phenomenon of agreed penalties has led to a paucity of jurisprudence in Australia on the principles that ought to guide penalty assessments for contraventions of Part IV of the Act and the application of those principles to particular facts.[75]

Penalty indemnities

The principle of individual accountability also underpins the recent amendments to the Act to outlaw indemnification of individuals by the company or related body corporate of which they are an officer or employee in respect of penalties imposed under the Act. As of 1 January 2007, such indemnities are unlawful by virtue of ss 77A and 77B of the Act, these provisions having been introduced consequent upon the recommendation of the Dawson Committee of Review.[76]

In the course of submissions Heerey J was informed that the penalties imposed on Debney and Carroll will be borne by an entity within the Visy group of companies (at [329]). While the Dawson amendments apply only to contraventions post 1 January 2007, Heerey J drew attention to s 199A(2) of the Corporations Act 2001 (Cth), effective from 1 January 2004, which provides:

(2) A company or a related body corporate must not indemnify a person (whether by agreement or by making a payment and whether directly or through an interposed entity) against any of the following liabilities incurred as an officer or auditor of the company:

(a) a liability owed to the company or a related body corporate;

(b) a liability for a pecuniary penalty order under section 1317G or a compensation order under section 1317H or 1317HA;

(c) a liability that is owed to someone other than the company or a related body corporate and did not arise out of conduct in good faith.

This subsection does not apply to a liability for legal costs.

Section 199A(3), not mentioned by Heerey J, is also pertinent in that para (a) of that section extends the prohibition to indemnification against legal costs incurred in defending or resisting proceedings in which the person is found to have a liability for which they could not be indemnified under subs (2).

As Heerey J pointed out, para (a) of s 199A(2) would not apply to penalties imposed on individual respondents under the Act given that it relates to liabilities owed to the company or a related body corporate. Paragraph (b) is concerned with pecuniary penalties payable under the Corporations Act. However, there is a question as to whether para (c) would operate so as to render the proposed indemnification of Carroll and Debney, or others subject to trade practices penalties, unlawful. The paragraph requires that a liability be owed “to someone other than the company or a related body corporate”. In this instance, the “someone other” would be the Commonwealth under s 76 of the Act. It next requires that the liability “did not arise out of conduct in good faith”. Unlawful cartel conduct, Heerey J asserted, would not be “conduct in good faith” (at [331]). But this is highly debatable. As discussed below, “good faith” is a wider concept than unlawfulness. There are conceivably situations (albeit likely to be rare) – for example where an employee has acted in accordance with instructions or even pressure by a superior and in ignorance of the illegality of the conduct – in which it might be said that he or she has acted honestly and reasonably and hence incurred the liability in good faith.[77] Needless to say this is not a scenario that arose in the Visy case.

Finally, there may be an issue as to when s 199A(2) applies. Heerey J suggested that it “would seem to apply to the time when the indemnity is given and not to the time of the underlying conduct which gave rise to the indemnity” (at [331]). This is a fair reading of the section and, if correct, would mean that an indemnity given after 1 July 2004 for any liability falling within para (c) would be unlawful notwithstanding the conduct responsible for the liability took place prior to that date. This has implications not only for Visy, Debney and Carroll but for any other company that has given an indemnity for penalties imposed on its officers under the Act since 1 July 2004 or any company contemplating such an indemnity for any future penalty relating to conduct pre-dating 1 January 2007 (after which the Dawson amendments will apply). Indeed, even if s 199A(2) were to apply only to indemnities for conduct post 1 July 2004, it should be borne in mind that s 199A’s predecessor (s 241), in place since 1992, was in very similar terms.

If Heerey J is correct in his analysis, it is likely that a substantial number of the indemnities paid to date for individual penalties imposed under the Act in fact, possibly unwittingly, have been illegal. As expressly stipulated by the Corporations Act, anything that purports to indemnify a person against a liability in breach of s 199A(2) is void.[78] The applicability of s 199A(2) was not considered by the Dawson Committee and has not been tested judicially in the context of penalties imposed for breaches of the competition provisions of the Act. However, there is some authority to suggest that conduct giving rise to accessorial liability under s 75B of the Act based on a breach of s 52 would not necessarily be conduct lacking in good faith for the purposes of s 199A(2)(c).[79]

There appear to have been only two cases in which s 199A(2) has been commented upon in a corporations law context, and in neither is the proper interpretation of para (c) specifically discussed.[80] In other corporations’ law contexts (eg s 181(1) which imposes a duty on directors to act in good faith in the best interests of the company), “good faith” has been equated with honesty. While there is a debate surrounding whether the test for honesty is a subjective or an objective one,[81] it nevertheless supports the argument made earlier, that is that s 199A(2)(c) would not have the effect suggested by Heerey J of outlawing indemnities for any breach of the cartel prohibitions under the Act.

Finally, one has to question why Heerey J raised the question of indemnities at all. On one hand it could be argued that he should have left the matter alone, that it was not a relevant issue before him. On the other hand, the fact that indemnification is proposed could be seen as fundamentally relevant to assessing the proper amount of penalty against an individual respondent. Certainly it is unfortunate that in choosing to mention the issue Heerey J dealt with it in such a cursory and superficial manner. As demonstrated by the comments above, there are real issues surrounding the scope of the ban under s 199A(2) of the Corporations Act and they have important implications for corporate indemnity provisions in existence or currently under consideration for conduct preceding 1 January 2007.

CARTEL CRIMINALISATION

Shortly after Heerey J handed down his decision there were reports in the media that the case had prompted companies to take steps to ensure that their compliance systems and programs were up-to-date and provided the maximum possible protection against the occurrence of Visy-type conduct within their ranks.[82] The irony of this is that Visy had a trade practices compliance manual, signed by Pratt, distributed widely including to Debney, and cast in the strictest terms in relation to the expectations of compliance. But, as Heerey J remarked, the manual “might have been written in Sanskrit for all the notice anybody took of it” (at [320]).

What is significant about these reports, assuming there is substance to them, is that they confirm that a case of the scale and scandal of Visy registers in the psyche of the business sector, possibly making executives think twice before engaging in the kind of conduct to which the Visy and Amcor managers admitted.[83] In short, it has a powerful deterrent impact, not just because of the large penalties involved but as much if not more because of the process of public blaming and shaming that is seen to have accompanied the exposure.[84] If indeed this is an accurate assessment of the likely impact of the Visy case,[85] then it highlights broader issues concerning the reform of competition law penalties and the proposal to introduce criminal sanctions, in particular.[86]

Before the Dawson Committee the ACCC argued that one of the major justifications for the introduction of criminal sanctions for serious cartel conduct is the evident failure of the civil penalty regime to provide a sufficiently powerful deterrent.[87] This argument, which was accepted by the Committee[88] and subsequently by the government,[89] fails to acknowledge that, as demonstrated by the Visy experience, the full potential of the civil regime is yet to be exploited.[90] This is even more so given that the amendments recommended by the Dawson Committee to the civil penalty provisions – allowing for the maximum to be calculated based on three times the value of the contravention or, if unascertainable, 10% of annual turnover over a 12 month period – have only been in place for a year.[91] Given that such provisions could facilitate penalties at least bordering on “optimal”,[92] there is a plausible argument at least that their deterrent effect should be given a chance to play out before the more drastic step of criminalisation is taken.[93]

As previously stated, traditionally penalty levels for corporate and individual respondents for cartel conduct have been low.[94] Between 1993 (when the maximum was increased to $10 million for firms and $500,000 for individuals) and 2007, the median penalty for corporate respondents (excluding the Visy penalty) was $877,833 (less than a 10th of the maximum).[95] For individuals, the corresponding figure was $54,855 (about 11% of the maximum).[96] The courts should not shoulder responsibility entirely for this given that a significant proportion of the cartel penalty cases during this period were settled and penalties presented to the court in effect as a fait accompli.[97] While recently courts have resisted strenuously the idea that such settlements are merely rubber stamped,[98] the Visy case is a good illustration of the pressures on judges to approve the terms that have been negotiated by the ACCC.

