Australian Competition and Consumer Commission v Cement Australia Pty Ltd
[2016] FCA 453
•29 April 2016
FEDERAL COURT OF AUSTRALIA
Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2016] FCA 453
File number(s): QUD 295 of 2008 Judge(s): GREENWOOD J Date of judgment: 29 April 2016 Catchwords: COMPETITION – consideration of the principles governing the assessment of a pecuniary penalty under s 76 of the Trade Practices Act 1974 (Cth) now the Competition and Consumer Act 2010 (Cth) – consideration of the implications of the decision of the High Court in Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 326 ALR 476 in determining a penalty under s 76 of the Trade Practices Act 1974 (Cth) – consideration of approaches to assessing benefit derived by participants to contravening conduct and market harm caused by contravening conduct – consideration of approaches to determining the “but for” price which would have prevailed in a contestable market had the relevant participants not engaged in the contravening conduct – consideration of the utility of such an exercise Legislation: Trade Practices Act 1974 (Cth), ss 45(2)(a)(ii), 45(2)(b)(ii), 76(1) Cases cited: AB v The Queen (1999) 198 CLR 111
Attorney‑General v Tichy (1982) 30 SASR 84
Australian Competition and Consumer Commission v George Weston Foods Ltd [2000] ATPR 41‑763
Australian Competition and Consumer Commission v Rural Press Ltd [2001] ATPR 41‑833
Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (No 2) (2002) 190 ALR 169
Australian Competition and Consumer Commission v Visy Paper Pty Ltd (No 2) (2004) 212 ALR 564
Australian Competition and Consumer Commission v Humax Pty Ltd [2005] ATPR 42‑072
Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 3) (2005) 215 ALR 301
Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd [2006] FCA 1799
Australian Competition and Consumer Commission v Safeway Stores Pty Ltd [2006] ATPR 42‑101
Australian Competition and Consumer Commission v Qantas Airways Ltd (2008) 253 ALR 89
Australian Competition and Consumer Commission v PRK Corporation Pty Ltd [2009] FCA 715
Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd [2010] FCA 929
Australian Competition and Consumer Commission v NW Frozen FoodsPty Ltd [1996] ATPR 41‑515
Australian Competition and Consumer Commission v Pioneer Concrete (Qld) Pty Limited [1996] ATPR 41‑457
Australian Competition and Consumer Commission v Foamlite (Australia) Pty Ltd [1998] ATPR 41‑615
Australian Competition and Consumer Commission v J McPhee & Son (Australia) Pty Ltd [1998] ATPR 41‑628
Australian Competition and Consumer Commission v Tyco Australia Pty Ltd [2000] ATPR 41‑740
Australian Competition and Consumer Commission v Tubemakers Australia Pty Ltd [2000] ATPR 41‑745
Australian Competition and Consumer Commission v Roche Vitamins Australia Pty Ltd [2001] ATPR 41‑809
Australian Competition and Consumer Commission v ABB Transmission and Distribution Limited [2001] ATPR 41‑815; [2001] FCA 383
Australian Competition and Consumer Commission v Ithaca Ice Works Pty Ltd [2002] ATPR 41‑851
Australian Competition and Consumer Commission v Kokos International Pty Ltd (No 2) [2008] ATPR 42‑212
Australian Competition and Consumer Commission v Cement Australia Pty Ltd (2013) 310 ALR 165; [2013] FCA 909
Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640
Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2014] FCA 148
Australian Ophthalmic Supplies Pty Ltd v McAlary‑Smith (2008) 165 FCR 560
Barbaro v The Queen (2014) 253 CLR 58
Boral Besser Masonry Limited v Australian Competition and Consumer Commission (2013) 215 CLR 374
Clean Energy Regulator v MT Solar Pty Ltd [2013] FCA 205
Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 326 ALR 476; [2015] HCA 46
Construction, Forestry, Mining and Energy Union v Cahill (2010) 269 ALR 1
Construction, Forestry, Mining and Energy Union and Another v Williams (2009) 262 ALR 417
Director, Fair Work Building Industry Inspectorate v Construction, Forestry, Mining and Energy Union (2015) 229 FCR 331; 320 ALR 631; 105 ACSR 403; [2015] FCAFC 59
Global One Mobile Entertainment Pty Ltd v Australian Competition and Consumer Commission [2012] ATPR 42‑419
J McPhee & Son (Australia) Pty Ltd v Australian Competition and Consumer Commission (2000) 172 ALR 532
Johnson v The Queen (2004) 205 ALR 346
Kirin‑Amgen Inc v Hoechst Marion Roussel Ltd (2004) 64 IPR 444; [2004] UKHL 46
Markarian v The Queen (2005) 228 CLR 357
Mornington Inn Pty Ltd v Jordan (2008) 168 FCR 383
Pearce v The Queen (1998) 194 CLR 610
Refrigerated Express Lines (A/Asia Pty Ltd v Australian Meat and Livestock Corp (1980) 44 FLR 455
Registrar of Aboriginal and Torres Strait Islander Corporations v Matcham (No 2) (2014) 97 ACSR 412
Royer v Western Australia (2009) 197 A Crim R 319
Schneider Electric (Australia) Pty Ltd v Australian Competition and Consumer Commission (2003) 127 FCR 170
Secretary, Department of Health and Ageing v Export Corporation (Australia) Pty Ltd (2012) 288 ALR 702
Singtel Optus Pty Ltd v Australian Competition and Consumer Commission (2012) 287 ALR 249
Trade Practices Commission v Stihl Chain Saws (Aust) Pty Ltd [1978] ATPR 40‑091
Trade Practices Commission v CSR Ltd [1991] ATPR 41‑076
Trade Practices Commission v Axive Pty Ltd [1994] ATPR 42‑782
Trade Practices Commission v Prestige Motors Pty Ltd [1994] ATPR 42‑693
Trade Practices Commission v TNT Australia Pty Ltd [1995] ATPR 41‑375
Trade Practices Commission v Hymix Industries [1995] ATPR 41‑369
Trade Practices Commission v Hymix Industries [1996] ATPR 41‑465
Trade Practices Commission v Simsmetal [1996] ATPR 41‑449
Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission (2003) 131 FCR 529
Wong v The Queen (2001) 207 CLR 584
Yorke v Lucas (1985) 158 CLR 661
Date of hearing: 15 December 2014 Date of last submissions: 21 December 2015 Registry: Queensland Division: General Division National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Category: Catchwords Number of paragraphs: 829 Counsel for the Applicant: Mr S Couper QC with Mr M Hodge Solicitor for the Applicant: Australian Government Solicitor Counsel for the First to Sixth Respondents: Ms S Brown QC with Mr P Franco and Mr C E Bannan Solicitor for the First to Sixth Respondents: Ashurst Australia Counsel for the Seventh Respondent: Mr Ian Pike SC Solicitor for the Seventh Respondent: Meridian Lawyers Counsel for Sunstate Cement Ltd: Mr J Peden Solicitor for Sunstate Cement Ltd: K&L Gates Counsel for Independent Flyash Brokers Pty Ltd: Mr D L K Atkinson Solicitor for Independent Flyash Brokers Pty Ltd: McInnes Wilson Lawyers ORDERS
QUD 295 of 2008 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
Applicant
AND: CEMENT AUSTRALIA PTY LTD ACN 104 053 474 (and others named in the Schedule)
First Respondent
JUDGE:
GREENWOOD J
DATE OF ORDER:
29 april 2016
THE COURT ORDERS THAT:
1.The applicant submit to the Court proposed final orders to be made having regard to the reasons for judgment and the matters set out in the following orders which have regard to the orders sought by Annexure A to the principal submissions of the Australian Competition and Consumer Commission (“ACCC”).
2.As to those draft orders, the Court expresses this position:
(a)as to draft Order 1, the Court declines to make the declaration sought;
(b)as to draft Order 2, the Court will make the declaration sought by the applicant;
(c)as to draft Order 3, the Court declines to make the declaration sought;
(d)as to the matters set out at paras 4, 5, 6 and 7 of the draft, the Court will make orders in those terms.
3.As to the Original Millmerran Contract, a pecuniary penalty is to be paid to the Commonwealth of Australia (the “Commonwealth”) by the fourth respondent jointly and severally with the third respondent in respect of the making of the contract by the fourth respondent and the third respondent having been knowingly concerned in the making of the contract, of $3.5 million (Declarations 6 and 7).
4.As to the Original Millmerran Contract, a pecuniary penalty is to be paid to the Commonwealth by the fourth respondent jointly and severally with the third respondent in respect of giving effect to the relevant provisions of the contract, of $500,000 (Declarations 8 and 9).
5.No pecuniary penalty is to be ordered in respect of the fifth respondent having acted as a guarantor of the contract (Declaration 10).
6.As to the Tarong Contract, a pecuniary penalty is to be paid to the Commonwealth by the fourth respondent jointly and severally with the third respondent in respect of the making of the contract by the fourth respondent and the third respondent having been knowingly concerned in the making of the contract, of $5.5 million (Declarations 16 and 17).
7.As to the Tarong Contract, a pecuniary penalty is to be paid to the Commonwealth by the fourth respondent jointly and severally with the third respondent in respect of giving effect to the relevant provisions of the contract, of $5.5 million (Declarations 18 and 20).
8.No pecuniary penalty is to be ordered in respect of the third respondent having given effect to the Tarong Contract in the period March, April and May 2003 (Declaration 19).
9.As to the Amended Millmerran Contract, a pecuniary penalty is to be paid to the Commonwealth by the fourth respondent jointly and severally with the first respondent in respect of the making of the Amended Millmerran Contract by the fourth respondent and the first respondent having been knowingly concerned in the making of the contract, of $850,000 (Declarations 12 and 13).
10.No pecuniary penalty is to be ordered in respect of the matters at Declarations 14 and 15.
11.As to the Swanbank Contract in the period up to 31 December 2004, a pecuniary penalty is to be paid to the Commonwealth by the fourth respondent in respect of the making of the extension of the contract to 31 December 2004 by the fourth respondent, of $1.5 million (Declaration 21).
12.As to the Swanbank Contract in the period from 1 January 2005 to 30 June 2005, a pecuniary penalty is to be paid to the Commonwealth by the fourth respondent jointly and severally with the first respondent in respect of the making of the extension of the contract from 1 January 2005 to 30 June 2005 by the fourth respondent and the giving effect to the extension until 30 June 2005 by the first respondent, of $200,000 (Declarations 22, 24 and 26).
13.As to the Swanbank Contract in the period up to 31 December 2004, a pecuniary penalty is to be paid to the Commonwealth by the fourth respondent jointly and severally with the third respondent in respect of their having given effect to the contract to 31 December 2004, of $1 million (Declarations 21, 23 and 25).
14.As to the Swanbank Contract in the period 1 January 2005 to 30 June 2005, a pecuniary penalty is to be paid to the Commonwealth by the fourth respondent jointly and severally with the first respondent in respect of their having given effect to the contract to 30 June 2005, of $50,000 (Declarations 22 and 26).
15.The seventh respondent pay a pecuniary penalty to the Commonwealth in respect of the conduct set out at Declarations 27 and 28 in an amount of $20,000.
16.The first to fifth respondents pay 65% of the applicant’s costs of and incidental to the proceeding up to 10 September 2013 and 100% of the applicant’s costs of and incidental to the proceeding on and after 10 September 2013, on a party and party basis to be taxed if not agreed.
17.The applicant and the first to fifth respondents are to submit a schedule to the Court within 14 days setting out a list of the paragraphs containing data said to be confidential which ought to be removed from the reasons for judgment so as to preserve the confidentiality of the information and in the event that the applicant, on the one hand, and the first to fifth respondents on the other, are not able to agree a schedule, a schedule ought to be submitted by each of the parties setting out their views of the data to be removed from the judgment.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
GREENWOOD J:
PART 1: INTRODUCTION AND RELATED MATTERS
These proceedings are concerned with the assessment and determination of an “appropriate” pecuniary penalty in respect of contraventions of provisions of Pt IV of the Trade Practices Act 1974 (Cth) (which, of course, from 1 January 2011, has been known as the Competition and Consumer Act 2010 (Cth)) (the “Act”), by the relevant contravening respondents to the proceeding. The applicant, the Australian Competition and Consumer Commission (“the ACCC”) contends for an appropriate pecuniary penalty of $97.5 million (having regard to two additional matters). The respondents contend for an appropriate pecuniary penalty of up to $4 million. The parties are $93.7 million apart in their views about what is an “appropriate” penalty in the exercise of the discretion.
The conduct the subject of the contraventions occurred in a pleaded period from 2002 to 31 December 2006. Where it becomes necessary in these reasons to make reference to the title of the Act specifically, I will continue to refer to the Trade Practices Act and the relevant provisions of the Act in the form in which those provisions existed at the time of the contraventions.
On 28 February 2014, the Court determined and declared that Cement Australia Pty Ltd (“Cement Australia”), Cement Australia (Queensland) Pty Ltd (formerly Queensland Cement Ltd) (“CAQ”, which I will describe as “QCL” for the period prior to the merger leading to the name change to “CAQ”), Pozzolanic Enterprises Pty Ltd (“Pozzolanic”) and Pozzolanic Industries Pty Ltd (“PIPL”) had engaged in a total of 22 contraventions of the Act. The Court also determined and declared that Mr Christopher White had engaged in two contraventions of the Act.
I will, obviously enough, return to the content of the contraventions later in these reasons but for present purposes it is enough, put simply, to note that the Court found and declared contraventions of the Act as identified in the schedule below:
Synoptic matrix of the contraventions
Entity
Section of the Act
Date of Contravention
Description of the Contravention
Purpose or Effect
The Original Millmerran Contract (“OMC”)
Pozzolanic
s 45(2)(a)(ii)
30 September 2002
Entering into the OMC.
Purpose and Effect
CAQ
s 45(2)(a)(ii); s 75B
30 September 2002
By funding, being knowingly concerned in Pozzolanic’s contravening conduct of entering into the OMC.
Purpose and Effect
Pozzolanic
s 45(2)(b)(ii)
30 September 2002 to 31 December 2003
Giving effect to the provisions of the OMC.
Purpose and Effect
CAQ
s 45(2)(b)(ii)
30 September 2002 to 31 December 2003
Giving effect to the provisions of the OMC by funding Pozzolanic’s day to day performance of Pozzolanic’s obligations under the OMC.
Purpose and Effect
PIPL
s 45(2)(a)(ii); s 75B
30 September 2002
By electing to act as guarantor, being knowingly concerned with Pozzolanic’s entry into the OMC.
Purpose and Effect
The Amended Millmerran Contract (“AMC”)
Pozzolanic
s 45(2)(a)(ii)
28 July 2004
Entering into a variation to the OMC known as the AMC.
Purpose
Cement Australia
s 45(2)(a)(ii); s 75B
28 July 2004
Being knowingly concerned in Pozzolanic’s contravention of entering into a variation to the OMC, by causing Pozzolanic to enter into the AMC.
