Australian Competition and Consumer Commission v Foamlite (Australia) Pty Ltd

[1997] FCA 1543

FEDERAL COURT OF AUSTRALIA

TRADE PRACTICES - price fixing - contraventions admitted and penalty jointly proposed to court by contraveners and Australian Competition and Consumer Commission - Court’s role - factors relevant to assessing appropriate penalty

Trade Practices Act 1974 (Cth) ss 45(2)(a), 45(2)(b)

Commerce Commission v New Zealand Milk Corporation Limited [1994] 2 NZLR 730 referred to
NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 141 ALR 640 referred to

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
v FOAMLITE (AUSTRALIA) PTY LTD, VITA PACIFIC LIMITED, PETER CHARLES ROBERT DELL, PHILLIP LAIT JAMES & GERARD WALSH
VG 705 of 1997

FINKELSTEIN J
MELBOURNE
12 DECEMBER 1997

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 705  of   1997

BETWEEN:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant
AND:	FOAMLITE (AUSTRALIA) PTY LTD VITA PACIFIC LIMITED PETER CHARLES ROBERT DELL PHILLIP LAIT JAMES GERARD WALSH Respondents
JUDGE:		FINKELSTEIN J
DATE OF ORDER:		12 DECEMBER 1997
WHERE MADE:		MELBOURNE

THE COURT ORDERS THAT:

1. The first respondent pay to the Commonwealth a pecuniary penalty in the sum of one million two hundred thousand dollars ($1,2000,000) in respect of the contraventions of ss 45(2)(a)(ii), 45(2)(b)(i) and 45(2)(b)(ii) of the Trade Practices Act 1974 (Cth).

1. The second respondent pay to the Commonwealth a pecuniary penalty in the sum of      six hundred thousand dollars ($600,000) in respect of the contraventions of ss          45(2)(a)(ii), 45(2)(b)(i) and 45(2)(b)(ii) of the Trade Practices Act 1974 (Cth).

1. The third respondent pay to the Commonwealth a pecuniary penalty in the sum of one    hundred thousand dollars ($100,000) in respect of the conduct by which the third
   respondent has been directly or indirectly knowingly concerned in or party to the contraventions by the first and second respondents of ss 45(2)(a)(ii), 45(2)(b)(i) and 45(2)(b)(ii) of the Trade Practices Act 1974 (Cth).

1. The first and second respondents are restrained for a period of three (3) years whether by its directors, servants or agents or otherwise howsoever from:
     (a)       making or arriving at;
     (b)       giving effect to; or
     (c)       attempting to make, arrive or give effect to
              any contract, arrangement or understanding with one or more competitors, for the         supply of industrial flexible polyurethane foam, carrying on business anywhere in     Australia which contract, arrangement or understanding contains a provision that:

   (i)        has the purpose, or has or is likely to have the effect, of fixing,   controlling or maintaining, or providing for the fixing, controlling or   maintaining of, the prices offered or charged for the supply of industrial   flexible polyurethane foam anywhere in Australia;

   (ii)       has the purpose of preventing, restricting or limiting the supply of   industrial flexible polyurethane foam to acquirers of industrial flexible   polyurethane foam anywhere in Australia;

   (iii)      has the purpose of preventing, restricting or limiting the supply of   industrial flexible polyurethane foam to acquirers of industrial flexible   polyurethane foam, in particular circumstances or on particular   conditions anywhere in Australia.

1. Each of the third, fourth and fifth respondents are restrained for a period of three (3)      years from being in any way, directly or indirectly, knowingly concerned in or a party            to:
     (a)       making or arriving at;
     (b)       giving effect to; or
     (c)       attempting to make, arrive or give effect to
              any contract, arrangement or understanding with one or more competitors, for the         supply of industrial flexible polyurethane foam, carrying on business anywhere in     Australia which contract, arrangement or understanding contains a provision that:

   (i)        has the purpose, or has or is likely to have the effect, of fixing,   controlling or maintaining, or providing for the fixing, controlling or   maintaining of, the prices offered or charged for the supply of industrial   flexible polyurethane foam anywhere in Australia;

   (ii)       has the purpose of preventing, restricting or limiting the supply of   industrial flexible polyurethane foam to acquirers of industrial flexible   polyurethane foam anywhere in Australia;

   (iii)      has the purpose of preventing, restricting or limiting the supply of   industrial flexible polyurethane foam to acquirers of industrial flexible   polyurethane foam, in particular circumstances or on particular   conditions anywhere in Australia.          