Whatever the reason, with penalties at such low levels, it is hardly surprising that the civil system has failed miserably at serving the purpose of general deterrence. However, to advocate criminal penalties as the answer is to assume, somewhat naively, that the same judges reticent to impose penalties close to the statutory maxima are likely to be prepared to send price-fixing executives to jail. Experience from overseas, both in the antitrust context and in other white-collar settings, suggests such an assumption to be hazardous indeed.[99]

On the question of cartel criminalisation, reactions to the Visy case were revealing in other respects. As the initiator and driver of the campaign for criminal sanctions, it came as no surprise that ACCC Chairman Samuel took maximum advantage of the outcome and media interest in the Visy action to renew the call for criminal sanctions.[100] In his press conference following delivery of Heerey J’s decision, for example, he referred to the comments made by the judge concerning criminalisation in other jurisdictions and then said:

Australia must fall in line with other jurisdictions by imposing criminal sanctions that includes jail terms for executives who engage in cartel activities.

Let me be clear – nothing concentrates the mind of an executive contemplating creating or participating in a cartel more than the prospect of a criminal conviction and a stretch in jail.

When monetary penalties and damage to reputation are the only risks, some greedy executives will run the gauntlet. But a criminal conviction coupled with jail time for executives to meditate on their actions would in my mind provide the greatest deterrent.[101]

Samuel’s call was supported, again not surprisingly, by representatives from the small business lobby and their political sympathisers.[102]

Having announced its intention to introduce criminal penalties for serious cartel conduct in 2005,[103] one might have expected the then government also to have used the Visy case to shore up support for its proposed reform. But, to the contrary, the former Prime Minister in fact appeared to retreat from a commitment to criminalisation, at the same time as professing his personal like of and praise for Pratt.[104] While a contradictory statement was issued shortly thereafter by the then Treasurer,[105] it served only to highlight further the shallowness of political support (at least within conservative ranks) for treating as criminals otherwise upstanding and influential members of the Australian business community.[106] This in turn was seized upon by members of the media, political opponents and other commentators who drew attention to the delay by the government in introducing the relevant bill more than four and a half years after the Dawson recommendations and the lack of transparency and consultation in its process of drafting the bill.[107] All in all, this sad episode should serve as a warning that securing support from key stakeholders for this major change in mode of enforcement looms as a challenge for many years to come.[108]

Labor indicated during the 2007 election campaign that it will introduce criminalising legislation within 12 months of being elected.[109] As part of this commitment, on 11 January 2008 the Assistant Treasurer and new Minister for Competition Policy and Consumer Affairs released for public comment a draft exposure Bill, draft memorandum of understanding between the ACCC and DPP and discussion paper.[110] The draft Bill appears to be modelled on the previous government’s proposed design on the new offence, including the flawed concept of dishonesty. Nonetheless, this progress is a positive development after the more than four-year delay following the Dawson Report and lack of consultation by the previous government. There is good reason to attribute the promptness with which the new government has taken action in this matter, at least in part, to the public interest in the Visy affair. Thus, the Visy case could be seen as the final catalyst for the introduction of criminal sanctions for serious cartel conduct in this country.

PRIVATE VERSUS PUBLIC ENFORCEMENT

The Cadbury Schweppes and class action suits against Amcor and Visy may bolster the impression of some that private enforcement actions in respect of breaches of Pt IV of the Act, and for cartel conduct specifically, are on the rise in Australia.[111] However, from a private enforcement perspective, there are at least three aspects of the Visy case that should be considered before any such predictions are made. It is also important to acknowledge that the relationship between public and private antitrust enforcement is a vast and complex subject. The aim here is simply to identify for further discussion some of the policy and practical facets of that subject that are illustrated by the Visy litigation.

First, from a policy perspective, the Visy experience highlights the potential tensions between public enforcement and private enforcement action in respect of competition law breaches. In terms of objectives, the primary if not sole aim of public enforcement is deterrence, while for private litigants plainly their action is motivated by the prospects of gaining some compensation.[112] While both consistent with the overriding object of the Act as the enhancement of the welfare of Australians (s 2), the conflict between fulfilment of these two objectives may arise in various ways. Given that, in Australia at least, public enforcement almost always precedes private litigation, the imposition of high pecuniary penalties at the behest of the ACCC may reduce the capacity of the respondent to pay compensation. Ironically, in 2001, s 79B of the Act was inserted directing a court to give preference to the payment of compensation to victims where a defendant does not have sufficient financial resources to pay both a pecuniary penalty and the compensation.[113] However, the section does not apply to any proceeding if, before it was commenced, the court has already ordered the respondent to pay a pecuniary penalty, ie it does not apply to a follow-on case for damages.[114]

The spectre of private damages claims may also interfere with the tools applied by the ACCC in the detection of cartel conduct. This tension was captured neatly in Chairman Samuel’s remarks following Heerey J’s decision in which he indicated his concern that “[t]he threat of follow-up class action can be a disincentive for those cartel members thinking of confessing”.[115] In particular, the ACCC’s concern is that coat-tail actions by private litigants, either individually or as a class, will undermine the operation of its leniency policy, a policy seen as “a crucial weapon”[116] in the fight against cartels.

The potential for conflict between public and private enforcement is a live issue in other jurisdictions. In the United States and, more recently, in Europe, private actions have been embraced by the antitrust regulators as providing supplemental deterrence, as well as compensation for cartel victims.[117] At the same time, there is also sensitivity in these jurisdictions to the potential adverse impact of private enforcement on the effectiveness of leniency programs. In the United States, this led in 2004 to a statutory amendment under which companies that have been granted immunity by the US Department of Justice under its leniency program and that are found by the court in follow-on damages actions to have provided satisfactory cooperation with the private claimants are only liable for single damages based on their own share of the commerce affected by the violation. The other cartel members remain jointly and severally liable for treble damages based on the harm caused by the entire conspiracy.[118] In Europe, several options are currently being considered, including exclusion of discoverability of the leniency application, a conditional rebate on any damages claim against the leniency applicant and removal of joint liability from the leniency applicant.[119]