Purpose
Pozzolanic
s 45(2)(b)(ii)
28 July 2004 to 30 April 2005
Causing Pozzolanic to give effect to the provisions of the AMC.
Purpose
Cement Australia
s 45(2)(b)(ii)
28 July 2004 to 30 April 2005
Causing Pozzolanic to give effect to the provisions of the AMC.
Purpose
The Tarong Contract
Pozzolanic
s 45(2)(a)(ii)
26 February 2003
Entering into the Tarong Contract.
Purpose and Effect
CAQ
s 45(2)(a)(ii); s 75B
26 February 2003
By funding, being knowingly concerned in Pozzolanic’s contravention of entry into the Tarong Contract.
Purpose and Effect
Pozzolanic
s 45(2)(b)(ii)
March 2003 to 31 December 2006 (having regard to the pleaded end date of the conduct)
Giving effect to the provisions of the Tarong Contract.
Purpose and Effect
CAQ
s 45(2)(b)(ii)
March 2003 to 1 June 2003
Giving effect to the Tarong Contract by funding Pozzolanic’s performance of the Tarong Contract in the period prior to the merger.
Purpose and Effect
CAQ
s 45(2)(b)(ii); s 75B
March 2003 to 1 June 2003
By funding, being knowingly concerned in Pozzolanic’s giving effect to the Tarong Contract in the pre‑merger period.
Purpose and Effect
Cement Australia
s 45(2)(b)(ii)
1 June 2003 to 31 December 2006
Giving effect to the Tarong Contract by funding Pozzolanic’s performance of the Tarong Contract in the period post‑merger.
Purpose and Effect
Cement Australia
s 45(2)(b)(ii); s 75B
1 June 2003 to 31 December 2006
By funding, being knowingly concerned in Pozzolanic’s giving effect to the Tarong Contract in the period post‑merger.
Purpose and Effect
The Swanbank Contract
Pozzolanic
s 45(2)(a)(ii)
11 July 2002/
15 March 2005
Exercising an option to extend the term of the Swanbank Contract to 31 December 2004 and to then further extend the amended Swanbank Contract to 30 June 2005.
Effect
Pozzolanic
s 45(2)(a)(ii)
15 March 2005
Entering into an agreement to extend the term of the Swanbank Contract to 30 June 2005.
Purpose
Pozzolanic
s 45(2)(b)(ii)
1 January 2001 to 30 June 2005
Giving effect to the provisions of the Swanbank Contract as extended to 31 December 2004 and then to 30 June 2005, which provisions conferred exclusive access to Pozzolanic to Swanbank flyash.
Effect
Pozzolanic
s 45(2)(b)(ii)
1 January 2005 to 30 June 2005
Giving effect to the provisions of the Swanbank Contract as extended by exercising the option to extend the contract to 31 December 2004 and to then extend the amended Swanbank Contract to 30 June 2005, which provisions conferred exclusive access to Swanbank flyash.
Purpose and Effect
CAQ
s 45(2)(b)(ii)
1 January 2001 to 31 May 2003
Giving effect to the relevant provisions of the Swanbank Contract as extended to 31 December 2004 and to 30 June 2005 in the period prior to the merger.
Effect
Cement Australia
s 45(2)(b)(ii)
1 June 2003 to 30 June 2005
Giving effect to the identified provisions as extended in the period after the merger.
Purpose and Effect
Christopher Stephen White (Mr White)
Mr White
s 45(2)(a)(ii); s 75B
15 March 2005
Being knowingly concerned in Pozzolanic’s contravention of entering into an agreement to extend the term of the Swanbank Contract to 30 June 2005.
Purpose
Mr White
s 45(2)(b)(ii); s 75B
31 December 2004 to 30 June 2005
Being knowingly concerned in Pozzolanic’s contravention of exercising the option to extend the term the Swanbank Contract.
Effect
The formal orders
For the sake of completeness, however, the declarations made by the Court on 28 February 2014 supported by the reasons for judgment published that day (Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2014] FCA 148 (the “final orders judgment”) taken in conjunction with Australian Competition and Consumer Commission v Cement Australia Pty Ltd (2013) 310 ALR 165; [2013] FCA 909 (the “principal liability judgment”)) were these:
THE COURT DECLARES THAT:
The Original Millmerran Contract
6.Pozzolanic Enterprises Pty Ltd (“Pozzolanic”) by entering into a contract on 30 September 2002, described as the “Ash Purchase Agreement” or alternatively described for the purposes of these proceedings as the “Original Millmerran Contract” (the “OMC”) as buyer; Pozzolanic Industries Pty Ltd (“Pozzolanic Industries”) as guarantor; and eight companies collectively described as the Millmerran Power Partners (“MPP”) as seller, containing provisions which had:
6.1 a substantial purpose of;
6.2 the likely effect of; and
6.3 until 31 December 2003 (see declaration numbered 11), the effect of
preventing a rival of Pozzolanic from securing access to unprocessed flyash in the South East Queensland (“SEQ”) unprocessed flyash market, and preventing a rival of Cement Australia (Queensland) Pty Ltd formerly known as Queensland Cement Ltd (“QCL”) from entering the SEQ concrete grade flyash market (being a product market for fine grade concrete grade flyash), and thereby substantially lessening competition in the SEQ unprocessed flyash market and the SEQ concrete grade flyash market, contravened Section 45(2)(a)(ii) of the Act.
7.QCL, by funding Pozzolanic’s entry into the OMC on 30 September 2002, with knowledge of the purpose, likely effect and effect of the provisions of the OMC contemplated by the above declaration (numbered 6) herein, was knowingly concerned in Pozzolanic’s contravention of Section 45(2)(a)(ii) of the Act referred to in the above declaration (numbered 6).
8.Pozzolanic, by giving effect to the provisions of the OMC, having the purpose, likely effect and effect contemplated by the above declaration (numbered 6) herein, in the period 30 September 2002 until 31 December 2003 contravened Section 45(2)(b)(ii) of the Act.
9.QCL, by giving effect to the provisions of the OMC, having the purpose, likely effect and effect contemplated by the above declaration (numbered 6) herein, by funding Pozzolanic’s day‑to‑day performance of the contract in the period 30 September 2002 until 31 December 2003 contravened Section 45(2)(b)(ii) of the Act.
10.Pozzolanic Industries, by electing to act as guarantor of the obligations of Pozzolanic under the terms and conditions of the OMC and by entering into the OMC as guarantor with knowledge of the purpose, likely effect and effect of the provisions of the OMC contemplated by the above declaration (numbered 6), was knowingly concerned in Pozzolanic’s contravention of s 45(2)(a)(ii) referred to in the above declaration (numbered 6).
11.To the extent that the identified provisions of the OMC contemplated by the above declaration (numbered 6) had the effect or likely effect of substantially lessening competition in the relevant market upon inclusion of the identified provisions when making the OMC, that effect or likely effect became dissipated by 31 December 2003 with the result that any effect or likely effect upon competition in the relevant market was then attributable to the compromised quality of the Millmerran flyash rather than the continuing effect or likely effect of the identified provisions.
The Amended Millmerran Contract
12.Pozzolanic, by entering into a variation of the OMC called, for the purposes of the proceeding, the Amended Millmerran Contract (the “AMC”), on 28 July 2004, containing provisions which had the purpose of preventing a rival of Pozzolanic from securing access to Millmerran Power Station unprocessed flyash in the SEQ unprocessed flyash market, and preventing a rival of Cement Australia Pty Ltd (“Cement Australia”) from entering the SEQ concrete grade flyash market, and thereby substantially lessening competition in the SEQ unprocessed flyash market and the SEQ concrete grade flyash market with processed Millmerran flyash, contravened s 45(2)(a)(ii) of the Act.
13.Cement Australia, by causing Pozzolanic to enter into the AMC with knowledge of the provisions contemplated by the above declaration (numbered 12) was knowingly concerned in Pozzolanic’s contravention of Section 45(2)(a)(ii) referred to in the above declaration (numbered 12).
14.Pozzolanic, by giving effect to the provisions of the AMC contemplated by the above declaration (numbered 12) from 28 July 2004 until 30 April 2005 contravened Section 45(2)(b)(ii) of the Act.
15.Cement Australia, by causing Pozzolanic to give effect to the provisions of the AMC contemplated by the above declaration (numbered 12) from 28 July 2004 until 30 April 2005 contravened Section 45(2)(b)(ii) of the Act.
The Tarong Contract
16.Pozzolanic, by entering into a Flyash Agreement with Tarong Energy Corporation (“TEC”) on 26 February 2003 (the “Tarong Contract”) for the acquisition of flyash from Tarong Power Station and Tarong North Power Station (once commissioned and operating), containing provisions which had:
16.1 a substantial purpose of; and
16.2 the likely effect of; and
16.3 the effect of
preventing a rival of Pozzolanic from securing access to unprocessed flyash in the SEQ unprocessed flyash market, and preventing a rival of QCL from entering the SEQ concrete grade flyash market, and thereby substantially lessening competition in the SEQ unprocessed flyash market and the SEQ concrete grade flyash market, contravened Section 45(2)(a)(ii) of the Act.
17.QCL, by funding Pozzolanic’s entry into the Tarong Contract with knowledge of the provisions contemplated by the above declaration (numbered 16) was knowingly concerned in Pozzolanic’s contravention of Section 45(2)(a)(ii) of the Act, referred to in declaration numbered 16.
18.Pozzolanic, by giving effect to the provisions of the Tarong Contract contemplated by the above declaration (numbered 16) on and from March 2003 contravened Section 45(2)(b)(ii) of the Act.
19.QCL, by funding Pozzolanic’s performance of the Tarong Contract until 1 June 2003 contemplated by the above declaration (numbered 16), gave effect to the provisions of the Tarong Contract and thereby contravened Section 45(2)(b)(ii) of the Act, and with knowledge of the relevant provisions, was knowingly concerned in Pozzolanic’s contravention of Section 45(2)(b)(ii) contemplated by the above declaration (numbered 18).
20.Cement Australia, by funding Pozzolanic’s performance of the Tarong Contract in relation to both the Tarong Power Station and the Tarong North Power Station on and from 1 June 2003 gave effect to the provisions of the Tarong Contract and thereby contravened Section 45(2)(b)(ii) of the Act, and with knowledge of the relevant provisions was knowingly concerned from 1 June 2003 in Pozzolanic’s contravention of Section 45(2)(b)(ii).
The Swanbank Contract
21.Pozzolanic, by exercising an option on 11 July 2002 to extend the term of the Swanbank Contract to 31 December 2004 on the terms of the amendment letter of 9 September 1998 and the Agreement of 30 September 1998, and further extend the amended Swanbank Contract to 30 June 2005 incorporating the identified provisions conferring exclusive access to Swanbank flyash in Pozzolanic until 30 June 2005, being provisions that would have the likely effect, and had the effect of preventing a rival of Pozzolanic from securing access to Swanbank unprocessed flyash in the unprocessed flyash market from 1 January 2001 to 30 June 2005, and preventing a rival of QCL from entering the SEQ concrete grade flyash market up to 31 May 2003 and thereafter preventing a rival of Cement Australia entering the SEQ concrete grade flyash market, thereby substantially lessening competition in the SEQ unprocessed flyash market and the SEQ concrete grade flyash market, contravened Section 45(2)(a)(ii) of the Act.
22.Pozzolanic, by entering into an agreement to extend the term of the Swanbank Contract from 31 December 2004 to 30 June 2005 on the terms of the amendment letter of 9 September 1998 and the Agreement of 30 September 1998 incorporating the identified provisions conferring exclusive access to Swanbank flyash in Pozzolanic until 30 June 2005, being an arrangement incorporating the relevant provisions, having a substantial purpose of preventing a rival of Pozzolanic from securing access to Swanbank unprocessed flyash in the unprocessed flyash market until 30 June 2005, and preventing a rival of Cement Australia entering the SEQ concrete grade flyash market until 30 June 2005, thereby substantially lessening competition in the SEQ unprocessed flyash market and the SEQ concrete grade flyash market, contravened Section 45(2)(a)(ii) of the Act.
23.Pozzolanic, by giving effect to the identified provisions as contemplated by the above declaration (numbered 21) which conferred exclusive access to Swanbank flyash in the period 1 January 2001 to 30 June 2005, contravened Section 45(2)(b)(ii) of the Act.
24.Pozzolanic, by giving effect to the identified provisions as contemplated by the above declarations (numbered 21 and 22) which conferred exclusive access to Swanbank flyash in the period from 1 January 2005 to 30 June 2005, contravened Section 45(2)(b)(ii) of the Act.
25.QCL, by giving effect to the identified provisions as contemplated by the above declaration (numbered 21) in the period from 1 January 2001 to 31 May 2003, contravened Section 45(2)(b)(ii) of the Act.
26.Cement Australia, by giving effect to the identified provisions as contemplated by the above declarations (numbered 21 and 22), contravened Section 45(2)(b)(ii) of the Act.
Christopher Stephen White
27.Mr White was knowingly concerned in Pozzolanic’s contravention of Section 45(2)(a)(ii) of the Act in relation to the conduct contemplated by the above declaration (numbered 22).
28.Mr White was knowingly concerned in Pozzolanic’s contravention of Section 45(2)(b)(ii) of the Act in relation to the conduct contemplated by the above declaration (numbered 21) from the period 31 December 2004 to 30 June 2005.
These reasons are to be read together with the final orders judgment and the principal liability judgment. However, for the purposes of these reasons, I will attempt to address the relevant considerations arising out of the principal liability judgment so that recourse to those reasons is made less necessary. In order to achieve that result, I will quote the paragraphs of the principal liability judgment containing the findings on purpose, effect and likely effect where relevant and useful. Hopefully, most of the immediately relevant paragraphs of the principal liability judgment will be contained within these reasons. When I use the term “SEQ cgf market” I am describing the market as found in the principal liability judgment. In these reasons, all references in the text to paragraph numbers in square brackets is a reference to paragraphs from the principal liability judgment unless otherwise mentioned.
The principal liability judgment addresses, as the description suggests, the resolution of the highly contested questions concerning whether or not any one or more of the respondents had contravened a provision of Pt IV of the Act. The assessment and determination of an appropriate pecuniary penalty that might be ordered to be paid by a particular respondent in respect of one or more contraventions of Pt IV was the subject of a separate hearing. That hearing occurred from 15 December 2014 to 18 December 2014 consequent upon quite a number of interlocutory applications in relation to the additional evidence which might be relied upon by any of the parties (and particularly responsive or reply evidence). A number of judgments were delivered on those topics.
At the hearing, the applicant relied upon additional material in the form of a tender bundle (being Vol 1 of 1) which was marked Ex 1 in the proceeding. The respondents also relied upon a tender bundle (comprising two volumes divided into Parts) marked Ex 2. Mr White relied upon two affidavits, the first dated 1 April 2014 and the second dated 18 September 2014.
At the conclusion of the hearing, the questions in issue were reserved for further consideration.