1. The first and second respondents shall pay the applicant’s costs of and incidental to      these proceedings fixed in the sum of one hundred thousand dollars ($100,000).

1. The contents of the exhibits “PL-1” to PL-17” both inclusive to the affidavit of Phillip     Lait sworn 26 November 1997 and the contents of the affidavit of Phillip Lait sworn 9      December 1997 and exhibits thereto being exhibits “PL-18” to “PL-103” both inclusive       are to be kept confidential and are not to be disclosed to any person except the parties and their legal advisers without the leave either of the first respondent being first       obtained in writing or of the Court.  Any application to the Court for leave is only to       be made after not less than seven (7) days notice in writing of such application is given       to the first respondent through its legal advisers.

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

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VG 705 of 1997

BETWEEN:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant
AND:	FOAMLITE (AUSTRALIA) PTY LTD VITA PACIFIC LIMITED PETER CHARLES ROBERT DELL PHILLIP LAIT JAMES GERARD WALSH Respondents

JUDGE:	FINKELSTEIN J
DATE:	12 DECEMBER 1997
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

HIS HONOUR: This is the return of an application by the Australian Competition and Consumer Commission (the Commission) seeking the imposition of penalties and the grant of injunctions against the respondents arising from their contravention of ss 45(2)(a) and 45(2)(b) of the Trade Practices Act 1974(Cth) (the Act). 

The Commission and the respondents have reached an agreement on what they regard as the appropriate orders to be made.  They ask the Court to act in accordance with their agreement.  Of course the parties accept, as they must, that the imposition of a pecuniary penalty and the grant of other relief for a contravention of Part IV of the Act is not a matter for their agreement alone; it is for the Court to determine what is the appropriate penalty.  However, in arriving at its decision the Court will often act on the views of the parties if the Court is satisfied on the material which is placed before it that what the parties have agreed is in accordance with the ranges of penalty which would, on the Court's own assessment, govern the case.  I should also point out that the practice of suggesting what is to be the appropriate penalty for a contravention of Part IV of the Act has been followed in many cases.  It has been approved by the Full Court; see NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 141 ALR 640 and other jurisdictions have also commented on the appropriateness of the practice; see Commerce Commission v New Zealand Milk Corporation Limited [1994] 2 NZLR 730.

Here the Commission alleges and the respondents agree that the first respondent, Foamlite Australia Proprietary Limited (Foamlite), and the second respondent, Vita Pacific Limited (Vita Pacific), and other parties entered into price fixing and market sharing agreements between the mid-1980s to mid-1995.  Each of Foamlite and Vita Pacific supplies industrial flexible polyurethane foam in the Queensland market.  At all relevant times Foamlite held about 50 per cent of that market and Vita Foods about 15 per cent.  The annual turnover in the market, whilst not absolutely clear from the affidavit material that I have read, is of the order of $30 million to $40 million.  The nature of the price fixing and market sharing agreements that the parties entered into was, in substance, that each company would not compete on price with customers of the other companies who were parties to the agreements, nor would they approach each other's customers to obtain their business.  The agreements affected a small but not insignificant part of the industrial flexible polyurethane foam market.  The agreements were loosely policed, were not necessarily effectively implemented, but endured for many years. 

According to the material that has been submitted to the Court, Foamlite and Vita Pacific have undertaken an analysis of the market to determine the percentage of the market affected by their conduct.  Their estimate is that the proportion of the market in which the offending conduct took place ranged from 9 per cent to 15 per cent which equates to approximately $4 million to $5 million of the annual turnover in the market.  However, the loss or damage caused to customers cannot be precisely determined.  Some investigation of this aspect has also taken place and it appears that the conduct directly affected total sales and potential sales to the value of tens of thousands of dollars annually. 