Second, the Visy case illustrates some of the practical difficulties facing private litigants seeking to benefit from the successful outcome of an ACCC proceeding. Such difficulties relate, in broad terms, to both proof of liability and proof of loss. With respect to the former, notwithstanding the ACCC’s settlement of its action, it still will be incumbent upon private litigants to prove the facts of the cartel for the purposes of their proceeding. In the present case, clearly the admissions made by Amcor (in its leniency application) and Visy (in its settlement of the ACCC’s action) will be of assistance in this regard in that presumably Amcor and Visy will be estopped from denying the facts that have been the subject of those admissions.[120] However, whether those facts will be sufficient to establish every element of the private claims is unclear, bearing in mind that the agreed statement of facts in the Visy case apparently left out many details of the original ACCC statement of claim on which Cadbury at least in turn had based its claim.[121] This type of challenge was faced by the class action applicants in the recent animal vitamin cartel case given that the ACCC proceeding against that cartel had been concerned with only certain classes of vitamins. For the purposes of the private proceeding, the respondents admitted contraventions in respect of those vitamin classes, but put in issue the very existence of a cartel in respect of any other class, as well as the occurrence of loss and damage in respect of all classes.[122]

In relation to the admissions made by Amcor in securing leniency from the ACCC, the private litigants face difficulties in obtaining documents relating to the leniency application. The ACCC successfully resisted an application by Visy for access to those documents in its proceeding on the ground that documents relating purely to credit are not discoverable.[123] Amcor may be able to resist discovery of any of the leniency documents in its possession on the same ground. While the private claimants could seek to obtain such documents by way of subpoena from the ACCC, it would seem at least arguable that they would attract the common law protection known as public interest immunity, reflected in s 130 of the Evidence Act 1995 (Cth).[124]

In relation to witness statements filed in the Visy proceeding (those of Amcor witnesses for the ACCC as well as those of the Visy witnesses), O 33 r 5 of the Federal Court Rules suggests that a party may, with leave of the court, read evidence taken or an affidavit filed in other proceedings, provided it is read as evidence in relation to the proof of particular facts. However, this rule has been interpreted narrowly so as to allow the evidence to be tendered only in proceedings between the same parties or their privies as were parties to the original proceedings, and where the issues are the same.[125] In the private proceedings against Amcor and Visy, the parties at least will be different.

There may also be some uncertainty as to the use that may be made of the Visy admissions and, in particular, the extent to which s 83 of the Act may be of assistance to the private litigants. That section provides that:

In a proceeding against a person under section 82 or in an application under subsection 87(1A) for an order against a person, a finding of any fact by a court made in proceedings under section 77, 80, 81, 86C or 86D ... in which that person has been found to have contravened, or to have been involved in a contravention of, a provision of Part IV ... prima facie evidence of that fact and the finding may be proved by production of a document under the seal of the court from which the finding appears.

The ACCC did not seek orders or findings from Heerey J for the purposes of s 83. This is perhaps not surprising given the doubt cast recently on the proper use or scope of that provision in the context of settled proceedings. In ACCC v Leahy Petroleum Pty Ltd (No 3) [2005] FCA 265; (2005) ATPR 42-052 Goldberg J indicated that he was not disposed to make such orders or findings for the following reasons:

116 Where parties submit an agreed statement of facts, it may not be appropriate to regard formal admissions as findings of fact for the purposes of s 83. In ACCC v ABB Transmission & Distribution Ltd (No 2) [(2002) ATPR 41-872], Finkelstein J stated (at 183-184):

The general rule is that formal admissions are only binding for the purpose of the particular case in which they are made: Dawson v Great Central Railway (1919) 88 LJKB 1177 at 1181-1182. It is not clear whether a judge who acts on formal admissions is making findings of fact. I rather think he is not, because the purpose of an admission, such as may be made in a pleading, is to dispense with the need to prove the admitted fact. That is quite different from a case where the judge hears evidence and makes findings based on that evidence.

117 In ACCC v Monza Imports Pty Ltd [2001] FCA 1455; (2001) ATPR 41-843 Carr J did not make findings of fact for the purpose of s 83 on the basis that the facts had not been established and tested before the Court. At 43,440 he stated:

I am inclined to the view that the Parliament intended “a finding of any fact by a court” to mean a finding made after a hearing. The apparent purpose of the provision is to save inconvenience and expense in requiring a matter to be proved more than once, but at the same time protecting the interests of a respondent by conferring on such a finding only the status of prima facie evidence in subsequent proceedings.

Carr J made similar comments in a related proceeding: ACCC v Apollo Optical (Aust) Pty Ltd [2001] FCA 1456.

118 Even if these statements were not correct, it would seem, as a matter of principle, that where evidence has not been tendered, but the parties rely upon statements of agreed facts which have not been the subject of critical analysis by the Court, it is inappropriate to make orders that would allow for an extended use of findings of fact, particularly use of those facts as prima facie evidence in related proceedings as envisaged by s 83. I therefore decline to make any orders under s 83.

The approach taken by Goldberg J and the other judges in the cases to which he referred would appear to frustrate the legislative intent behind s 83 and is likely only to be altered by clarificatory amendment.[126] The alternative is for the ACCC to require, as part of its settlements, that respondents consent to findings of fact – a most unlikely prospect for reasons that should be self-evident.

In relation to proof of loss, while the agreed statement of facts and submissions in the ACCC case against Visy made reference to the agreed price increases for non-contract customers (totalling more than 20% over the five year period), in relation to contract customers specified in the ACCC’s second further amended statement of claim (including Cadbury Schweppes), it was stated as follows:

the ACCC does not allege as part of its case in this proceeding that the conduct, insofar as it is admitted to constitute either arriving at an unlawful understanding or giving effect to such an understanding, had any negative financial impact on or caused loss to any of the named customers.[127]

In its submissions the ACCC at least conceded that the “fact that loss was not part of the ACCC’s case does not mean that there was no such loss. However, the ACCC is unable to quantify any such loss”.[128] In the Visy submissions it was pointed out that both Amcor and Visy have denied for the purposes of the Cadbury and class action proceedings that CFP customers have suffered any loss and damage. While the litigants in those actions were not assisted by the ACCC’s express omission of any allegation of loss, they were not necessarily hindered by it. This is especially given that, while Heerey J accepted the ACCC’s position on the question of loss, he went on to say:

The Commission’s case sought the imposition of penalties, the making of declarations, the granting of injunctions and other relief. It did not set out to prove that any particular customer of Visy suffered any particular loss. However, that is not to say that the conduct in which Visy engaged was victimless. The whole point of price fixing and market sharing is to obtain the benefit of prices greater than those which would be obtained in a competitive market. It must follow that customers pay more than they would in a competitive market, and so suffer loss. The conduct involved here was inherently likely to cause loss. The fact that no particular loss has been alleged in respect of any particular customer cannot alter that.[129]

Finally, and related to the last point, one of the major reasons for the lack of private action for breaches of Pt IV of the Act historically has been the technical difficulties in quantifying the amount of loss incurred as a result of the breach. These difficulties have been canvassed elsewhere and are not discussed here,[130] except to say that the private claimants seeking redress from Amcor and Visy will face the same issues.[131] Given this and the other disincentives referred to above, as well the time, expense and uncertainty of outcome involved in litigation of this nature, it is perhaps not surprising that, so far at least, only one of Visy and Amcor’s major contract customers has sought to litigate. According to media reports, the others are opting for more informal modes of enforcement action, through the renegotiation of contract prices and perhaps even the extraction of compensatory payments.[132]