In the early part of 2015, it became apparent that the Full Court of the Federal Court was to consider the question (which, as a general matter, had been the subject of debate in a number of first instance decisions of this Court and other Courts) of the extent to which the decision of the High Court in Barbaro v The Queen (2014) 253 CLR 58 (“Barbaro”) (and the expressions of principle discussed in that decision) might properly inform a principled approach to the determination of a pecuniary penalty under a “civil pecuniary penalty provision” (although the particular statutory regime in the proceedings before the Full Court was to engage the provisions of the Building and Construction Industry Improvement Act 2005 (Cth) (“the BCII Act”)). The relevant provisions of that Act were thought to be a relevant analogue of s 76(1) of the Trade Practices Act. The Full Court delivered judgment in that matter (Director, Fair Work Building Industry Inspectorate v Construction, Forestry, Mining and Energy Union (2015) 229 FCR 331; 320 ALR 631; 105 ACSR 403; [2015] FCAFC 59) and in mid‑June 2015, the Commonwealth obtained special leave to appeal from the orders of the Full Court. On 9 December 2015, the High Court delivered judgment in Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 326 ALR 476; [2015] HCA 46 (“Fair Work”).
As a consequence of the High Court’s Fair Work decision, the parties to the present proceeding put on further submissions which had the following effect. The ACCC withdrew paras 36 to 43 of its reply submissions dated 14 December 2014 (as updated on 16 December 2014) and withdrew paras 1 to 5 of its supplementary submissions dated 2 June 2015 (filed on 3 June 2015). The respondents withdrew paras 319 to 327 of their submissions of 5 December 2014 and paras 1 to 22 of their submissions of 2 June 2015.
It is therefore necessary to consider aspects of the observations of their Honours in the Fair Work decision so as to identify whether matters of principle emerge from that decision relevant to the exercise of the discretion under s 76(1) of the Act in determining a pecuniary penalty in respect of a contravention of Pt IV of the Act having regard to the statutory framework of the Trade Practices Act.
The provisions
In the relevant period, s 45(2) of the Act was, relevantly, in these terms:
(2) A corporation shall not:
(a) make a contract or arrangement, or arrive at an understanding, if:
(i)…; or
(ii)a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or
(b)give effect to a provision of a contract, arrangement or understanding, … if that provision:
(i)…; or
(ii)has the purpose, or has or is likely to have the effect, of substantially lessening competition.
[emphasis added]
In the relevant period, s 76 of the Act was, relevantly, in these terms:
Section 76. Pecuniary penalties
(1)If the Court is satisfied that a person –
(a) has contravened any of the following provisions:
(i) a provision of Part IV;
(ii) …;
(b) has attempted to contravene such a provision;
(c)has aided, abetted, counselled or procured a person to contravene such a provision;
(d)has induced, or attempted to induce, a person, whether by threats or promises or otherwise, to contravene such a provision;
(e)has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of such a provision; or
(f)has conspired with others to contravene such a provision,
the Court may order the person to pay to the Commonwealth such pecuniary penalty, in respect of each act or omission by the person to which this section applies, as the Court determines to be appropriate having regard to all relevant matters including the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission, the circumstances in which the act or omission took place and whether the person has previously been found by the Court in proceedings under this Part or Part XIB to have engaged in any similar conduct.
[The note to s 76(1) does not bear on the questions presently under consideration.]
(1A)The pecuniary penalty payable under subsection (1) by a body corporate is not to exceed:
(a)for each act or omission to which this section applies that relates to section 45D, 45DB, 45E or 45EA - $750,000; and
(b)for each other act or omission to which this section applies - $10,000,000.
(1B)The pecuniary penalty payable under subsection (1) by a person other than a body corporate is not to exceed $500,000 for each act or omission to which this section applies.
[emphasis added]
Section 76(3) of the Act was, relevantly, in these terms:
If conduct constitutes a contravention of two or more provisions of Part IV, a proceeding may be instituted under this Act against a person in relation to the contravention of any one or more of the provisions but a person is not liable to more than one pecuniary penalty under this section in respect of the same conduct.
Section 76 of the Act was amended in a significant respect effective from 1 January 2007.
The amendment has no application to the determination of a penalty in respect of any of the contraventions found against the relevant respondents in these proceedings. The significant amendment, however, concerned s 76(1A) which, operating prospectively, provides that for each act or omission constituting a contravention of a provision of Pt IV, the pecuniary penalty payable under s 76(1) by a body corporate was not to exceed (for the purposes of a provision of Pt IV other than s 45D, s 45DB, s 45E or s 45EA) “the greatest of the following: (i) $10,000,000; (ii) if the Court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the act or omission – three times the value of that benefit; (iii) if the Court cannot determine the value of that benefit – 10% of the annual turnover of the body corporate during the period (the turnover period) of 12 months ending at the end of the month in which the act or omission occurred” [emphasis added]. The new s 76(1A), like the earlier version, is directed to setting the maximum amount of a pecuniary penalty that might be determined. Such an amount would be appropriate to something in the order of the worst case of contravening conduct. The factors applicable to determining the penalty remain the s 76(1) factors as elaborated upon in the authorities.
Plainly enough, s 76 as enacted, maintained (and in the terms quoted at [14] and [15] of these reasons, continued to maintain in the relevant period, as it does today), a clear distinction between civil penalties and criminal penalties in respect of classes of contravention: see ss 78 and 79 of the Act and, in respect of cartel conduct, the criminal cartel provisions.
As to the relevant context within which their Honours considered the questions in issue in the Fair Work decision, it should be noted that so far as these proceedings are concerned, no aspect of the matters in controversy in the principal liability proceedings involved any element of agreement between the parties as to any contravention of a provision of Pt IV or the relevant facts.
Far from it. These proceedings represent the far end point along a continuum where agreement as to foundation facts and opinions as to an appropriate penalty represent the other end of that continuum.
Virtually no aspect of the matters to be considered in the determination of an amount the Court might consider appropriate in respect of any contravention found against any of the relevant respondents is the subject of agreement.
Much of the discussion in the Fair Work decision is concerned with the extent to which the parties might put to the Court joint submissions as to the facts to be found and joint submissions as to the penalty that might be then thought to be appropriate in respect of any contravention so established on the face of the joint submissions on the facts, or separate opinions from the parties as to penalty.
Plainly enough that is not this case.
Nevertheless, their Honours in the Fair Work decision have made observations about the very nature of civil penalty proceedings and the scope and social utility of enabling a regulator and respondents to make quite focused submissions about, especially, the amount of a pecuniary penalty that might be thought to be appropriate (based on an acceptance of a relevant contravention or, as here, in relation to relevant contraventions as found) with a view to urging the Court to order such a penalty to be paid by the contravener.
It is important therefore to have regard to some aspects of the observations of their Honours going to these matters of principle and apart from anything else, the observations of their Honours have, in this matter, directly led to the participants making changes to their submissions having considered the Fair Work decision.
PART 2: THE FAIR WORK DECISION; THE RELEVANT PRINCIPLES TO BE APPLIED IN EXERCISING THE DISCRETION UNDER SECTION 76 OF THE ACT
The Fair Work decision
In Barbaro, French CJ, Hayne, Kiefel and Bell JJ held that where a Court is called upon to pass sentence on an offender in criminal proceedings, the “prosecution’s statement of what are the bounds of the available range of sentences is a statement of opinion” which a sentencing judge may not “take into account in finding the relevant facts, deciding the applicable principles of law or applying those principles to the facts to yield the sentence to be imposed”: Barbaro at 66, [7]. That follows because, apart from the “conceptually indeterminate boundaries” of the available range of sentences (and “systemic problems” which would likely result from a criminal sentencing judge being seen to be influenced by the Crown’s opinion as to the available range of sentences), the Crown’s opinion would, in all probability, be informed by an assessment of the facts and relative weighting of the relevant sentencing considerations “different from the judge’s assessment”: Fair Work, the plurality at 491 [56]. Having regard to that consideration, the plurality at [56] also said this: “That is why it was held in Barbaro that it is inconsistent with the nature of criminal sentencing proceedings for a sentencing judge to receive a submission from the Crown as to the appropriate sentence or even as to the available range of sentences”.
However, what was said in Barbaro “applies only to criminal proceedings”: Fair Work, the plurality at [50].
That follows because there are “basic differences” between a criminal prosecution and civil penalty proceedings and it is those basic differences that provide the “principled basis” for excluding the application of Barbaro from civil penalty proceedings. Those basic differences between a criminal prosecution and a civil penalty proceeding include these considerations: a criminal prosecution is an accusatorial proceeding governed by the fundamental principle that the burden lies in all things upon the Crown to establish guilt beyond reasonable doubt; civil penalty proceedings are “civil” and therefore adversarial with issues and the scope of relief framed by the parties as they choose; and, a criminal prosecution is aimed at securing a criminal conviction whereas a civil penalty proceeding is “precisely calculated” to “avoid the notion of criminality as such”: see Fair Work, the plurality at [53]‑[54].
No less important, however, is the consideration that the imposition of criminal penalties is conditioned by notions of “retribution” and “rehabilitation” as well as general and specific deterrence, whereas the “purpose” of a civil penalty is primarily, if not wholly, “protective” in promoting the public interest in compliance with the law: Fair Work, the plurality at [55]. Civil penalties, like most other civil remedies, are “essentially deterrent or compensatory” and therefore “protective”: Fair Work, the plurality at [59]. Moreover, neither retribution nor rehabilitation “have any part to play in economic regulation of the kind contemplated by Pt IV [of the Trade Practices Act]”, and the principal, and probably the only, “object” of the penalties imposed by s 76, is to attempt to “put a price on contravention that is sufficiently high to deter repetition by the contravener and by others who might be tempted to contravene the Act”: Fair Work, the plurality at [55] adopting the observations of French J in Trade Practices Commission v CSR Ltd [1991] ATPR 41‑076 at 52,152 (“TPC v CSR”).
Because a civil penalty and a civil penalty proceeding bear these characteristics, there is nothing exceptional about a Court approving an agreed settlement provided the Court is persuaded that the settlement is, in the statutory language, “appropriate”. That additional matter is not relevant for these proceedings. However, it also follows from these propositions that the Court can quite properly receive either joint or separate submissions from the parties, and particularly a regulator, as to the facts and penalty.
As to the position of a regulator, the plurality said this at [60]:
As was emphasised in [NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 (“NW Frozen Foods”)], it is the function of the relevant regulator to regulate the industry in order to achieve compliance and, accordingly, it is to be expected that the regulator will be in a position to offer informed submissions as to the effects of contravention on the industry and the level of penalty necessary to achieve compliance.
At [61], the plurality note the logical qualification upon that proposition that the submissions of a regulator on those questions are to be considered on their merits (in the same way as the submissions of a respondent are to be considered), supported as they must be, by findings of fact referable to properly adduced evidence, the agreement of the parties or concessions made by the relevant respondents. The relevant facts must be exposed and the Court bears the responsibility of ensuring that those matters are properly exposed. At [61], the plurality also said this:
But, subject to that imperative, there is no indication in the purpose or text of the BCII Act that the court should be less willing to receive a submission as to the terms and quantum of penalty in a civil penalty proceeding than to receive a submission as to the terms and quantum of relief put up for approval by the court in any other kind of civil proceeding.
[emphasis added]
Equally, there is no indication in the purpose or text of the Trade Practices Act that suggests that the Court ought to be unwilling to receive submissions as to the quantum of the penalty in the exercise of the Court’s discretion under s 76(1) of the Act.
At [56], the plurality in Fair Work also observe that in “criminal proceedings” the imposition of “punishment” is a “uniquely” judicial exercise of “intuitive” or “instinctive synthesis” (as that term is understood having regard to the observations of Gaudron, Gummow and Hayne JJ in Wong v The Queen (2001) 207 CLR 584 at 611‑612, [74]‑[76] and the later observations of Gleeson CJ, Gummow, Hayne and Callinan JJ in Markarian v The Queen (2005) 228 CLR 357 at 373‑375, [37]‑[39]) of the sentencing facts, as found by the sentencing judge, and the judge’s “relative weighting” and application of relevant sentencing considerations, in accordance with established sentencing principles. The plurality in Fair Work also observe at [56] that there is “no room” in an exercise of “that nature” for the sentencing judge to take account of the Crown’s opinion as to the appropriate length of sentence.
In contrast, however, that is not the position in relation to civil penalty proceedings: Fair Work, the plurality at [56].
At [62], the plurality also observes in relation to the BCII Act, that the legislation expressly provided that the Director’s functions included intervening in proceedings and making submissions in accordance with the Act. The legislation did not impose any “express limitation” or “restriction” on the evidence, materials or submissions which could be received from the Director.
Moreover, as a matter of construction of the BCII Act in this regard, by providing for “civil penalty proceedings”, the BCII Act “implicitly assumes the application of the general practice and procedure regarding civil proceedings and eschews the application of criminal practice and procedure”: Fair Work, the plurality at [62]. There is no relevant point of differentiation between the BCII Act provisions in this regard and the provisions of the Trade Practices Act. It therefore follows, as a matter of construction of the Trade Practices Act, that by providing for civil penalty proceedings the Act implicitly assumes the application of the general practice and procedure relating to “civil proceedings” and eschews the application of criminal practice and procedure (in relation to the provisions of the Act relevant to these proceedings).
Apart from these observations about the fundamental differences between a criminal prosecution and a civil penalty proceeding and the conclusion, as a matter of construction of the legislation, that the BCII Act eschews the application of criminal practice and procedure, the plurality made this further observation at [64] about the role of a regulator in what might be regarded as “typical” civil penalty regimes:
In contradistinction to the role of the Crown in criminal proceedings, it is consistent with the purposes of civil penalty regimes of which Pt 1 of Ch 7 of the BCII Act is typical, and therefore with the public interest, that the regulator take an active role in attempting to achieve the penalty which the regulator considers to be appropriate and thus the regulator’s submissions as to the terms and quantum of a civil penalty be treated as a relevant consideration.
There is no point of distinction, so far as the Trade Practices Act is concerned, with the BCII Act, which would render those observations of the plurality inapplicable to the exercise of the discretion under s 76(1) of the Act.
Although I have largely confined, in these reasons, my attention to the observations of the plurality in Fair Work, the observations of Gageler J and Keane J are consistent with the statements of principle identified by the plurality.
Two things follow from these considerations.
First, plainly enough, submissions can properly be made as to the quantum of the penalty and any terms which might attach to the imposition of a pecuniary penalty, by either side, including the regulator.
Second, the following question arises. If the purpose of a civil penalty is (at least primarily) protective, that is to say, essentially to deter and thus protective, and the Trade Practices Act (at least in relation to the provisions of the Act relevant to these proceedings) assumes, as a matter of construction, the application of the general practice and procedure relating to civil proceedings (thus eschewing the application of criminal practice and procedure), to what extent do the principles identified in the authorities which govern the exercise of the discretion under s 76(1) (and, for that matter, typical analogous civil penalty regimes), deriving from sentencing principles identified in a number of authorities in the context of criminal sentencing practice and procedure, continue to have any application to the exercise of the discretion under s 76(1)?