A good deal of the anti-competitive conduct occurred before January 1993 when the prescribed penalty for a contravention of Part IV of the Act was $250,000 in the case of a corporation and $50,000 in the case of an individual;  an individual is only liable as a secondary offender: see s 78B. On 21 January 1993, the penalties were significantly increased to $10 million and $500,000 in the case of a corporation and individual respectively.  This demonstrates the seriousness with which the Parliament regards a contravention of Part IV.

I should say something of the role of the three individual respondents.  Mr Peter Dell, the third respondent, was the state manager for Queensland of Foamlite.  Mr Phillip Lait, the fourth respondent, was a sales representative and later became a sales manager of Foamlite.  Mr James Walsh, the fifth respondent, was the Queensland state manager of the Vita Pacific.  Mr Dell and Mr Walsh entered into the agreements on behalf of their respective companies, and each of them was involved in their implementation.  Mr Lait was also involved in the implementation of the agreements but at the direction of Mr Dell.  Each of the individuals knew that the conduct they were engaging in involved a contravention of the Act.  As a consequence Mr Dell is to be removed from his position as state manager and is to be given other duties and Mr Lait has been reprimanded.  Mr Walsh is no longer in the industry. 

The penalties that have been suggested for the corporate respondents are $1.2 million in the case of Foamlite and $600,000 in the case of Vita Pacific.  The significant difference in the penalties is a reflection of the different size, in terms of value, of each company and the difference in their respective shares of the relevant market.  The penalties are much lower than would ordinarily be imposed having regard to the number of contraventions that occurred but each company has been of considerable assistance to the Commission in relation to its inquiries into the contraventions and in relation to other inquiries being undertaken by the Commission and is entitled to a reduction in penalty for that reason.  A penalty for a contravention of Part IV is intended to deter an offender from repeating the conduct and it is also intended to deter others from doing the same.  Here, the penalties against the corporations will have that effect.  In the case of Foamlite, the penalty is just short of one year's profit after tax.  In the case of Vita Pacific, the penalty might be compared with its annual average profit after tax derived from its dealings in industrial flexible polyurethane foam which is of the order of $70,000.  When these figures are taken into account it will be seen that the penalties are quite significant. 

It is suggested that Mr Dell should have a penalty of $100,000 imposed against him.  His conduct was deliberate and knowingly unlawful, and the penalty may not seem sufficient.  But Mr Dell has few assets.  He has a family home which is subject to a mortgage and an investment property with no equity.  In addition he has two dependant school age children, and a wife who is unwell.  A penalty of $100,000 will cause him significant hardship.  It is not proposed to impose any pecuniary penalty on Mr Lait, who would not have been involved in any of these affairs but for the instructions he received from Mr Dell.  Mr Lait should feel very fortunate that he is avoiding a pecuniary penalty, but it is an unlikely that he will offend again.  It is also proposed that Mr Walsh not have a pecuniary penalty imposed upon him.  The reason is that he is no longer involved in the industry thus the need for a penalty by way of deterrence does not really arise.  It is intended that each respondent be restrained from engaging in anti-competitive conduct for a period of three years. 

The foregoing is a very brief summary, taken from the voluminous material that has been filed with the Court, of the facts that support the submission that I should impose penalties and injunctions as have been suggested by the parties.  I am persuaded that what has been proposed in this case is reasonable having regard to the objectives to be achieved by the imposition of penalties.  Accordingly I will make the orders that have been suggested.

I certify that this and the preceding three (3) pages are a true copy of the Reasons for Judgment herein of the Honourable Justice Finkelstein

Associate:

Dated:             20 January 1998

Counsel for the Applicant:	D Jackson QC P O’Shea
Solicitor for the Applicant:	Corrs Chambers Westgarth
Counsel for the Respondents:	D Shavin QC P Jopling QC M Barker
Solicitor for the Respondents:	Freehill Hollingdale & Page
Date of Hearing:	12 December 1997
Date of Judgment:	12 December 1997