It may well be the private enforcement legacy of the Visy case that these types of informal mechanisms become increasingly prevalent and more organised as customers (at least those with sufficient bargaining power) grow in their intolerance of collusive practices by their suppliers. The establishment of the “Cartel Compensation Group” in 2006, headed by Hank Spier (the long-standing former Chief Executive Officer of the ACCC), appears to be a step in this direction. The mission of the group is stated as being to assist “companies discover whether they are, or have been, the victims of price fixing and other types of anti-competitive behaviour and to take the appropriate remedial steps”.[133] If this is indeed a part of the Visy legacy, it has the potential to impact on levels of compliance with the Act. Recent empirical research on business perceptions of compliance suggests that private action, whether formal or informal, by customers and other third parties (such as shareholders and employees) has the potential to “wield a powerful deterrent threat”.[134] This research demonstrates that, in event of being accused of a breach of the Act, Australian business people worry not only about economic losses at the hands of third parties (mostly customers), but also social losses, as manifested in a loss of respect and esteem.[135]

FINAL REMARKS

As should be evident from the foregoing analysis, the answer to the question posed in the title to this article is unequivocally yes. It is worth examining the Visy case closely, but not for all of the same reasons that it appears to have attracted so much interest from the media. Rather, when the history of cartel regulation in Australia is written, it is predicted that the Visy saga will stand out because:

  • it set a new benchmark for the quantum of civil pecuniary penalties imposed in Australia for anti-competitive conduct and, in particular, serious cartel activity,
  • while at the same time establishing a flawed and disturbing precedent with respect to the penalisation of individual respondents who are also owners of the corporate respondent;
  • it gave timely momentum to the push for criminal sanctions for such activity in this country,
  • while at the same time highlighting the need for criminalisation to have robust political support;
  • it provoked much-needed and important debate about the development of private action to bolster enforcement of the competition provisions of the Act and the different modes that such action might take,
  • while at the same time illustrating the potential tensions between public and private enforcement mechanisms from both a policy and a practical point of view.

It might also be noted for the sake of completeness that the Visy story is yet fully to be told. Since Heerey J’s decision was handed down there have been revelations concerning Amcor’s cartel in the role that appear inconsistent with its entitlement to leniency[136] and the New Zealand Commerce Commission has launched proceedings against Visy on the basis of evidence that the cartel extended to the CFP market across the Tasman.[137] No doubt there will be more to come.


[*] LLB/BA, LLM, PhD; Director of Studies, Competition Law, Melbourne Law School, University of Melbourne; Barrister, Victorian Bar.

MAF (Dist), BCA (Hons), CA (NZ); Juris Doctor Candidate, Melbourne Law School, University of Melbourne.

The authors are grateful to Brent Fisse for comments on an earlier draft. Any errors or omissions are their responsibility alone.

[1] See eg Drummond M, “Pratt to pay record $40m fine”, Australian Financial Review (Sydney, 8 October 2007), p 1.

[2] Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) [2007] FCA 1617.

[3] See eg Drummond M, “Checkmate as the king is cornered”, Australian Financial Review (Sydney, 8 October 2007), p 10; Maiden M, “Visy joins Vizard in misery”, The Age (Melbourne, 9 October 2007), p 1.

[4] See eg West M, “Whistleblowers the way to go for busting cartels”, The Australian (Sydney, 9 October 2007), p 1.

[5] See eg Henning C, “Rendezvous at the Cartel Motel”, Sydney Morning Herald (Sydney, 19 October 2007), p 20.

[6] See eg Binnie C, Royall I, Whinnett E, and Mickelborough P, “Pratt cardboard deal may have cost $700m”, Herald Sun (Melbourne, 10 October 2007), p 1.

[7] See eg “ACCC boss wants jail for tycoons”, The Courier Mail (editorial, Brisbane, 3 November 2007), p 1.

[8] See eg Crowe D, “PM back pedals on cartel penalties”, Australian Financial Review (Sydney, 10 October 2007), p 1; “Rudd backs criminal penalties for cartel behaviour”, Australian Associated Press (editorial, Brisbane), 18 October 2007.

[9] Trade Practices Commission v TNT Australia Pty Ltd (1999) ATPR 41-375.

[10] Australian Competition & Consumer Commission v Pioneer Concrete Ltd (1995) ATPR 41-457.

[11] Australian Competition & Consumer Commission v FFE Building Services Ltd [2003] FCA 1542; (2004) Aust Contract R 90-179.

[12] Australian Competition & Consumer Commission v ABB Power Transmission Pty Ltd [2004] FCA 819; (2004) ATPR 42-011; Australian Competition & Consumer Commission v ABB Transmission and Distribution Ltd (No 2) [2002] FCA 559; (2002) ATPR 41-872; Australian Competition & Consumer Commission v ABB Transmission and Distribution Ltd [2002] FCA 558; (2002) ATPR 41-871; Australian Competition & Consumer Commission v ABB Transmission and Distribution Ltd [2001] FCA 383; (2001) ATPR 41-815.

[13] See Harding C, “Business Collusion as a Criminological Phenomenon: Exploring the Global Criminalisation of Cartels” (2006) 14 Critical Criminology 181.

[14] Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) [2007] FCA 1617 at [8].

[15] ACCC, Leniency Policy for Cartel Conduct (ACCC, 2003), superseded by the ACCC, Immunity Policy for Cartel Conduct (ACCC, 2005). For further details of these events, see Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd (No 2) [2007] FCA 444 at [7]- [52].

[16] Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) [2007] FCA 1617 at [31]- [33].

[17] Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) [2007] FCA 1617 at [34]. Drummond M, and O'Toole C, “Visy CEO exits to take heat off Pratt”, Australian Financial Review (Sydney, 26 October 2007), p 3; McMahon S, “Cartel scandal claims Visy chief executive”, The Courier Mail (Brisbane, 26 October 2007), p 1.

[18] For further details, see Maurice Blackburn, “Amcor Class Action”, http://www.mauriceblackburn.com.au viewed 30 November 2007.

[19] See eg Ong T, and Speedy B, “An army of litigants in $300m class action against Amcor”, The Australian (Sydney, 12 April 2006), p 2; Pelly M, “Amcor clients file $300m suit”, The Sydney Morning Herald (Sydney, 12 April 2006), p 1. In July 2006 Amcor cross-claimed against Visy. However, depending on how penalties are calculated the suit could cost up to $700m. See eg Hogan J, “Class action could cost cartel club $700m”, The Age (Melbourne, 17 October 2007), p 1.

[20] See eg Lekakis G, “Cadbury sues for $120m”, Herald Sun (Melbourne, 16 December 2006), p 1.

[21] Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd (No 2) [2007] FCA 444.

[22] Visy Industries Holdings Pty Ltd v Australian Competition & Consumer Commission [2007] FCAFC 147.

[23] Samuel G, “Visy News Conference, Opening Statement”, 2 November 2007, http://www.accc.gov.au/content/index.phtml/itemId/802637/fromItemId/8973 viewed 23 November 2007.

[24] Drummond M, “The Dark Side: How the ACCC Busted Dick Pratt”, Australian Financial Review (Sydney, 13-14 October 2007), pp 19-21

[25] Drummond M, n 24.