Further, since in criminal proceedings punishment of the offender is a uniquely judicial exercise of “instinctive synthesis” or “intuitive synthesis” (and a long line of authority holds that the purpose of a civil penalty provision is not punishment; NW Frozen Foods, 297, Burchett and Kiefel JJ); and the Trade Practices Act, so far as relevant to these proceedings, eschews the application of criminal practice and procedure, to what extent does the notion of instinctive synthesis have any application to the exercise of the discretionary judgment to be made when determining an “appropriate” pecuniary penalty under s 76(1)?
In exercising the discretion under s 76(1) (and analogous civil penalty regimes) the orthodox position has been to apply, as relevant to the exercise of the discretion, principles derived from a range of authorities identifying appropriate practices applied by judges in the exercise of discretionary sentencing of criminal offenders. As to relatively recent examples, Jacobson J observed in 2014 in Registrar of Aboriginal and Torres Strait Islander Corporations v Matcham (No 2) (2014) 97 ACSR 412 at [124] (“Registrar v Matcham (No 2)”) that it is “well‑established that the principles of sentencing which have been developed in the criminal law apply to the exercise of the discretion to impose civil penalties in those areas of the law which are regulated by civil penalty regimes”. See also the approach adopted by Foster J in Clean Energy Regulator v MT Solar Pty Ltd [2013] FCA 205 applying the same principle at [68] and citing at [76] Mornington Inn Pty Ltd v Jordan (2008) 168 FCR 383 at [42]‑[46] (Stone and Buchanan JJ) (“Mornington”) and Construction, Forestry, Mining and Energy Union v Cahill (2010) 269 ALR 1 at [39] (“CFMEU v Cahill”), Middleton and Gordon JJ.
I propose to proceed on the following basis in the exercise of the discretion under s 76(1).
First, the principled distinctions identified in Fair Work between a criminal prosecution and a civil penalty proceeding provide the basis for the answer to the specific question addressed by their Honours in Fair Work of whether the proposition identified at [7] by the plurality in Barbaro (see [26] of these reasons) applies only to criminal proceedings.
Second, as to other matters, although the principled distinctions between a criminal prosecution and a civil penalty proceeding identified by their Honours in Fair Work, and the matters of statutory construction identified by their Honours (as applied to the relevant provisions of the Trade Practices Act, see particularly [37] of these reasons) hold good for all purposes, the exercise of the discretionary judgment to be made under s 76 of the Act continues to engage the notion of instinctive synthesis as a substantive matter of methodological approach to the exercise of the discretion rather than a matter of criminal practice and procedure.
Third, the matters of statutory construction identified by the plurality in Fair Work and discussed at [30]‑[33] and [38]‑[39] of these reasons informs the exercise of the discretion under s 76 even though there is no question here of agreement or joint submissions.
Fourth, the statements of principle concerning the purpose of a civil penalty proceeding identified by the plurality in Fair Work and discussed at [29] of these reasons informs the exercise of the discretion under s 76 of the Act.
Fifth, substantive matters of methodological approach to the exercise of the sentencing discretion (rather than matters of criminal practice and procedure as such) discussed in the authorities continue to be matters relevant to the exercise of the discretion under s 76 of the Act.
The relevant principles
Section 76(1) of the Act provides that where a person has contravened a provision of Pt IV of the Act, the Court may order the person to pay, “in respect of each act or omission by the person to which this section applies”, such pecuniary penalty as the Court determines appropriate “having regard to all relevant matters”. The section then inclusively identifies some of those matters as follows:
·the nature and extent of the act or omission;
·the nature and extent of any loss or damage suffered as a result of the act or omission;
·the circumstances in which the act or omission took place; and
·whether the person has previously been found by the Court in proceedings under, relevantly here, Pt VI of the Act, to have engaged in any similar conduct.
These expressly identified factors do not exhaust “all relevant matters” but they do reflect the considerations to which the Parliament expressly turned its attention.
Because pecuniary penalty proceedings are not “classed as criminal proceedings”, it is not necessary to measure the contravening conduct against “some general community morality in which the law is embedded”. Aspects of some commercial behaviour such as “ruthlessness” and “expansionary ambition” are not elements of the “classes of conduct prohibited by Pt IV” of the Act, nor even “aggravating factors”: TPC v CSR at 52,151, French J. Seeking to characterise contravening conduct in terms of “a morality larger than that which is defined by the legislative purpose is misplaced” [emphasis added]: TPC v CSR at 52,151.
In J McPhee & Son (Australia) Pty Ltd v Australian Competition and Consumer Commission (2000) 172 ALR 532 (“J McPhee v ACCC”) at 579 [166], Black CJ, Lee and Goldberg JJ accepted that the provisions of the Act (contraventions of s 45 of the Act were there under consideration) are not designed to regulate or proscribe moral conduct, “but they are calculated and intended to proscribe particular aspects of commercial conduct” and in examining those “particular aspects” of commercial conduct, reflected in the relevant provisions of Pt IV, it is relevant, in determining the pecuniary penalty under s 76 to consider whether there has been a deliberate contravention or a deliberate attempt to contravene the Act. Such a consideration of deliberateness does not involve a moral issue but “takes into account the deliberateness or the calculated manner in which a course of conduct has been undertaken”. Thus, in fixing penalties under s 76, it is appropriate and relevant to take into account whether the contravening conduct was “systemic, deliberate or covert”: J McPhee v ACCC at 577 [158] and [163], Black CJ, Lee and Goldberg JJ. There needs to be “commercial realism” in fixing a penalty and the penalty should be proportionate to the deliberation with which the defendant contravened the Act: TPC v CSR at 52,153; Trade Practices Commission v Stihl Chain Saws (Aust) Pty Ltd [1978] ATPR 40‑091 (“Stihl Chain Saws”), Smithers J at 17,896.
The object of the Act, relevantly, is to “enhance the welfare of Australians through the promotion of competition” (s 2, the Act) and, as to Pt IV, its purpose is the adoption of provisions which “proscribe and regulate agreements and conduct and which are aimed at procuring and maintaining competition in trade and commerce”: Refrigerated Express Lines (A/asia Pty Ltd v Australian Meat and Livestock Corp [No 2] (1980) 44 FLR 455 at 460, Deane J. The “object” to be served by s 76 is to promote competitive conduct in trade or commerce by the use of penalties sufficient to deter acts that would tend to be destructive of such competition: Trade Practices Commission v Prestige Motors Pty Ltd [1994] ATPR 41‑359 at 42,699, Lee J; Australian Competition and Consumer Commission v Rural Press Ltd [2001] ATPR 41‑833 at 43,289 [12] (“ACCC v Rural Press”), Mansfield J. Specifically in the context of Pt IV questions, Finkelstein J said this at [13] and [14] in Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (No 2) (2002) 190 ALR 169; [2002] FCA 559 (“ACCC v ABB (No 2)”):
[13] Next I propose to say something about the seriousness of contraventions of antitrust legislation. Our economic system is based upon a philosophy of private enterprise and competition. Antitrust legislation has as its object the promotion of free competition by proscribing the misuse of monopoly or oligopoly power, and by making unlawful conduct such as market rigging, collusive tendering, price fixing, and other acts that inhibit the minimisation of production costs and the efficient allocation of resources. That is to say, antitrust legislation is founded on the underlying premise that free competition is essential for the welfare of the state. Conduct that affects the public, such as the anti‑competitive behaviour that is outlawed by the Trade Practices Act, can never really be considered as anything other than serious.
[14] Moreover, antitrust contraventions do not occur as a result of passion or accident. The agents of a corporation have the choice to engage or refrain from engaging in the anti‑competitive behaviour. A contravention most often occurs when there is a belief that the financial gain that is anticipated to result from the anti‑competitive behaviour will be considerable, and well worth the risk of detection and the cost of prosecution. In many cases the expected financial gain will be very large, and in some markets could be in the millions of dollars. The corresponding losses that are suffered will fall across a range of organisations including competitors. But ultimately the losses are borne by consumers who are usually economically weak and do not have meaningful power to obtain redress.
In TPC v CSR, French J notes at 52,152 the “primacy” of the deterrent purpose in the imposition of a penalty under s 76 of the Act having observed (see [29] of these reasons) that the principal and probably the only object of penalties imposed by s 76 is to attempt to “put a price on contravention” sufficiently high to deter repetition by the contravener and others tempted to contravene the Act – that is, general and specific deterrence. His Honour then formulates these factors as ones which properly serve the assessment of a penalty of “appropriate deterrent value”:
1.The nature and extent of the contravening conduct.
2.The amount of loss or damage caused [by the contravening conduct].
3.The circumstances in which the conduct took place.
4.The size of the contravening company.
5.The degree of power it has, as evidenced by its market share and ease of entry into the market.
6.The deliberateness of the contravention and the period over which it extended.
7.Whether the contravention arose out of the conduct of senior management or at a lower level.
8.Whether the company has a corporate culture conducive to compliance with the Act as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention.
9.Whether the company has shown a disposition to cooperate with the authorities responsible for the enforcement of the Act in relation to the contravention.
In Australian Competition and Consumer Commission v Kokos International Pty Ltd (No 2) [2008] ATPR 42‑212 at 48,813, French J at [51] accepted that the following three matters are also relevant to the exercise of the discretion (continuing my numbering):
10.Whether the respondents have engaged in similar conduct in the past.
11.The financial position of the respondents.
12.The deterrent effect of the proposed penalty.
At [51], his Honour observed that he was “satisfied that the above list [1 to 12] is sufficiently comprehensive”. In Trade Practices Commission v TNT Australia Pty Ltd [1995] ATPR 41‑375 (“TPC v TNT”) at 40,169, Burchett J identified two other considerations relevant to the exercise of the discretion: first, whether the total penalty for related offences ought not to exceed what is proper for the entire contravening conduct and second, the extent to which, by admitting the allegations, the respondents saved the community the burden of litigating a lengthy and expensive case. The inverse position might be the extent to which the respondents caused the community to incur the cost and burden of litigating a lengthy and expensive case resulting in proven contraventions. The first consideration may simply be a reference to the “totality principle”, a matter discussed later in these reasons together with an anterior consideration relevant to multiple contraventions, the “one transaction” or “course of conduct” principle. The second consideration is really part of factor 9.
It seems to me that great caution must be exercised when considering, in the exercise of the discretion as to penalty, the circumstance that respondents have contested the claims of the ACCC. If it can be demonstrated that the defences advanced by respondents were entirely unmeritorious in the sense that upon examination of the evidence there was really no proper basis upon which, on that evidence, the claims could have been resisted, that would be one thing. If, on the other hand, respondents to the proceeding have a serious question to be tested, that is an entirely different matter. In circumstances where a matrix of fact is in controversy and out of that matrix some claims advanced by the ACCC have been unsuccessful and others successful, it becomes a difficult matter, in the exercise of the discretion, to say that the penalty ought to be informed by a failure on the part of respondents, in those circumstances, to capitulate on the matters ultimately shown to give rise to contraventions of the Act. There is a qualitative element to be examined in the conduct of the respondents.
French J observes in TPC v CSR at 52,153, that the first three factors (described at [57] of these reasons) are all expressly mentioned in s 76(1) and thus they ought to be regarded as measures of the scope and impact of the conduct. It follows that it is conducive to deterrence that the “greater the significance” of these elements, “the heavier the penalty should be”, although, of course, all relevant matters must be weighed in the balance.
The determination of the penalty is also a matter which serves the public interest in the enforcement of the Act: TPC v CSR at 52,153.
There are other factors and particular emphasis within those factors.
Some of them are these.
Because the Act places on the shoulders of the Court the responsibility of determining the “appropriate” penalty having regard to the statutory requirement of “all relevant matters”, the “effects upon the functioning of markets, and other economic effects, will generally be among the most important matters to be considered as relevant …”: NW Frozen Foods at 290, Burchett and Kiefel JJ. See also the observations of Finkelstein J at [56] of these reasons.
In Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640 at 659 (“ACCC v TPG Internet”), French CJ, Crennan, Bell and Keane JJ observe at [65] that general and specific deterrence must play a “primary role” in assessing the appropriate penalty in cases of “calculated contravention” of legislation where “commercial profit is the driver of the contravening conduct”. In that context, their Honours at [65] took account of TPG’s particular campaign in issue in those proceedings (in contravention of ss 52, 53C (a campaign of advertising broadband services at a flat monthly rate with much less prominence given to other bundled services required to be taken up); the period of the campaign (13 months); its cost ($8.9 million); the revenues generated from it ($59 million); the estimated profit deriving from it ($8 million); and the growth in the customer base (during the period of the campaign - 9,000 to 107,000 customers). The growth in customers, however, was not at the expense of TPG’s competitors. At [64], their Honours observe that the Full Court in Singtel Optus Pty Ltd v Australian Competition and Consumer Commission (2012) 287 ALR 249 (“Singtel Optus v ACCC”) correctly observed that the Court, in fixing a penalty, must make it clear to the contravener and the market that the cost of courting a risk of contravention cannot be regarded as an acceptable cost of doing business.
As to profit gains, Finkelstein J observes in Australian Competition and Consumer Commission v ABB Transmission and Distribution Limited [2001] ATPR 41‑815; [2001] FCA 383 at [13] that “most antitrust violations are profitable” and, accordingly, “the penalty must be at a level that a potentially‑offending corporation will see as eliminating any prospect of gain”. As to “profit stripping”, Keane CJ, Finn and Gilmour JJ said this at [61] to [64] in Singtel Optus v ACCC in the context of contraventions by Singtel Optus of ss 52 and 55A of the Trade Practices Act in relation to advertisements for Broadband data plans:
Profit stripping?
[61] Optus contends that considerations of deterrence do not justify a penalty of the severity imposed in this case. The primary judge found that there was a “non‑trivial connection” between the campaign and the overall profits made by Optus from the plans, but the profits made from the contravention were not distinguished from other profits lawfully made. Optus contends that it is excessive to impose a penalty apt to strip Optus of profit not shown to stem directly from the contravention.
[62] There may be room for debate as to the proper place of deterrence in the punishment of some kinds of offences, such as crimes of passion; but in relation to offences of calculation by a corporation where the only punishment is a fine, the punishment must be fixed with a view to ensuring that the penalty is not such as to be regarded by the offender or others as an acceptable cost of doing business. The primary judge was right to proceed on the basis that the claims of deterrence in this case were so strong as to warrant a penalty that would upset any calculations of profitability. The purpose of Optus’s conduct was to generate sales, and hence, profits. The advertising deployed by Optus was calculated to win business from its rivals. The same share of business might not have been attracted by a more balanced presentation of the advantages of the plans. There is no room to doubt that Optus knows its business sufficiently well that it is safe to proceed on the footing that its course of conduct in the campaign reflected informed calculation. While one cannot isolate the profits attributable to the campaign, it is necessary and desirable to impose a penalty which is apt to affect in a substantial way the profitability of Optus’s misconduct.
[63] Generally speaking, those engaged in trade and commerce must be deterred from the cynical calculation involved in weighing up the risk of penalty against the profits to be made from contravention. The primary judge did not engage in a surgical exercise calculated to deprive Optus of the profits referable to the increase in business generated by the campaign. It cannot seriously be suggested that [his] Honour was concerned to engage in an exercise in “profit stripping”. To so describe his Honour’s approach is to distract from the legitimate claims of deterrence in a case like the present.
[64] In the present case the sheer magnitude of the advertising campaign, and its likely effect in the market, mean that a penalty which did not substantially affect the profitability of Optus’s campaign could not reasonably be countenanced.
[emphasis added]
Apart from these statements of principle, it should be noted that the Full Court found that Optus could not be regarded as a “first offender” and, in that context, their Honours observed that the Court was required to “fashion a penalty which makes it clear to Optus, and to the market, that the cost of courting a risk of contravention of the Act cannot be regarded as [an] acceptable cost of doing business”: Singtel Optus v ACCC, the Court, at [68].
Australian Competition and Consumer Commission v Roche Vitamins Australia Pty Ltd [2001] ATPR 41‑809 (“ACCC v Roche”) was a case that concerned contraventions of per se provisions of s 45(2) of the Act read together with s 4D (exclusionary provisions) and s 45A (arrangements, put simply, in relation to prices by participants in competition with each other) in relation to market‑sharing arrangements in the supply of particular animal vitamins. In determining the penalty for these admitted contraventions, Lindgren J regarded these questions as relevant to the exercise of the discretion: first, by “how much was each respondent better off as a result of its contraventions [than it would have been had the contraventions not occurred]?”; second, “what was the additional amount the market paid to each respondent as a result of its contraventions [than the market would have paid had the contraventions not occurred]?” The first question goes to “benefit” and the second goes to “market harm”. Lindgren J at [34] accepted, in the circumstances of the case before him, the difficulty in isolating data which would provide properly focused answers to the two questions. Lindgren J also accepted at [42] the “thrust” of the orthodoxy reflected in the authorities discussed at [71] of these reasons to this general effect. Where information is unavailable or, alternatively, unable to be calculated so as to precisely answer the two questions of “but for” benefit and market harm, the authorities reflect other approaches to reliance upon financial data as relevant to penalty.
Some examples of those various approaches are these.
In Australian Competition and Consumer Commission v Pioneer Concrete (Qld) Pty Limited [1996] ATPR 41‑457, the Court imposed significant penalties where the only material put to the Court (on these financial issues) consisted of the value of sales of pre‑mix concrete the subject of the collusive arrangements. In Australian Competition and Consumer Commission v Tyco Australia Pty Ltd [2000] ATPR 41‑740, the Court imposed penalties upon the corporations in question of $3.3 million and $1.4 million (as recommended by the parties) in circumstances where the Court noted that no attempt had been made to give any estimate of the order of magnitude of the losses imposed on consumers by the anti‑competitive arrangements (see p 40,573). In Australian Competition and Consumer Commission v Foamlite (Australia) Pty Ltd [1998] ATPR 41‑615, the Court found that the loss or damage caused to customers could not be precisely determined and assessed the deterrent effect of the penalties (suggested by the parties) of $1.2 million and $600,000 by comparing the proposed penalties with post‑tax profits of the corporations. In Australian Competition and Consumer Commission v Tubemakers of Australia Ltd [2000] ATPR 41‑745, the Court considered the overall size of the relevant market measured in dollar terms and sales by the corporate respondents of the relevant product in assessing and approving the recommended penalties of $1.2 million and $550,000. In TPC v TNT and Trade Practices Commission v Hymix Industries [1995] ATPR 41‑369 and the penalty decision reported at [1996] ATPR 41‑465, the Court imposed penalties without making any estimate of the profits made or losses sustained as a result of the contraventions. In Australian Competition and Consumer Commission v NW Frozen Foods [1996] ATPR 41‑515 (the primary decision), the Court observed that in view of the period of conduct in question in that case it was not possible to determine what the price would have been but for the price fixing agreements in question (p 42,442). The Court did have regard to invoices which suggested prices, when discounting had been occurring, which were significantly lower than prices as a result of the price fixing agreements: these matters were not questions alive before the Full Court in the NW Frozen Foods decision. In Trade Practices Commission v Simsmetal [1996] ATPR 41‑449, the Court was satisfied that the agreed penalties proposed by the parties had a sufficient deterrent effect to counter‑balance the profit apparently derived from the contravening conduct (p 41,512) although it is not clear whether any specific “profit calculations” entered into evidence.
In other cases, however, it may be possible to identify the profits made by the contravener or the loss occasioned as a result of the contraventions or both for the purpose of determining an appropriate penalty.
In Secretary, Department of Health and Ageing v Export Corporation (Australia) Pty Ltd (2012) 288 ALR 702 at [62], Perram J in taking into account “factor (k)”, namely, the “financial position of the contravener, including any benefits derived” (see [49] of these reasons), observed, based on the agreed facts put before him, that in the period January 2007 to May 2008 the goods the subject of the proceedings (80 separate acts of importation during the period comprising a total of 35 separate therapeutic goods in the course of 19 shipments) constituted 15% of the respondent’s total imports and 14% of total supplies by it. His Honour observed that this conduct resulted in net earnings of $694,539 and he inferred, from those figures, that the respondent’s total net earnings for the 17 month period of the contravening conduct was approximately $5 million ($4,960,992). His Honour took into account the relativity between net earnings derived from the conduct and total net earnings in the period of the conduct.
The Full Court in Singtel Optus v ACCC, in making the quoted observations at [61] to [64] (at [67] of these reasons), made reference to the term “punishment”. In NW Frozen Foods at 296 and 297, Burchett and Kiefel JJ observe that “penalties imposed by s 76 are, as we have said, not criminal sanctions, and their purpose, established now by a long line of cases, is not punishment”. However, French CJ, Crennan, Bell and Keane JJ in ACCC v TPG Internet had regard to the observations of the Full Court in Singtel Optus v ACCC; approved aspects of the observations of the Full Court; and did not express any disapproval of references to the term “punishment” in the Full Court’s reasons. In Australian Competition and Consumer Commission v Ithaca Ice Works Pty Ltd [2002] ATPR 41‑851 at 44,543; [2001] FCA 1716, the Full Court, in imposing penalties under s 76 said this:
… we see little or indeed no difference between taking into account, in computing the penalty, the deliberate nature of the conduct in question (a matter the relevance of which is not in dispute) and taking into account the fact that the penalty should act as a punishment of the offender.
It may be that in Fair Work at [56], the plurality regarded the notion of punishment as something adapted to a criminal prosecution rather than a notion inherent in the exercise of the discretion in a civil penalty proceeding in determining an “appropriate” penalty. In Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 3) (2005) 215 ALR 301 (“ACCC v Leahy”), Goldberg J, although noting at [38] the observations of the Full Court in NW Frozen Foods and the contrary proposition in Ithaca Ice Works, seems to have exercised the s 76 discretion in respect of contraventions of s 45(2)(a)(ii) and (b)(ii) by reference to specific and general deterrence: [39]. The Full Court in J McPhee v ACCC found it unnecessary to decide whether punishment is a relevant factor to be taken into account in the exercise of the discretion under s 76 of the Act: the Court, [170].
I propose to exercise the discretion under s 76 having regard to all of the identified relevant matters except that I place no emphasis on the notion of “punishment” as that term is regarded in the context of a criminal prosecution. This may ultimately be a distinction without a difference in this case because the references by the Full Court to the term “punishment” in Singtel Optus v ACCC seem to me to have been used taxonomically in the sense of imposing the burden of an order for the payment of a pecuniary penalty in the exercise of the statutory discretion upon the relevant contravener having regard to all relevant matters rather than as a term properly descriptive of punishing a person as if convicted of a criminal offence. I infer that the plurality in ACCC v TPG Internet understood the references to punishment in the Full Court’s reasons (which the plurality expressly considered) as a taxonomic reference in the sense I have just described.
In Markarian v The Queen (2005) 228 CLR 357, an accused person pleaded guilty to a charge under the Drug Misuse and Trafficking Act 1985 (NSW) of knowingly taking part in the supply of a commercial quantity of heroin. The accused was sentenced to imprisonment for two years and six months with a non‑parole period of 15 months. The sentence took into account the commission of four other drug offences admitted by the accused. The contextual facts were that the accused, a heroin addict at the time of the conduct, had acted as a driver for a heroin dealer and had been paid for his services in heroin. The maximum period of imprisonment for the offence was 20 years. A Crown appeal to the Court of Criminal Appeal was allowed and a term of imprisonment of eight years with a non‑parole period of four years and six months imposed. In imposing that sentence, the Court had adopted as a “starting point” the maximum period of imprisonment applicable to a less serious drug offence and then made “proportional deductions” and “increases” from that starting point so as to reflect matters specifically relevant to the circumstances of the accused.
The determination of a sentence is, like the exercise of the discretion under s 76, a discretionary judgment: Markarian v The Queen at [25], Gleeson CJ, Gummow, Hayne and Callinan JJ. At [27], the plurality observe that apart from express legislative provisions, principle does not dictate the particular path that a sentencer must follow in reasoning to the conclusion reached that the sentence to be imposed should be fixed as it is when passing sentence (in cases where the penalty is not fixed by statute).
At [27], the true principle is put this way:
The judgment is a discretionary judgment and, as the bases for appellate review reveal, what is required is that the sentencer must take into account all relevant considerations (and only relevant considerations) in forming the conclusion reached. As has now been pointed out more than once, there is no single correct sentence. And judges at first instance are to be allowed as much flexibility in sentencing as is consonant with consistency of approach and as accords with the statutory regime that applies.
[emphasis added]
[citations removed]At [30], the plurality observe that legislatures do not enact maximum available sentences as “mere formalities” particularly as judges “need sentencing yardsticks”. The plurality observe that it is “well accepted that the maximum sentence available may in some cases be a matter of great relevance”.
At [31], the plurality observe:
It follows that careful attention to maximum penalties will almost always be required, first because the legislature has legislated for them; secondly, because they invite comparison between the worst possible case and the case before the court at the time; and thirdly, because in that regard they do provide, taken and balanced with all of the other relevant factors, a yardstick. That having been said, in our opinion, it will rarely be, and was not appropriate for Hulme J here to look first to a maximum penalty, and to proceed by making a proportional deduction from it. That was to use a prescribed maximum erroneously, as neither a yardstick, nor as a basis for comparison of this case with the worst possible case.
[emphasis added]
[citations removed]At [32], the plurality observe that the primary judge having started where he did, at a maximum, and then making deductions from it, failed to make an assessment of the sentence called for by the “objective facts”.
In Markarian v The Queen, the High Court was invited to reject sequential or two‑tiered approaches to sentencing taking as a starting point the maximum penalty available, in favour of a process of “instinctive synthesis”. However, the plurality observe that no universal rules can be stated in those terms as much turns upon what exactly is meant by a sequential or two‑tiered approach to determining penalty. Similarly, the process of instinctive synthesis might be wrongly understood as enabling a sentencer to pass sentence without giving exposed reasons for the sentence.
At [37], the plurality observe that a sentencing Court will, after weighing all the relevant factors, reach a conclusion that a particular penalty is one that should be imposed. In doing so, adopting, as a method, a mathematical approach to sentencing in which there are to be “increments to” or “decrements from” a predetermined range of sentences (that is to say, a “two‑stage approach” to sentencing), is both wrong in principle and apt to give rise to error and should not be adopted.
In this respect, the plurality adopted the observations of Gaudron, Gummow and Hayne JJ in Wong v The Queen (2001) 207 CLR 584 at 611‑612, [74]‑[76]. As to the notion of “instinctive synthesis”, the plurality, again adopting the observations of Gaudron, Gummow and Hayne JJ in Wong v The Queen at [75], observe that the task of the sentencing judge is to “take account of all of the relevant factors and to arrive at a single result which takes due account of them all” [emphasis added] and that this is “what is meant by saying that the task is to arrive at an ‘instinctive synthesis’”. The expression is not used to “cloak the task of the sentencer in some mystery” but is intended to reflect an obligation to balance “many different and conflicting features”.
Thus, the process of “instinctive synthesis” requires all of the factors to be balanced in a way which reflects an application of the “rules of reason” (rationality) taking into account all relevant matters, excluding extraneous or irrelevant matters and accurately having regard to the objective facts, all brought together in exposed reasons for the exercise of the discretion in the particular way, serving the public interest in transparency.
“Instinctive synthesis” certainly does not mean “informed gut reaction”. Nor, in truth, is it a result based on “instinct” but rather, it is a synthesis of all of the factors mentioned at [85] of these reasons. The term is probably better understood by reference to the substitutable taxonomy of “intuitive synthesis”: Fair Work, the plurality at [56].
In determining the amount of a pecuniary penalty, having regard to all of these considerations, it nevertheless remains important to recognise that “insistence upon the deterrent quality of a penalty should be balanced by insistence that it ‘not be so high as to be oppressive’”: NW Frozen Foods, Burchett and Kiefel JJ at 293 F‑G, adopting the observations of Smithers J at 17,896 in Stihl Chain Saws.
It should also be recognised that a penalty that “would deter a small company might have little effect on a very large one”, for the obvious reason: TPC v TNT at 40,168, Burchett J; see also TPC v CSR at 52,154, French J; ACCC v Leahy (No 3) (2005) 215 ALR 30 at [39], Goldberg J; Luke, Ch 21, Verses 1‑4, Authorised King James Version.
A further important consideration is the following matter.
In the exercise of the s 76 discretion “all relevant matters” must be considered and although the circumstances of every case will inevitably vary and the facts relevant to the contravening conduct will be different in each case and so too will the facts relevant to the 12 factors informing the exercise of the discretion, it nevertheless follows that to the extent that conduct in one case exhibits, in a broad sense, essential similarities with conduct in other cases which have attracted a particular pecuniary penalty, “similar penalties should be incurred”. That follows because “a hallmark of justice is equality before the law, and, other things being equal, corporations guilty of similar contraventions should incur similar penalties”: NW Frozen Foods at 295A‑B, Burchett and Kiefel JJ adopting the observations in Trade Practices Commission v Axive Pty Ltd [1994] ATPR 41‑368 at 42,795.
However, the fact‑intensive inquiry inherent in the determination of whether conduct contravenes the Act and the fact‑intensive inquiry going to each element of the factors informing the exercise of the discretion means that “other things” are “rarely equal” (Burchett and Kiefel JJ in NW Frozen Foods at 295B‑C) where contraventions of the Trade Practices Act are concerned.
In NW Frozen Foods, Burchett and Kiefel JJ observe at 295B‑C:
In the present case, differing circumstances, size, market power and responsibility for the contraventions as well as other factors, complicate any attempt to compare the penalties imposed on the appellant with those imposed on the other corporations.
Other considerations concern the application of the “totality principle” and the anterior question of the “one transaction” or “single course of conduct” principle, discussed as follows.