[26] See eg Drummond M, “Mediator spares the courts a Pratt saga”, Australian Financial Review (Sydney, 19 October 2007), p 53.

[27] See eg Wood L, “Confessions of a billionaire”, The Age (Melbourne, 9 October 2007), p 1; “Boxed into making a tough decision”, The Australian (editorial, Sydney, 9 October 2007), p 1.

[28] The agreed statement of facts and submissions by the parties as to penalties are available at: http://www.theage.com.au/news/business/pratt-apologises-for-conduct/2007/10/16/1192300726129.html viewed 16 November 2007.

[29] Outline of Submissions of the Applicant on Penalty, filed in Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd No VID 1650 of 2005, on 12 October 2007, at [3].

[30] Mansfield E, Microeconomics, (9th ed, W.W. Norton & Company,1997), p 353.

[31] At the end of the 1999 financial year Visy and Amcor had 46% and 47% of the CFP market respectively: Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) [2007] FCA 1617 at [20].

[32] It is interesting to note that, notwithstanding the overarching understanding, Visy’s CFP market share increased to 55% (from 46%) during the period of the cartel while Amcor’s fell to 36% (from 47%): Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) [2007] FCA 1617 at [20].

[33] See Trade Practices Act 1974 (Cth), ss 76(1A)-(1B). As of 1 January 2007, the penalties may exceed $10 million where the court can determine the benefit obtained as a result of the contravention. The maximum then is three times the value of that benefit or 10% of annual turnover over 12 months, whichever is greater: Trade Practices Legislation Amendment Act (No 1) 2006 (Cth), Sch 9, Pt 1.

[34] Trade Practices Act 1974 (Cth), s 76 provides that the penalty should 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 to have engaged in any similar conduct.

[35] See the list at Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) [2007] FCA 1617 at [302], taken from Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 at 51,152-52,153; Australian Competition & Consumer Commission v NW Frozen Foods Pty Ltd (1996) ATPR 41-515 at 42,444-42,445.

[36] It has been reported that the former Chairman of the ACCC, Allan Fels, has been appointed by Visy to oversee the implementation of this program. See eg Harrison D, “Fels the watchdog again in role as Visy's compliance chief”, The Age (Melbourne, 17 October 2007), p 1.

[37] Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd [2004] FCAFC 72; (2004) ATPR 41-993 at 48,626-48,628, cited in Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) [2007] FCA 1617 at [305].

[38] Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) [2007] FCA 1617 at [302]- [303] referring to s 76 and to Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 at 51,152-52,153; Australian Competition & Consumer Commission v NW Frozen Foods Pty Ltd (1996) ATPR 41-515 at 42,444-42,445.

[39] Australian Competition & Consumer Commission v Roche Vitamins Australia Pty Ltd [2001] FCA 150; (2001) ATPR 41-809.

[40] On 2 May 2002 penalties of $125,000 and $100,000 respectively were ordered against an individual respondent in two separate cases: Australian Competition & Consumer Commission v ABB Transmission and Distribution Ltd (No 2) [2002] FCA 559; (2002) ATPR 41-872; Australian Competition & Consumer Commission v ABB Transmission and Distribution Ltd [2002] FCA 558; (2002) ATPR 41-871. The highest penalty against an individual respondent in a single case was $200,000 in Australian Competition & Consumer Commission v ABB Power Transmission Pty Ltd [2004] FCA 819; (2004) ATPR 42-011.

[41] Australian Competition & Consumer Commission v D M Faulkner Pty Ltd [2004] FCA 1666 at [224].

[42] Australian Competition & Consumer Commission v Leahy Petroleum Pty Ltd (2004) ATPR 46-260; Australian Competition & Consumer Commission v Leahy Petroleum Pty Ltd (No 2) [2005] FCA 254; (2005) ATPR 42-051; Australian Competition & Consumer Commission v Leahy Petroleum Pty Ltd (No 3) [2005] FCA 265; (2005) ATPR 42-052; Australian Competition & Consumer Commission v Leahy Petroleum Pty Ltd [2007] FCA 794; (2007) ATPR 42-162.

[43] See eg Australian Competition & Consumer Commission v J McPhee & Son (Australia) Pty Ltd [1998] FCA 310; (1998) ATPR 41-628.

[44] See eg Australian Competition & Consumer Commission v Foamlite (Australia) Pty Ltd (1998) ATPR 41-615 (in which the cartel was found to have lasted for “more than a decade”); Australian Competition & Consumer Commission v Jurlique International Pty Ltd (1998) ATPR 42-146 (in which the cartel had a duration of 12 years). In an analysis of 30 price-fixing cases where it was possible to discern the duration of the arrangement from the judgments, Round and Hanna found that nine lasted for four years or more: Round D and Hanna L, “Curbing corporate collusion in Australia: The role of section 45A of the Trade Practices Act[2005] MelbULawRw 7; , (2005) 29 MULR 242 at 256. The cases that have attracted the highest penalties to date in Australia are all on par with Visy in terms of the length of the cartel involved. In the animal vitamin case it was five years (Australian Competition & Consumer Commission v Roche Vitamins Australia Pty Ltd [2001] FCA 150; (2001) ATPR 41-809 at [17]- [20]) in the pre-mixed concrete case, five years (Australian Competition & Consumer Commission v Pioneer Concrete Ltd (1995) ATPR 41-457 at [2] and five years in Australian Competition & Consumer Commission v Power Transmission Pty Ltd [2004] FCA 819; (2004) ATPR 42-011 at [70].

[45] This was the case, for example, in the power transformer and fire protection cartel cases: see Parker C, Ainsworth P and Stepanenko N, “ACCC Enforcement and Compliance Project: The Impact of ACCC Enforcement Activity in Cartel Cases”, (Working Paper, Australian National University Centre for Competition and Consumer Policy, May 2004) at 39, 53, http://www.law.unimelb.edu.au/index.cfm?objectid=F9D2D075-B0D0-AB80-E2BC989969E28989&username=Christine%20Parker&Pub=1 viewed 30 November 2007.

[46] See eg ACCC, ACCC: Submission to the Trade Practices Act Review (2002), http://www.accc.gov.au/content/index.phtml/itemId/303044 viewed 27 April 2007 at 26; Australian Competition & Consumer Commission v Australian Abalone Pty Ltd [2007] FCA 1834 at [26].

[47] See eg Australian Competition & Consumer Commission v Roche Vitamins Australia Pty Ltd [2001] FCA 150; (2001) ATPR 41-809 at [33]; Australian Competition & Consumer Commission v George Weston Foods Ltd [2004] FCA 1093; (2004) 210 ALR 486 at [21]; Australian Competition & Consumer Commission v FFE Building Services Ltd [2003] FCA 1542; (2004) Aust Contract R 90-179 at [24]; Australian Competition & Consumer Commission v McMahon Services Pty Ltd [2004] FCA 1171; (2004) ATPR 42-022 at [91].

[48] See eg Australian Competition & Consumer Commission v George Weston Foods Ltd [2000] FCA 690; (2000) ATPR 41-763 at [48]; Australian Competition & Consumer Commission v Australian Safeway Stores Pty Ltd (No 4) [2006] FCA 21; (2006) ATPR 42-101 at [62]- [67].