The single course of conduct principle and the totality principle
In Pearce v The Queen (1998) 194 CLR 610, the appellant was indicted on 10 counts. Counts 9 and 10 indicted him with maliciously inflicting grievous bodily harm with intent to do the victim grievous bodily harm; and breaking and entering the victim’s dwelling‑house and while in the dwelling‑house inflicting grievous bodily harm upon him. Section 33 of the Crimes Act 1900 (NSW) was concerned with malicious infliction of grievous bodily harm (count 9) and s 110 was concerned with breaking and entering a dwelling‑house and assaulting a person with intent to inflict grievous bodily harm (count 10). On counts 9 and 10 he was sentenced to 12 years’ incarceration (less time served) made up of eight years (less time served) and an additional four years. The sentences on counts 9 and 10 were ordered to be served concurrently with each other, and cumulatively with a sentence in respect of another offence.
Plainly enough, each of the offences against ss 33 and 110 contained an element that the other did not. Neither offence was wholly included in the other.
As to the challenge on the ground of double prosecution (that is, conviction of different offences in respect of substantially the same set of facts), McHugh, Hayne and Callinan JJ said this at 623 [40]:
To the extent to which two offences of which an offender stands convicted contain common elements, it would be wrong to punish that offender twice for the commission of the elements that are common. No doubt that general principle must yield to any contrary legislative intention, but the punishment to be exacted should reflect what an offender has done; it should not be affected by the way in which the boundaries of particular offenses are drawn. Often those boundaries will be drawn in a way that means that offenses overlap. To punish an offender twice if conduct falls in that area of overlap would be to punish offenders according to the accidents of legislative history, rather than according to their just desserts.
[emphasis added]
In Johnson v R (2004) 205 ALR 346, the appellant was convicted of two offences. The first count was that on or about 2 November 2000 he attempted to obtain possession of prohibited imports (ecstasy) to which s 233B of the Customs Act 1901 (Cth) applied. The second count was that on or about 2 November 2000, he attempted to obtain possession of prohibited imports (cocaine) to which s 233B applied. The two offences (to which the appellant pleaded guilty) arose from the one transaction. The primary judge regarded a sentence of 10 years on count 1 as appropriate and five years on count 2 as appropriate with the sentences to be served cumulatively. The primary judge reduced the sentences to take account of the totality principle and other particular statutory factors. The ultimate sentence was one of eight years on count 1 and three and a half years on count 2, to be served cumulatively.
I have described the scope of the market power enjoyed by QCL and the deliberateness of the conduct. The conduct in the case of the TEC contract was engaged in by the same individuals who were involved in the arrangements in relation to Millmerran. At the time of these contraventions, Pozzolanic/QCL did not have in place a compliance system which isolated and protected against the contraventions that occurred. I accept that the respondents have now put in place a compliance system with integrity. As to these contraventions, I am not satisfied that the respondents have demonstrated a culture of co‑operation with the ACCC. Nevertheless, it remains true that parties are entitled to test the contentions of the ACCC and advance whatever evidence and arguments they might wish to make in answer to the claims.
I am also satisfied that the senior officers of Pozzolanic/QCL were entirely astute to the competition law risks associated with framing and adopting the identified provisions.
I also recognise as found in the principal liability judgment that the effect upon competition by reason of the identified provisions was significant and meaningful. It inflicted harm upon the market by depriving market participants of an opportunity to engage with a new entrant supplier who would engage in rivalry and contestability thus forcing Pozzolanic/QCL to engage in competition, compete away inefficient costs and adapt their service offerings to the market. It is likely, as Professor Hay observed, and Mr Arto believed, that there would have been a significant effect upon QCL’s margins.
Taking account of these factors going to all of these qualitative considerations and having regard to the matters set out at [818], I am satisfied that an appropriate penalty in respect of the conduct of making the Tarong Contract with the relevant provisions is $5.5 million.
Having secured the contract, QCL continued to give effect to it. In the principal liability judgment, there is a vast amount of evidence about steps particular entities were seeking to take to secure some degree of access to Tarong ash or (potentially) ash from Tarong North. Apart from entirely episodic collections of ash by a possible third party at moments in time when Pozzolanic may not have required access to all the ash available through its facilities attached to the critical hoppers, no access was available to third parties.
Those who tried were unsuccessful.
The Tarong ash was particularly significant ash in the context of the SEQ cgf market. It was well known and well received. Third parties securing access to the Tarong ash and entering the SEQ cgf market would have provided meaningful and significant competition. Again, there is nothing in any of the vast amount of material relating to the formulations of strategy by Pozzolanic/QCL and their analysis of the economic impact in the market which suggests any disposition to accommodate the possibility of third party access to Tarong ash. The entire purpose of the identified provisions was to foreclose (and risk‑manage) any possibility of such an outcome. Having secured provisions serving that purpose, QCL, until the beginning of June 2003, continued to give effect to the provisions and thereafter Cement Australia continued to give effect to them.
It is true that the conduct of giving effect to the provisions is conduct which bears an inevitable relationship with the making of the provisions. If the conduct is examined in a linear sense rather than a disjunctive sense, the conduct consists of a corporation forming a view about striking an agreement with provisions which have the purpose, effect and likely effect of substantially lessening competition and then, having secured a contract with those provisions, performing the contract which necessarily engages giving effect to the provisions so made. However, in my view, the conduct should not be viewed as simply one class of linear conduct in the context of the Tarong Contract. There are two separate classes of conduct in relation to this contract.
The first is the body of activity, thinking, engagement and completion of arrangements for a contract containing particular provisions which had the purpose and creatively had the effect and likely effect of substantially lessening competition (“making”).
The second class of conduct involved embarking upon activities to give voice to the outcome achieved by making the contract. At any moment in time when it became apparent to Pozzolanic/QCL or Cement Australia that systemically depriving third parties of access to Tarong ash was having and would be likely to have the effect of substantially lessening competition by reason of the provisions, Pozzolanic/QCL and/or Cement Australia could have elected not to take advantage of those provisions and could have put in place protocols enabling third party access to Tarong ash. Officers of those entities could have elected not to give effect to provisions which were adopted expressly for the purpose of foreclosing third party access to the best ash in SEQ from an SEQ power station.
They chose not to do that. Again, doing so would have been heterodoxy.
I am satisfied that an appropriate penalty in respect of giving effect to the Tarong provisions having regard to all of these considerations and the matters set out at [818], is $5.5 million.
In relation to the Tarong Contract, Pozzolanic contravened s 45(2)(a)(ii) by making the contract containing the provisions having the purpose, effect and likely effect; Pozzolanic contravened s 45(2)(b)(ii) by giving effect to the provisions; QCL was knowingly concerned in Pozzolanic’s entry into the Tarong Contract containing the relevant provisions having the purpose, effect and likely effect; and QCL was knowingly concerned in Pozzolanic’s contravening conduct of giving effect to the provisions. Cement Australia contravened s 45(2)(b)(ii) on and from 1 June 2003 by giving effect to the relevant provisions.
The Millmerran Contract was amended on 28 July 2004.
In these reasons, I have discussed the circumstances of the amendment. Mr Clarke and Ms Collins were the officers who were most closely engaged in the negotiations for the amendment to the contract. Mr Clarke ultimately received instructions from Mr Leon. The circumstances of that engagement have been discussed extensively in the principal liability judgment and in these reasons.
Mr Clarke was a senior member of the management team within Cement Australia. Ms Collins had formulated various postulations of what might occur in the market in terms of price, revenue and the impact upon EBIT earnings should a rival enter the SEQ cgf market. The evidence given by Mr Clarke about those views has been addressed extensively in the principal liability judgment. Mr Clarke thought that ultimately the technical issues with the ash would be resolved and that it would likely be useable. Mr Clarke took the view that the contract ought to be amended and extended and one of the purposes informing his mind, as a substantial purpose, was preventing a rival from securing access to Millmerran unprocessed ash and preventing a rival from entering the SEQ cgf market.
When Cement Australia caused Pozzolanic to enter into the amended arrangements with MPP/MOC, Cement Australia continued to enjoy a monopoly position in the SEQ cgf market. I accept the ACCC’s statistics in relation to the size of the Cement Australia Group of companies and I accept that it is relevant to have regard to the Partnership arrangements and the assets and scope of undertaking of that Partnership. It was an arrangement crafted expressly for the operation of the merged entities and it was by operation of that merger arrangement that Cement Australia assumed the role of a monopoly supplier of cgf in the SEQ cgf market.
I am also satisfied that the conduct of amending the contract in the context of the identified provisions was conduct deliberately undertaken, at least for a substantial purpose, to foreclose the possibility of third party entry should the Millmerran ash prove to be free of the technical difficulties which had bedevilled it until then. Having caused Pozzolanic to make the amended Millmerran Contract, Cement Australia continued to give effect to it. The Millmerran ash never entered the market. The technical questions associated with the ash continued to be examined. Unlike the Tarong Contract, I regard the making of the contract and giving effect to it as one course of conduct. There is, however, an additional consideration concerning the role of Ms Collins and Mr Clarke. There can be no doubt that both Ms Collins and Mr Clarke well understood Cement Australia’s monopoly position in the SEQ cgf market and well understood postulations that rival entry would have a significant impact upon prices and the EBIT margin Cement Australia used as the measure of its earnings (apart from EBITDA). I have described aspects of the engagement between Mr Clarke and Ms Collins and also Mr Adams earlier in these reasons.
It seems to me that an appropriate penalty in respect of the making of the amended agreement having regard to all of the factors I have discussed and the matters set out at [818], is $850,000. It was made by Pozzolanic at the direction of Cement Australia. In that sense, Cement Australia was knowingly concerned in the contravention. I regard the making of the amended contract and Cement Australia being knowingly concerned in its making as one class of conduct.
As to the Swanbank Contract, the role of the Swanbank ash was also important. The volumes were relatively small and that became more so by 2005. Nevertheless, the ash produced by Swanbank was ash from the power station located very close to the Brisbane catchment. It was another source of cgf able to be traded in the SEQ cgf market. Pozzolanic/QCL had secured an exclusive supply agreement with the owner of the power station which ultimately became CSE. The contract had been extended on exclusive supply terms to 31 December 2004 under the extensions described in the principal liability judgment and described in these reasons. The contract was the subject of a further extension as a result of the exchanges between Mr Christy and Mr White discussed extensively in the principal liability judgment and in these reasons.
The Swanbank Contract was an important part of the market power exercised by Pozzolanic/QCL. No third party could secure access to the ash having regard to the contractual arrangements in place with Pozzolanic/QCL. Pozzolanic/QCL was entirely astute to the exclusive character of the contract. Pozzolanic/QCL understood that CSE was seeking to establish terms which would enable third parties to secure access to its ash. At the time of the extension to 31 December 2004 and the further extension to 30 June 2005, Pozzolanic/QCL and then Cement Australia continued to enjoy a monopoly position in the market. The terms of the Swanbank Contract foreclosed any possibility of supply of Swanbank ash to a third party.
Having secured the contract to 31 December 2004 and an extension of it to 30 June 2005, Pozzolanic/QCL up until May 2003, and thereafter Cement Australia, continued to give effect to the contract. Cement Australia was knowingly concerned in Pozzolanic’s extension of the contract from 31 December 2004 to 30 June 2005.
Mr White was responsible for the extension of the contract on 31 December 2004 to 30 June 2005. Mr White’s position and his seniority have been extensively described already.
I accept the submissions of the ACCC in relation to the Swanbank Contract set out at [383] to [390] of these reasons except in relation to the quantum of the penalty. I also accept the submissions of the ACCC in relation to the Swanbank extension for the period 1 January 2005 to 30 June 2005 except as to the quantum of the penalty.
I have taken into account the nature of the market harm by reason of the provisions of the Swanbank Contract, in a qualitative sense. I have also had regard to the provisions of the principal liability judgment concerning the Swanbank Contract and all matters relevant to the contraventions. I have examined at [818], the quantitative aspects urged by the ACCC in relation to benefit and market harm which engaged questions in relation to Swanbank and the sale of Swanbank cgf. Having regard to all of these factors relevant to the assessment of penalty, it seems to me that in respect of the contravening conduct in the period up to 31 December 2004, an appropriate penalty in relation to the making of that contract with the identified provisions is $1.5 million. As indicated in the principal liability judgment, substitutable ash from Swanbank would have had a significant and meaningful effect upon rivalry, prices, revenue and margins. Prior to deterioration in the quality of the ash towards the end of the contravening period, Swanbank ash was regarded by the respondents as substitutable for Tarong ash. In respect of the making of the six month extension to 30 June 2005 by Mr White, an appropriate penalty is $200,000. The extension was for a short period. In relation to the contract up to the period 31 December 2004, Pozzolanic gave day‑to‑day effect to that contract as did QCL by selling cgf produced from Swanbank ash. It seems to me, having regard to all of the relevant factors, that an appropriate penalty in respect of that conduct is $1 million. Like the Tarong Contract, there are two classes of separate conduct in relation to the contraventions concerning Swanbank as an analysis of conduct overall. In respect of the giving effect to the provisions in the period 1 January 2005 to 30 June 2005, the appropriate penalty is $50,000. Cement Australia was also knowingly concerned in the extension of the contract to 30 June 2005. The conduct of Mr White for Cement Australia of making the extension and Cement Australia being knowingly concerned in the contravention is a single course of conduct and no additional penalty ought to be imposed in respect of Cement Australia being knowingly concerned in the extension conduct.
A consideration of the factors of benefit and market harm quantitatively
In relation to the various approaches to determining market harm caused by the conduct or benefit derived by the respondents, I have formed these views.
(1)An attempt to measure, quantify or estimate the prices that would have prevailed in a market but for the contravening conduct is an extremely difficult and precise task. Although the ACCC in its further submissions disavows the notion that it is seeking to establish a but for price, the substance of the submissions are really directed to that task. The task is undertaken in this case by the ACCC to try and demonstrate or estimate the difference between the prices charged for cgf by QCL and later, Cement Australia, in the period 2002 to 2006 and prices that would likely have prevailed in that period had not the respondents entered into and given effect to provisions of the contracts adopted for the purpose and having the effect or likely effect of substantially lessening competition by foreclosing access to third parties to ash from Tarong, Tarong North and Swanbank (and Millmerran at least for a time, as to effects).
(2)That raises the question of the counterfactual. I will not repeat what I said at [477] to [489] of these reasons.
(3)The point of undertaking this analysis of the but for price is to try and identify the extent to which the respondents were better off by securing a price, a volume of sales and revenue and a level of EBIT they would not have enjoyed had the provisions not been adopted constraining third party access and new entrant competition in the SEQ cgf market. The ACCC also seeks to identify the market harm brought about by the conduct. The application of the with and without test has already made clear qualitatively that the process of competition in a future world with the provisions was substantially lessened as compared with a future world without the provisions. Now, the ACCC seeks to bolster the serious qualitative assessment already made in the principal liability judgment without an actual measure of the difference between the actual position as to prices, volume, revenue and EBIT as it was from 2002 to 2006 with those things as they would have been but for the contravening conduct.
(4)As mentioned, the ACCC says in its further submissions that it is not trying to “quantify” the but for price and consequential but for volumes, revenues and EBIT but rather it seeks to identify an estimate of those things and also the forward‑looking estimates of the consequences of new entrant competition identified by the respondents themselves in their own documents. This approach is later described by the respondents as the “hybrid” approach between qualitative assessments and best informed estimates of likely differentials.
(5)One of the methods of gaining a sense of how much higher cgf prices were in the period 2002 to 2006, by reason of the contravening conduct, than they would have been is the extent to which the prices of cement and cgf “de‑coupled” in the years 2011 and 2012. I accept the submissions of the respondents that the two invoices identified at [353] of these reasons provides no basis for a conclusion that but for the contravening conduct cgf prices in 2002 to 2006 would have been a particular proportion or ratio of the GP cement price [REMOVED TO THE CONFIDENTIAL SCHEDULE] and thus prices would have been a lesser ratio than it was (50% to 60%) in the period 2002 to 2006 with the result that, analytically, one can say that cgf prices would have been lower in the period 2002 to 2006 than they were.
(6)At [333] to [349] of these reasons, I describe another measure proposed by the ACCC of the likely price differences that would have prevailed in the period 2002 to 2006 but for the contravening conduct. That measure involves an analysis of pricing differentials between Cement Australia’s delivered prices and the delivered prices for cgf of Sunstate and IFB in the years 2011, 2012 and 2013, Sunstate having entered the SEQ cgf market in April 2007 (with ground Tarong North run‑of‑station ash) and IFB having entered in 2008 (with Millmerran ash). The margin difference for each year is set out at [349] of these reasons as it relates to Nucon. It is not an insignificant margin. Another example is given for purchases by Rocla, Gailes. The “study” years 2011, 2012 and 2013 are 5, 6 and 7 years after the end of the contravening period 2002 to 2006. I have great difficulty with this measure for a number of reasons. First, the study years for the transactions are quite a long time after the period of the contraventions which began on 30 September 2002. The contravening period under examination in the principal liability judgment ends on 31 December 2006. Second, although that which is supplied is flyash, the source of the ash in the case of Cement Australia is Tarong and Gladstone ash each of which has its own particular properties. The source of the Sunstate ash is Tarong North as mentioned, ground in Sunstate’s mill, until it reaches the cgf particulate standard. The source of IFB’s ash is Millmerran and some of the other comparative ash is Bayswater ash. It is not clear to me, on the present evidence, what role in pricing in 2011, 2012 and 2013 differential sources of ash played, if any, or what the impact of any comparative cement equivalence may have been or its role in pricing. Third, more would need to be known about the transactions to draw the conclusion sought to be established which is that the significant pricing differentials are only attributable to alternative pricing made possible by entry by Sunstate and IFB and had they entered the SEQ cgf market from 2002 to 2006 (which they did not, it is said, by reason of the contravening conduct), the pricing differentials now apparent in these later years of 2011, 2012 and 2013 would have been seen in Sunstate or IFB’s pricing (or other third party pricing). The ACCC says that Sunstate’s “ex‑works” price was [REMOVED TO THE CONFIDENTIAL SCHEDULE] than Cement Australia’s “average delivered price” in 2013, and the transport costs of delivering Sunstate ash to the buyers batching plants (on this comparative basis) does not account for the difference, as the tables reveal at [333] to [349] of these reasons. However, I am not satisfied that this measure of pricing differentials for the years 2011, 2012 and 2013 tells me anything ultimately probative of prices which would have prevailed in the period 2002 to 2006 but for the contravening conduct.
(7)Another measure said to reveal an analogue of prices that would have prevailed in the period 2002 to 2006 but for the contravening conduct is a comparison of SEQ prices with prevailing prices in NSW. The supply of cgf in NSW was contestable in the relevant years. Prices were a function of that contestability at least in part. The ex‑works prices at Mt Piper, Eraring and Bayswater are set out at [322] of these reasons for the period 2001 to 1 December 2006. A delivered pricing comparison between the prevailing prices for delivered cgf into NSW from NSW power stations and prevailing prices for cgf delivered from Tarong and Swanbank to the batching plants of buyers in SEQ is set out for the years 2003, 2005 and 2006 at [323] of these reasons. The differences, plainly enough, are significant: see [329] of these reasons. The difference postulated for the years 2002 to 2006 are set out at [330] of these reasons.
(8)The difference per tonne for each year is said to be: 2002 - $26.50/t; 2003 - $33.81/t; 2004 - $26.46/t; 2005 - $29.92/t; 2006 [REMOVED TO THE CONFIDENTIAL SCHEDULE]. The additional revenue for the period 2002 to 2006 based on the volume sold having regard to these price differentials is [REMOVED TO THE CONFIDENTIAL SCHEDULE]. The point emphasised by the ACCC is that NSW is a geographic catchment that represents a proper analogue of the SEQ market. The ACCC says that what follows is that had the contravening conduct not occurred, new entrant rivalry in SEQ would have brought about a level of delivered prices on the part of Cement Australia very similar to those prevailing in NSW. Thus, this method demonstrates, it is said, a measure of the margin by which prices were higher in SEQ in 2002 to 2006 than they would have been but for entry and contestability which was foreclosed by the provisions of, particularly, the Tarong and Swanbank Contracts. In NSW, FAA was competing with Hyrock. The ACCC says that FAA had agitated for entry into the SEQ cgf market through access to both Tarong and Millmerran ash and there is no reason to believe that had the contracts at Millmerran and Tarong/Tarong North (but particularly Tarong/Tarong North) not contained the identified provisions, FAA would not have sought to secure access to that ash. The merger of May 2003 resulted in Cement Australia having a 50% interest in FAA (and therefore ultimately Holcim, Rinker and Hanson, the beneficial owners of that interest).
(9)Dr Williams accepts that one possible explanation for the marked differences in prices between the two regions is that the effective monopoly of Cement Australia in SEQ meant that it could charge uncompetitive prices. Dr Williams said that another possible explanation is that the ash sources are not homogenous. The product differentiation in the ashes would require extensive empirical work which Dr Williams had not undertaken. Dr Williams thought that another possible explanation was that transfer pricing might be a cause of the differences. The similarity in prices between Eraring, Mt Piper and Bayswater ash suggested to Dr Williams that those ashes were reasonable substitutes for each other. As to aspects of the pricing, Dr Williams seemed to be confused about the 2006 prices. However, he accepted that the SEQ average delivered price for 2006 was [REMOVED TO THE CONFIDENTIAL SCHEDULE] and the highest NSW price for 2006 was $54.11/t. Thus, there plainly were differentials.
(10)Apart from these possible explanations, Dr Williams criticises the method of simply applying the price difference between the two regions each year across all tonnes sold in SEQ to produce an aggregated price difference of [REMOVED TO THE CONFIDENTIAL SCHEDULE] because the price difference, by doing so, is applied to all “tied sales” across each of the five years. The second criticism is that no proper controls were applied to isolate the causal influence of transport costs; whether prices charged were at arms‑length; and tied sales were not excluded.
(11)Again, I have difficulty with this method as a measure of the price that would have prevailed but for the contravening conduct. Dr Williams accepts that reference to a truly analogical market is one method recognised by economists for testing a but for price. Dr Williams also accepts that the price differentials are significant and that they need to be explained. Apart from the criticisms already mentioned, Dr Williams says that no conclusion can be reached about “average prices” unless all of the invoices for the period under inquiry are examined. The prices could just be point in time prices. It is not clear whether the prices set out in the tables are properly representative or not in the absence of a complete analysis of all of the invoices.
(12)It seems to me that these questions of whether the ash is homogenous; the lack of control for other causative factors; and the need for an examination of all the invoices over the period under examination, does not enable a conclusion to be reached that, on this measure, prices in SEQ in the period 2002 to 2006 were higher than they would have been but for the contravening conduct, by the order suggested.
(13)This measure is put forward as a measure of market harm of [REMOVED TO THE CONFIDENTIAL SCHEDULE]. That number depends upon the integrity of the pricing data to determine the differential per tonne. In principle, however, Dr Williams accepts that direct market harm can be quantified by multiplying the tonnage by the difference in price per tonne between the price actually charged and the price that would have been charged but for the conduct ([679] of these reasons) provided that those tonnes were sold to external parties: that is, not tied sales to shareholder owners. As a method of measuring market harm, therefore, Dr Williams accepts the principle of the method subject, of course, to the elimination of tied sales in the calculation and the integrity of the data.
(14)Although I have expressed difficulty with the determination of the differential per tonne each year in the table at [330] of these reasons, as earlier mentioned based in part upon aspects of the evidence of Dr Williams, the differences on the face of the data are significant and they do require an explanation. The ultimate difficulty is that the evidence does not demonstrate a truly probative basis for a causative finding that the contravening conduct is the source of the differential in that measure.
(15)The question of tied sales raises a much more general point of principle. Dr Williams says that tied sales should be excluded because an examination of market harm is about identifying harm caused by the contravening conduct to others: see [669] to [673] of these reasons where Dr Williams identifies the principled foundation for that view based upon his expert opinion and his understanding of the economic orthodoxy applied to determining market harm in the context of deterrence. As to the circumstances of Holcim, Rinker and Hanson and their relationship with Cement Australia, Dr Williams accepted that if Hanson, as a shareholder concrete producer buying flyash, was charged $4/t more than a rivalrous price due to contravening conduct and $1/t came back to it (due to its 25% shareholding interest) and the same result occurred for Hanson, then 50% of the higher price would go in a circle and 50% would not. If Hanson and Rinker each pay $4/t more than the “but for” price as a measure of the market harm, Cement Australia then has $8/t (and leaving aside costs for the moment) $2/t would be returned to each of Rinker and Hanson and $4/t would be returned to Holcim, a non‑concrete producer. It seems then that if 60% of the sales are tied, only 50% of that 60% should be excluded. If that is so, and the market harm is said to be [REMOVED TO THE CONFIDENTIAL SCHEDULE], 60% of that amount is [REMOVED TO THE CONFIDENTIAL SCHEDULE] and 50% of that number is [REMOVED TO THE CONFIDENTIAL SCHEDULE]. The market harm excluding tied sales would then be [REMOVED TO THE CONFIDENTIAL SCHEDULE] assuming the integrity of the pricing differentials which, of course, for the reasons mentioned, cannot be assumed.
(16)I have examined the literature and the cases to try and identify judicial authorities for the proposition that tied sales ought to be excluded in measuring market harm consistent with the principle articulated by Dr Williams. I can find no authority on the point. As a matter of foundation principle, it seems to me to be correct to say that if a Court is seeking to identify the market harm caused by contravening conduct, the focus of the inquiry ought to be upon the market harm caused to parties other than entities associated with the companies engaging in the conduct.
(17)Accordingly, I accept the proposition that in determining market harm, the proper course is to exclude harm inflicted upon shareholder entities who are engaging in tied acquisitions.
(18)Apart from market harm, the ACCC has conducted an analysis of benefit derived by the respondents from maintaining a higher market share than would have been the case but for the contravening conduct. I accept, in substance, the accuracy of the data contained in the tables at [267] and [268] of these reasons as it relates to the full five years in those tables. The Tarong EBIT calculation for those years is at [408] of these reasons [REMOVED TO THE CONFIDENTIAL SCHEDULE] and the combined Tarong and Swanbank EBIT calculation is at [361] of these reasons [REMOVED TO THE CONFIDENTIAL SCHEDULE. After excluding the additional Millmerran costs, the five year EBIT calculation is [REMOVED TO THE CONFIDENTIAL SCHEDULE]. These financial statistics represent the value of the SEQ flyash business of and to the respondents. The EBIT of [REMOVED TO THE CONFIDENTIAL SCHEDULE] as a proportion of total revenues is an EBIT of 43.7% for the full five calendar years set out in those tables. It represents an EBIT of [REMOVED TO THE CONFIDENTIAL SCHEDULE] over 1,777,514 tonnes averaged over the five years.
(19)The ACCC says that this position reflected in these statistics can be usefully and relevantly contrasted with the position the respondents would have been in across the period at least 2003 to 2006 had they lost the Tarong Contract but won the OMC. They would have earned $0.14/t or $6,429 and this difference between the two positions represents “one straightforward indicator of the potential financial benefit the [respondents] earned by preventing competition”: [367] of these reasons. In other words, the ACCC sees the entire flyash undertaking of the respondents, largely derived from the sale of Tarong ash (see [408] of these reasons) as a benefit derived from the contravening conduct which should be stripped away as a function of deterrence. Plainly, that is not correct.
(20)The true analytical position is that discussed at [477] to [489] of these reasons.
(21)The whole of the revenues and EBIT of the flyash business from the date of the Tarong Contract (in particular) forward cannot be attributed to the adoption of the impugned provisions and thus the contravening conduct in that causal sense. Pozzolanic/QCL might have entered into the Tarong Contract with none of the impugned provisions and yet it might have sustained at least a proportion of its revenues and EBIT in the face of responding to competition notwithstanding that absent the provisions, new entrants would likely have entered with access to Tarong ash (perhaps FAA or Transpacific but also others) and brought about a significant impact on earnings through contestability with Pozzolanic/QCL and later Cement Australia. The competition impact of the provisions is significant but if the benefit brought about by reason of the contravening provisions is to be assessed, quantified or estimated, then it is necessary to approach the matter on the footing of the method identified at [477] to [489] of these reasons.
(22)Another measure of the benefit said to have been derived from the contravening conduct is that once contestability occurred (foreclosed by operation of the provisions) through Sunstate and IFB, the contravening grip of the respondents on non‑tied sales would have been lost and the ACCC says that the data shows that these sales collapsed from 40% of sales in 2005 to merely [REMOVED TO THE CONFIDENTIAL SCHEDULE] in 2010. The ACCC says that had Sunstate or IFB entered the market in 2005 and had that event resulted in a reduction in sales to sales of cgf by Cement Australia to only [REMOVED TO THE CONFIDENTIAL SCHEDULE] of the non‑tied customers, Cement Australia would have lost [REMOVED TO THE CONFIDENTIAL SCHEDULE] of its 2005 EBIT earnings: see [371] to [372] of these reasons. This is said to give an indication of the measure of the benefit Cement Australia derive from adopting the impugned provisions.
(23)Generally, the non‑tied sales represented 40% of the SEQ cgf sales of the respondents from 2005 to 2007. Those sales declined throughout 2008 to 2010. In the years 2011, 2012 and 2013, Cement Australia’s percentage of sales volume in SEQ declined from [REMOVED TO THE CONFIDENTIAL SCHEDULE] in 2012 and then [REMOVED TO THE CONFIDENTIAL SCHEDULE] in 2013. The volume of sales won by competitors, Sunstate, Hyrock and IFB in that period, correspondingly amounted to [REMOVED TO THE CONFIDENTIAL SCHEDULE].