[49] Outline of Submissions of the Applicant on Penalty, filed in Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd No VID 1650 of 2005, on 12 October 2007 at [84].

[50] ACCC, above n 46, at 23-24.

[51] See eg Samuel G “Cracking Cartels Australian and International Developments”, (paper presented at the Cracking Cartels Australian and International Developments Conference, Sydney, 24 November 2004), http://www.accc.gov.au/content/index.phtml/itemId/607077 viewed 20 November 2007; Samuel, n 23.

[52] See, eg “ACCC wants criminal sanctions on cartels”, AAP Bulletins, (editorial, 25 October 2007); Samuel G, n 23.

[53] See the empirical analysis of penalty levels in Round D, Siegfried J, and Baillie A, “Collusive Markets in Australia: An Assessment of their Economics Characteristics and Judicial Penalties” (1996) 24 ABLR 292; Round D, “An Empirical Analysis of Price Fixing Penalties in Australia from 1974 to 1999: Have Australia’s Corporate Colluders been Corralled?” (2000) 8 CCLJ 83.

[54] See the analysis of these cases and the increasing emphasis on general deterrence in penalty assessments for breaches of the competition provisions of the Trade Practices Act 1974 (Cth) in Beaton-Wells C, “Recent corporate penalty assessments under the Trade Practices Act and the rise of general deterrence” (2006) 14(1) CCLJ 65.

[55] Markarian v The Queen [2005] HCA 25; (2005) 228 CLR 357 at [31].

[56] See US Sentencing Guidelines Manual (2004) 2R1.1, cmt N.3.

[57] Veljanovski C, “European Commission Cartel Prosecutions and Fines, 1998-2007: A Statistical Analysis”, http://ssrn.com/abstract=1016014 viewed 22 September 2007.

[58] European Commission, Guidelines on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No 1/2003, 2006/C 210/2 (1 September 2006),

[59] For a useful summary and explanation of the approach under the 2006 Guidelines, see Wils WPJ, “The European Commission’s 2006 Guidelines on Antitrust Fines: A Legal and Economic Analysis”, (2007) 30(2) World Competition 197.

[60] Outline of Submissions of the Applicant on Penalty, filed in Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd No VID 1650 of 2005, on 12 October 2007 at [94]; Submissions of the First to Fifth Respondents, filed in Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd No VID 1650 of 2005, on 12 October 2007 at [67].

[61] Outline of Submissions of the Applicant on Penalty, filed in Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd No VID 1650 of 2005, on 12 October 2007 at [62].

[62] Outline of Submissions of the Applicant on Penalty, filed in Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd No VID 1650 of 2005, on 12 October 2007 at [62].

[63] Outline of Submissions of the Applicant on Penalty, filed in Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd No VID 1650 of 2005, on 12 October 2007 at [62].

[64] See Drummond, n 24, including the citation from Pratt’s book in which Pratt states: “Protect your reputation. It’s your most important asset”, (from You Don’t Know What You Don’t Know Til You Know It: The Business Wisdom of Richard Pratt (2000), Gray, Tony & Webster, Information Australia).

[65] Submissions of the First to Fifth Respondents, filed in Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd No VID 1650 of 2005, on 12 October 2007, at [69]; Outline of Submissions of the Applicant on Penalty, filed in Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd No VID 1650 of 2005, on 12 October 2007, at [94]. Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd [2007] FCA 1617 at [294].

[66] Australian Competition & Consumer Commission v Ithaca Ice Works Pty Ltd [2000] FCA 997 at [13].

[67] Australian Competition & Consumer Commission v ABB Transmission and Distribution Ltd (No 2) [2002] FCA 559; (2002) ATPR 41-872 at [45].

[68] Australian Competition & Consumer Commission v ABB Transmission and Distribution Ltd (No 2) [2002] FCA 559; (2002) ATPR 41-872, where Finkelstein J commented at [7] that Wilson was “in a sense, being penalised twice, because he will ultimately bear the penalty imposed upon WTC. That his total effective penalty is far greater than $100,000, is as it should be. After all, Mr Wilson is the managing director of WTC and engaged in the contravening conduct knowing that it was illegal, but expecting significant financial gains from it. Having regard to Mr Wilson's financial position, if he does not suffer serious punishment, the punishment will have little deterrent value".

[69] Australian Competition & Consumer Commission v ABB Transmission and Distribution Ltd (No 2) [2002] FCA 559; (2002) ATPR 41-872 at [45].

[70] See n 40.

[71] Terminology taken from the well-known statement by Lord Reid in Tesco Supermarkets Ltd v Nattrass [1971] UKHL 1; [1972] AC 153 at 170.

[72] Hamilton v Whitehead [1988] HCA 65; (1988) 82 ALR 626 at 631.

[73] See eg Dillon M, “Criminalising Social and Political Violence Internationally” (1998) 27(3) Millennium Journal of International Studies 548.

[74] See Calkins S, “Coming to Praise Criminal Antitrust Enforcement”, (2006), presented at European University Institute, Robert Schuman Centre for Advanced Studies 2006 EU Competition Law and Policy Workshop, p 2-3 in Ehlemann C and Atanasiu I (eds), European Competition Law Annual 2006: Enforcement of Prohibition of Cartels, (Hart Publishing, 2007) p 343; Whelan P, “A Principled Argument for Personal Criminal Sanctions as Punishment under EC Cartel Law”, (2007) 4(1) Competition Law Review (UK) 7.

[75] See the discussion in Round D, “An Empirical Analysis of Price Fixing Penalties in Australia from 1974 to 1999: Have Australia’s Corporate Colluders been Corralled?” (2000) 8 CCLJ 83 at 90; Round D, “Consumer protection: At the merci of the market for damages” (2003) 10 CCLJ 231 at 240.

[76] Trade Practices Review Committee, Review of the Competition Provisions of the Trade Practices Act, (January 2003), http://tpareview.treasury.gov.au/content/report.asp at 165.

[77] These appear to be the types of circumstances in which the “defence” under Trade Practices Act 1974 (Cth), s 85(6) applies: see the brief discussion of this provision in Australian Competition & Consumer Commission v Anglo Estates Pty Ltd [2005] FCA 20; [2005] ATPR 42-044 at [56]- [62] in which French J was prepared to dispense with a penalty against an individual respondent in this case who was found to have acted honestly in reliance on erroneous legal advice, believing as a consequence that his conduct would not contravene the TPA, and who was of advanced age, suffering a serious cancer and of limited income.

[78] See Corporations Act 2001 (Cth), s 199C(2).

[79] See Dimension Data Australia Pty Ltd v Kepper [1999] FCA 1446 in which the predecessor of Corporations Act 2001 (Cth), s 199A(2), s 241, was considered. Note further that in Austin R and Ramsay I, Ford’s Principles of Corporations Law (13th ed, LexisNexis Butterworths, 2007), p 426 at [8.410] it is stated with reference to s 199A(2)(c) that: “Thus, a company can indemnify its officers in respect of potential civil liability under the misleading and deceptive conduct provisions of the Trade Practices Act s 52 and s 1041H of the Corporations Act.”

[80] See Australian Securities & Investments Commission; Re Lanepoint Enterprises Pty Ltd (2006) FCA 1827. There, in the context of winding up proceedings, the possibility of an indemnity by the company of its receivers in respect of legal expenses apprehended to arise out of a liability asserted to be owed by the receivers to the company was challenged under Corporations Act 2001 (Cth), s 199A(2) (presumably para (a)) and s 199A(3)(a). At [46], French J rejected the challenge on the basis that s 199A(2) would not “prevent a company from indemnifying a person against legal costs incurred in successfully resisting proceedings brought against that person and arising out of an asserted liability ... [n]or would it ... prevent a company from making provision for such purpose”. In Capricornia Credit Union Ltd v Australian Securities & Investments Commission [2007] FCAFC 79; (2007) 62 ACSR 671 at [73]- [75] there was brief and inconclusive reference to s 199A(2) in the context of discussing whether the statutory and general law duties owed by a director to the company may be reduced under the constitution Note to Sarah: this is a reference to a company’s constitution not the Commonwealth Constitution and hence should not have an upper case C or be in italics (and whether this in turn would affect the scope of the prohibition on indemnification under s 199A(2)(a)).

[81] See Kyrou E, “The Year 2000 – Implications for Indemnities and Insurance for Directors”, (1998) 10 ILJ 62 at 67.

[82] See eg Drummond M, “Box cartel a gift for lawyers”, Australian Financial Review (Sydney, 9 November 2007), p 60.

[83] See Parker C, and Nielsen V, “How Much Does it Hurt? How Australian Businesses Think About the Costs and Gains of Compliance with the Trade Practices Act”, paper presented at the Consumer Law Roundtable, Griffith University, 4 December 2007, at 12 (copy on file with author), discussing the events that prompt businesses to think calculatively about the costs and gains of non-compliance with the Trade Practices Act 1974 (Cth).

[84] Braithwaite J, Crime, Shame and Reintegration (Cambridge University Press, 1989); Braithwaite J and Drahos P, “Zero Tolerance, Naming and Shaming: Is There a Case For It With Crimes of the Powerful” (2002) 35 Australian and New Zealand Journal of Criminology 269; Fisse B and Braithwaite J, The Impact of Publicity on Corporate Offenders (State University of New York Press, 1983).

[85] Bearing in mind that to date there is evidence that Australian business people do not take their compliance obligations all that seriously: see Parker C and Nielsen V, “Do Businesses Take Compliance Systems Seriously? An Empirical Study of the Implementation of Trade Practices Compliance Systems in Australia” [2006] MelbULawRw 15; (2006) 30(2) MULR 441.

[86] See Australia, Treasurer, “Criminal Penalties for Serious Cartel Behaviour” (Press Release, 2 February 2005, No 4 of 2005) www.treasurer.gov.au/tsr/content/pressreleases/2005/004.asp viewed 20 April 2007. (Treasurer’s press release).

[87] ACCC, ACCC: Submission to the Trade Practices Act Review (2002), http://www.accc.gov.au/content/index.phtml/itemId/303044 viewed 27 April 2007 at 25-31.

[88] Trade Practices Committee of Review, Review of the Competition Provisions of the Trade Practices Act, (January 2003) at 161-162.

[89] Treasurer’s press release, n 86.

[90] For a persuasive argument to this effect, see Castle L and Writer S, “More than a little wary: Applying the criminal law to competition regulation in Australia”, (2002) 10 CCLJ 24-25. Nor, indeed, has the potential of private enforcement action as a deterrent been exploited. Some of the reasons for this are explored in the next section. It is notable, however, that recent empirical research suggests private coat-tails actions and representative actions by the ACCC to have the potential to deter serious cartel conduct to an extent on par with the new civil penalties and even criminalisation: see Parker and Nielsen, n 83, p 20.

[91] See Trade Practices Legislation Amendment Act (No 1) 2006 (Cth), Sch 9, Pt 1, which took effect as of 1 January 2007 and applies only to contraventions after that date.

[92] See the discussion of optimal penalties in the economic literature, eg Becker G, “Crime and Punishment: An Economic Approach” (1968) 76 The Journal of Political Economy 169; Posner R, “Optimal Sentences for White-Collar Criminals” (1980) 17 American Criminal Law Review 409.

[93] Of course, such provisions would not be of assistance in necessarily increasing the penalty in cases of attempted price fixing where no loss has been caused (the authors are grateful to Brent Fisse for making this point in correspondence with them).

[94] See the figures presented in Beaton-Wells C, “Criminalising Cartels: A Slow Conversion?”, (Paper presented at the 5th Annual UNISA Trade Practices Workshop, 19-21 October 2007) (copy on file with author), updating the figures in Round et al, n 53.

[95] See Beaton-Wells, n 94.

[96] See Beaton-Wells, n 94.

[97] Of the 59 cases between 1993 and 2007 where penalties for breaches of s 45 of the Trade Practices Act 1974 (Cth) have been handed down, 40 were negotiated and 19 were contested. Based upon an empirical analysis of penalties handed down between 1993 and 2007 for breaches of s 45 of the Trade Practices Act 1974 (Cth) as outlined in Beaton-Wells, n 94.

[98] See Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd [2004] FCAFC 72; (2004) ATPR 41-993 and the discussion in Beaton-Wells C, “Judicial Scrutiny of penalty agreements to increase: Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd”, (2005) 13 TPLJ 59. See most recently, Australian Competition & Consumer Commission v Australian Abalone Pty Ltd [2007] FCA at 1834 at [121].

[99] See eg Renfrew C, “The Paper Label Sentences: An Evaluation” (1977) 86 Yale LJ 590; Stucke M, “Morality and Antitrust” (2006) 4(3) Colum Bus L Rev 443 at 456, 461-469, 541-544; Harding, n 13, at 192-194.

[100] See eg “ACCC wants criminal sanctions on cartels”, AAP Bulletins, (editorial, 25 October 2007).

[101] Samuel G, “Visy News Conference, Opening Statement”, (2 November 2007), http://www.accc.gov.au/content/index.phtml/itemId/802637/fromItemId/8973 viewed 23 November 2007.

[102] See eg Media Release, “Family First legislates for 10-year jail terms for price-fixing” http://www.stevefielding.com.au/html/media/SF210_Oct182007.pdf viewed 21 November 2007; Hall E, “Visy fine too small: Business expert”, Australian Broadcasting Corporation, (2 November 2007).

[103] Treasurer’s press release, n 86.

[104] See “No plans to make price fixing criminal”, AAP, (editorial, 9 October 2007); Drummond M, “PM back-pedals on cartel penalties”, Australian Financial Review (Sydney, 10 October 2007), p 1.

[105] See “Cartel behaviour should be criminal”, AAP, (editorial, 9 October 2007).

[106] See the discussion in Beaton-Wells C, “The politics of cartel criminalisation: A pessimistic view from Australia”, (2008) European Competition Law Review (forthcoming).

[107] Bowen C, “Howard and Costello take conflicting positions on criminal penalties for cartel behaviour”, (Media statement by Chris Bowen, Shadow Minister for Revenue & Competition Policy, 9 October 2007), http://www.alp.org.au/media/1007/msat090.php viewed 9 October 2007; Fisse B, “The Australian Criminalisation Proposals: An Overview and Critique” (2007) 4(1) Competition Law Review (UK) 51; Fisse B, “Costello working hard to avoid action on cartels”, Australian Financial Review (Sydney, 26 October 2007); Christopher A and Foster G, “Cartel instigators belong behind bars”, Australian Financial Review (Sydney, 6 November 2007).