(24)As described, one significant benefit derived by the respondents from the contravening conduct is said to be the retention for each year from 2002 to 2006 of sales of cgf to non‑tied customers represented 40% of the sales revenue. The ACCC then postulates the impact the respondents would have suffered had the impugned provisions not been adopted. The ACCC says that instead of deriving an EBIT across those five years of [REMOVED TO THE CONFIDENTIAL SCHEDULE], the EBIT would have been [REMOVED TO THE CONFIDENTIAL SCHEDULE], a difference (or postulated benefit) of [REMOVED TO THE CONFIDENTIAL SCHEDULE]. However, if an assumption is also made that prices were $14/t higher than they would have been but for the contravening conduct, further adjustments for that price difference on the 60% of the remaining sales results in a contended potential EBIT loss of [REMOVED TO THE CONFIDENTIAL SCHEDULE]. The respondents are said to have benefited to that quantifiable extent by reason of the contravening conduct: [375] of these reasons. That amount is then adjusted by the ACCC to [REMOVED TO THE CONFIDENTIAL SCHEDULE]: [376] of these reasons.
(25)A further measure along this line of thinking is that if the respondents had suffered a loss of 40% of sales for each of the five years 2002 to 2006 and prices on the remaining 60% of sales had occurred at the prevailing NSW cgf delivered price, the potential EBIT loss is then said to be [REMOVED TO THE CONFIDENTIAL SCHEDULE]. That amount is said to be a measure of the benefit the respondents derived over the five years 2002 to 2006 and as a matter of principle, that benefit ought to be removed from the respondents in the interests of serving the objective of deterrence.
(26)This calculation of benefit is, in many respects, quite problematic. It assumes that there would have been a loss of non‑tied sales but for the contravening conduct in the way described. The position in relation to tied sales would have been different in the period from 26 February 2003 to the end of May 2003. From 1 June 2003, the sales to the shareholder concrete producers were retained by Cement Australia not because of the contravening conduct but by reason of the shareholder equity interest those buyers held in the supplier of the product. As to the non‑tied sales, plainly there would have been a significant impact upon those sales as Professor Hay suggested. What is not clear is whether responsive rivalry from QCL and later Cement Australia would have resulted in a proportion of those sales being held by QCL/Cement Australia. QCL and Cement Australia might well have been reluctant to supply Tarong cgf to non‑tied buyers operating batching plants within a relevant catchment of a batching plant of a shareholder concrete producer for fear that the MFN provisions of the contracts would have required QCL/Cement Australia to provide the same price to those buyers as the non‑tied buyers notwithstanding that the tied shareholder buyers enjoyed the benefit of the “50% goes around in a circle principle”.
(27)There is no doubt that QCL/Cement Australia derived a benefit by reason of the contravening conduct in retaining a certain level of non‑tied sales during the period 2002 to 2006, a significant proportion of which would have been lost to a third party entrant. The difficulty I have with the formulations as described, in the necessary detail required of the analysis as set out in these reasons, is that as a true measure of the benefit, it is not clear to me what proportion of the non‑tied sales would have been lost in the period 2002 to 2006. The other calculations are then dependent upon an assumption that the entire 40% of the sales would have been lost and, on top of that, the price in any event was $14/t higher than it would have been with the result that recalculations must be made on the balance 60% of sales to reflect the deterioration in revenue and EBIT (apart from the further table factoring in the NSW delivered price as a further calculation).
(28)I am not satisfied that these calculations provide the Court with a probative analysis of a but for benefit. As I have said, I entirely accept that QCL and Cement Australia garnered to itself a real and meaningful benefit by adopting the provisions. My difficulty is that in attempting to either quantify the measure of that benefit or, as the ACCC later says, estimate that benefit on an informed basis, I cannot attribute a quantification or estimate of the kind sought to be asserted by the ACCC based on these calculations.
(29)Apart from these matters, a number of other propositions need to be addressed.
(30)I accept that sales to shareholder customers, in the way I have described it, ought to be removed from the calculation if the exercise is one of seeking to calculate market harm.
(31)I accept that in calculating the benefit derived from the contravening conduct, the starting point is to isolate the revenue derived during the period of the contravening conduct and, in that regard, I accept that the relevantly adjusted revenue is about [REMOVED TO THE CONFIDENTIAL SCHEDULE] according to the matters described at [490] of these reasons.
(32)Although I accept that the calculation of market harm ought to exclude harm, in effect, inflicted upon itself or its related corporations in the form of the shareholder concrete producers, it is not entirely clear to me that in seeking to identify a benefit derived by QCL/Cement Australia in supplying cgf at a price higher than the but for price, the returns to the equity owners who are shareholder concrete producers ought to be taken into account in off‑setting the market measure of the benefit derived by the supplier. However, if the analysis involves accepting that any profit extracted from a shareholder buyer due to a higher price, is returned to the concrete producer equity owners as to 50%, the better view is that the measure of the so‑called “benefit” derived through the higher but for price ought to be discounted to reflect a 50% return to the concrete producer equity owners.
(33)As to the EBIT earnings, there is much controversy about the true measure of the EBIT. For the purposes of seeking to examine the EBIT earnings, it seems to me that a measure of about 37% is an average benchmark EBIT to test the calculations.
(34)As to the off‑setting of the Millmerran costs, Pozzolanic/QCL incurred an ongoing royalty obligation in entering into the contract. It may have been a price QCL was willing to pay to secure the contract for ash supply from the Millmerran power station without provisions which had the purpose, effect or likely effect of substantially lessening competition. In fact, Pozzolanic/QCL entered into an obligation to pay royalties under a contract which contained provisions adopted for the purpose and having the effect or likely effect of substantially lessening competition. That was a price Pozzolanic/QCL was willing to bear and an obligation Cement Australia assumed as it gave effect to the contract. To the extent that an attempt is made to quantify or estimate the benefit derived from the contravening conduct, it seems to me that costs related to the acquisition of flyash under a contract containing provisions prohibited by the Act ought not to be taken into account in reducing the measure of the contended benefit. Those costs simply lie where they fall.
(35)As to the calculation of the costs to be taken into account, the respondents say that there are many other costs allocated to the MIC segment which ought to have been allocated to the flyash business. The respondents historically calculated EBIT and EBITDA on a particular basis and I can see no basis on which costs that have never been regarded by the respondents as part of the flyash business should now be treated as costs of the flyash business for the purpose of seeking to calculate the measure of the profit.
(36)As to the tax, I accept that there is some evidence about earnings and the relationship between earnings and the tax liability of the respondents. However, the respondents could have put on focused, succinct material about that question directed expressly to the tax position. They chose not to do so and it is not clear to me what the tax position of the respondents is or has been and whether any non‑deductible benefit ought to be reduced by the tax burden that theoretically falls upon the profit margin elevated by reason of the non‑deductibility of a pecuniary penalty.
(37)I accept that leaving aside the tax question but taking into account the adjustments already indicated (but not the Millmerran costs) the EBIT derived by the respondents in the precise period of the contraventions (rather than the total period 2002 to 31 December 2006) is probably an amount between $13,500 to possibly $20,000.
(38)I also accept that it does not necessarily follow that all of this EBIT would have been lost in the face of rivalry and that all of it represents a true “benefit”. Contestability would have resulted in QCL/Cement Australia retaining some proportion of its EBIT earnings. What the measure of that retention might have been or the measure of the actual lost EBIT is not really clear to me notwithstanding an intensive consideration of all of the data.
(39)The last matter on this topic is the emphasis the ACCC attributes to the internal analysis by the respondents of the forward‑looking position should a competitor enter the SEQ cgf market. Dr Williams says that it is not inappropriate to examine the thinking within the respondent group but that whatever the thinking of the relevant individuals might have been, it rises no higher than the expression of an opinion and does not reflect hard analysis of a but for price upon which economists would rely. In short, economists would want to test the opinions by reference to hard data to get the answer to the question of what the but for price might have been and that analysis might or might not align with the expressions of opinion. I accept entirely that as a true analytical exercise, the opinions expressed by individuals within the respondent group would need to be tested to determine whether their assessments of the forward‑looking price were likely to be correct. It is important to remember that the opinions were forward‑looking projections of the price that would, in their view, prevail in the face of competition. They were based on certain assumptions some of which proved to be untrue. Notwithstanding all of those qualifications, I do not accept that the Court ought to simply put to one side the expressions of opinion of experienced managers charged with the conduct of the business and experienced directors charged with the governance of the companies. As already indicated, those individuals are probably in the best position to make a market assessment of likely future events notwithstanding that future events might prove their judgements to be wrong. It is clear that Mr Arto and Mr Maycock thought that the assessments by Mr Wilson and Mr Ridoutt were exaggerated, strong expressions of view and perhaps a postulation of the worst possible case. It is also true that Mr Maycock did not accept those assessments as a likely result once QCL began to engage in the competitive process.
(40)Nevertheless, Mr Ridoutt and Mr Wilson thought that there would be a significant price reduction should new entrant competition emerge and it would be likely to be in the order of a $10/t reduction in the price of cgf. Mr Arto seemed willing to act on that view. He certainly had his own views about the benchmark margin QCL should seek to preserve. Later, Ms Collins had very similar views about the likely price reduction should Cement Australia find itself in the very unfortunate and undesirable position of having to compete with a rival for the sale of flyash in SEQ. Revenues and EBIT earnings would be under pressure. She spoke about a $10/t price reduction. She pressed the proposition with Mr Clarke.
(41)I accept that these postulations by Mr Ridoutt and Mr Wilson and later by Mr Clarke and the emerging reality which Mr White confronted are, at the end of the day, simply expressions of opinion. They remain, however, informed opinions. They cannot be in any sense determinative or probative of a price which would have emerged in the period 2002 to 2006 but for the contravening conduct and the postulations of a price reduction cannot simply be projected across the entire period of the contraventions. That is simply not a rational approach. However, these expressions of opinion make it very plain that the most informed market participant fully expected there to be a significant impact upon the price should a new entrant emerge with contestable ash and seek to compete away the margin and price enjoyed by the monopoly incumbent. Ultimately, it is not possible to put a number in any credible way on the measure of that benefit because it simply depends upon too many factors and assumptions and is ultimately not supported by hard data establishing a but for price. The entire exercise of trying to postulate, by reference to hard data and sound economic analysis, a but for price, is a very complex exercise. I have undertaken with economists such a detailed exercise in seeking to determine the but for price for electricity transformers which would have prevailed had participants in that industry not engaged in cartel conduct. The opinions of the senior managers cannot operate as a proxy for the but for conduct. However, those opinions ought not to be discounted because they tend to suggest a consistent theme accepted by Mr Maycock that in the face of competition QCL, and later Cement Australia, would not have been able to sustain the margins they enjoyed. The immediate difficulty is trying to quantify or estimate the measure of that difference.
(42)In the result, it seems to me, that the trend in the opinions within the respondents’ own documents ought to be taken into account in recognising that those individuals believed that QCL and Cement Australia would suffer degradation in the price and earnings should new entrant competition emerge armed with substitutable ash. The pecuniary penalty ought to take into account not the postulated measure of the price reduction projected over five years as a uniform measure but rather recognise that the internal officers believed that new entrant competition would represent a serious threat to price, earnings and margin. It cannot be put any higher than that. Ultimately, the entire matter comes back to a qualitative assessment of the conduct in the sense that the pecuniary penalty should take account and recognise that the respondents derived benefit from the conduct but the true measure of the benefit in the absence of proper economic analysis cannot be quantified in any hard way.
I have taken into account in the assessment of the penalty as earlier described each of the considerations mentions at [818].
These further things should be mentioned. I have taken into account all of the considerations set out in the submissions of the parties both orally and in writing. I have taken into account such matters as the relevance of the indemnities and each of the other matters upon which emphasis has been placed by the parties. To the extent that I have not expressly referred to particular matters all of them have been considered in the assessment. To the extent that challenges have been made to aspects of the affidavit evidence, I admit into evidence all of the material put before me by the parties. Ultimately, that material is to be judged according to its weight and relevance to the issues I have already dealt with.
The only two remaining questions are those concerning the position of Mr White and the position in relation to costs of the proceedings.
I have taken into account all the submissions made on behalf of Mr White and the submissions on behalf of the ACCC. I have also had regard to Mr White’s oral evidence, the findings contained in the principal liability judgment and the matters referred to in Mr White’s affidavits mentioned earlier in these reasons. I am not persuaded to the position that the findings made against Mr White and the declarations made are such that no pecuniary penalty ought to be imposed upon him.
Mr White was responsible for the formulation of important strategic matters in the period throughout December 2004 and into the period of his engagement with Mr Christy. However, I recognise that the extension was for a short period of time and that it was undertaken in the context of negotiations for a further supply agreement. I also recognise that Mr Christy did not regard himself as bound by an absolute exclusivity commitment but nevertheless participants understood that Pozzolanic/Cement Australia had a particular position at Swanbank. The findings in relation to these matters are set out at [3215] to [3231] of the principal liability judgment and I accept the force of the submissions at para 6 of the written submissions on behalf of Mr White.
I am satisfied that a pecuniary penalty ought to be imposed upon Mr White in an amount of $20,000.
In determining the penalty to be imposed in respect of the contraventions, I have also had regard as a final check, to the totality principle so as to be satisfied that the penalties imposed are proportionate and properly reflect penalties which give proper regard to the conduct and serve the interests of deterrence, overall.
As to the question of costs, I do not propose to set out in detail all of the factors informing the exercise of the discretion. I have had regard to the submissions of the parties and I am intimately familiar with all aspects of the proceedings from beginning to end. I am satisfied that the proper order for costs, having regard to the scope of the proceedings and the intersection between the various issues, is that the respondents pay 65% of the costs of the ACCC of and incidental to the proceedings on a party and party basis up to 10 September 2013 and 100% of the ACCC’s costs of and incidental to the proceeding on and after 10 September 2013.
As to the formal orders, the ACCC is requested to submit proposed final orders for my consideration.
In the judgment, the analysis of the various propositions in relation to benefit and market harm has involved setting out much financial data which is confidential. Much of it is not confidential but the data in relation to market circumstances particularly in the period 2010 to 2014 is confidential.
The parties are directed to review the reasons for judgment and submit a schedule within 14 days setting out the paragraphs of the judgment which contain confidential data with a view to that data being excised from the judgment before publication of the reasons for judgment.
I certify that the preceding eight hundred and twenty‑nine (829) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Greenwood.
Associate:
Dated: 29 April 2016
SCHEDULE OF PARTIES
QUD 295 of 2008 Respondents
Second Respondent:
CEMENT AUSTRALIA HOLDINGS PTY LTD ACN 001 085 561
Third Respondent:
CEMENT AUSTRALIA (QUEENSLAND) PTY LTD FORMERLY QUEENSLAND CEMENT LTD ACN 009 658 520
Fourth Respondent:
POZZOLANIC ENTERPRISES PTY LTD ACN 010 367 898
Fifth Respondent:
POZZOLANIC INDUSTRIES PTY LTD ACN 010 608 947
Sixth Respondent:
CHRISTOPHER GUY LEON
Seventh Respondent:
CHRISTOPHER STEPHEN WHITE
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