[108]See the discussion in Beaton-Wells, above n 94.

[109] See “Cartels, Interest Rates, Tax”, (Doorstop Interview by Swan W, Treasury Place, Melbourne, 1 February 2005), http://www.alp.org.au/media/0205/dsitre020.php?print=on viewed 13 September 2007.

[110] See “Criminal penalties for serious cartel conduct: Draft Legislation”, (http://www.treasury.gov.au/contentitem.asp?NavId=037&ContentID=1330 viewed 25 January 2008.

[111] See eg Watts K and Mortensen J, “Recent Developments in Cartel Investigations and Prosecutions”, (2007) 23(4) TPLB 61. There have been only four cartel class actions to date in Australia; however, they are all very recent. One of the four is the class action brought against Amcor. The others were in the animal vitamins cartel case which settled for $30m in 2006 (Darwalla Milling Co Pty Ltd v F Hoffman-La Roche Ltd (No 2) (2006) ATPR 42-134), the $200m class action currently on foot against seven international airlines including Qantas for price fixing of air freight surcharges and, most recently a class action filed against two multinational chemical companies arising out of a global rubber cartel: see Drummond M, “Class action over rubber cartel”, Australian Financial Review, (3 December 2007), p 7.

[112] Round, above n 53 at 84.

[113] The section was inserted by the Trade Practices Amendment Act (No 1) 2001 and followed the recommendations of the Australian Law Reform Commission in its report, Compliance with the Trade Practices Act 1974, (Report No 68, 1994) at [7.4].

[114] Sch 1[15] of Act No 63, 2001, as commented on in Round, n 53.There are, of course, other policy issues such as whether unlimited damages exposure represents over-deterrence, the disconnect between criminal sentencing (which may presume a certain baseline estimate of “loss” by cartel victims) (Note to Sarah: I am not sure why this is highlighted and the word “may” should be retained) and the assessment of damages awards in civil litigation; and the complications caused by the phenomenon of multiple uncoordinated classes of civil litigation proceeding simultaneously in different courts. See eg the discussion in Spratling G and Arp D, “International Cartel Enforcement and Leniency Programs: A Global Perspective”, Paper presented at the International Competition Network Workshop on Leniency Programs, (22-23 November 2004, Sydney, Australia), http://www.accc.gov.au viewed 30 November 2007. No jurisdiction other than the US has had a sufficiently significant level of private enforcement, combined with criminal sanctions, so as yet to have had to confront these problems.

[115] Samuel G, “Cartel ringleaders are well-dressed criminals, so why not send them to jail?”, The Age (Melbourne, 3 November 2007), p 2.

[116] Samuel, n 115.

[117] In the United States, see eg Calkins S, “An Enforcement Official’s Reflections on Antitrust Class Actions” (1997) 39 Ariz L Rev 413 and in Europe, see European Commission, “Damages actions for breach of the EC antitrust rules”, (Green Paper, 2005), http://eur-lex.europa.eu/en/index.htm viewed 30 November 2007.

[118] Antitrust Criminal Penalty Enhancement and Reform Act of 2004. Pub L 108-237, 201-214, 118 Stat 661 (22 June 2004), 15 USC 1.

[119] European Commission, n 117 at [2.7].

[120] See the comments of Murphy B, Chairman of Maurice Blackburn Cashman solicitors, to this effect in a radio interview for the Law Report on ABC Radio National on 30 October 2007, transcript available at http://www.abc.net.au/rn/lawreport/stories/2007/2072834.htm#transcript last viewed 30 November 2007.

[121] See Speedy B, “Cadbury urged to think outside the box”, The Australian (Sydney, 20 October 2007), p 35, referring to observations made by Gordon J in a directions hearing in the Cadbury matter on 19 October 2007.

[122] Darwalla Milling Co Pty Ltd v F Hoffman-La Roche Ltd (No 2) (2006) ATPR 42-134 at [46].

[123] Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd (No 2) [2007] FCA 444 at [103]- [108], upheld on appeal: see Visy Industries Holdings Pty Ltd v Australian Competition & Consumer Commission [2007] FCAFC 147 at [94]- [113].

[124] Evidence Act 1995 (Cth), s 130(1) provides that:

If the public interest in admitting into evidence information or a document that relates to matters of state is outweighed by the public interest in preserving secrecy or confidentiality in relation to the information or document, the court may direct that the information or document not be adduced into evidence.

Section 130(2) allows for the court to give such a direction on the application of a person that is not a party – hence, the application could be made by the ACCC in the private litigation. Relevantly, s 130(4) which sets out non-exhaustively the circumstances in which information or a document may be taken to relate to matters of state includes circumstances in which adducing the information or document in evidence would:

(d) prejudice the prevention or investigation of, or the conduct of proceedings for recovery of civil penalties brought with respect to, other contraventions of the law.

See also the list of relevant factors in s 130(5). If enacted, the provisions in the draft exposure Bill (see n 110 above) relating to “protected cartel information” also have the potential to hinder private litigants from obtaining information or documents from the ACCC relating to immunity applications (see proposed s 157C).

[125] See Instant Colour Pty Ltd v Canon Australia Pty Ltd [1995] FCA 870 at [32]- [33], and the other cases there discussed.

[126] Round, n 53.

[127] Agreed Statement of Facts Between the Applicant and the First to Sixth Respondents, filed in Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd No VID 1650 of 2005, on 12 October 2007, p 87 at [374].

[128] Outline of Submissions of the Applicant on Penalty, filed in Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd No VID 1650 of 2005, on 12 October 2007, pp 20-21 at [47].

[129] Australian Competition & Consumer Commission v Visy Industries Holdings Pty Ltd (No 3) [2007] FCA 1617 at [314].

[130] Round, n 75.

[131] As acknowledged by Maurice Blackburn lawyer, Murphy B, “It’s a case where we have a lot of work to do, and we have a lot of econometric work to do, proving the ‘but for’ price”: see n 120. For a recent illustration of the nature of the evidence required in this purpose, see Darwalla Milling Co Pty Ltd v F Hoffman-La Roche Ltd (No 2) [2006] FCA 1388; (2007) ATPR 42-134.

[132] Gray J, “Why Australian companies don’t care about cartels”, The Weekend Australian Financial Review (Sydney, 13-14 October 2007), pp 20-21.

[133] See http://www.cartelcompensation.com.au viewed 20 November 2007.

[134] Parker and Nielsen, n 83 at 26.

[135] Parker and Nielsen, n 83 at 24-26, 45. It is interesting to note, however, that this concern about third party reactions did not appear to be increased by the actual experience of official investigation or third party criticism. The authors of the study suggest that this may be because those who experience such action find that the third party responses about which they were worried do not actually eventuate. And this, in turn, may be because third parties lack the opportunity, resources or motivation to bring informal sanctions to bear: 39.

[136] Stewart C and Speedy B, “Cardboard cartel longer, wider”, The Australian (16 November 2007), p 1.

[137] “Now it’s NZ’s turn to sue Pratt”, The Sydney Morning Herald (editorial, Sydney, 23 November 2007).