Australian Competition and Consumer Commission v Ranu Pty Ltd

Case •

[2007] FCA 1777

•

5 December 2007

FEDERAL COURT OF AUSTRALIA

Australian Competition & Consumer Commission v Ranu Pty Ltd [2007] FCA 1777

TRADE PRACTICES – orthodontists with joint practice arrangements sharing expenses but not in partnership – price fixing – arrangements to share new “unreferred” patients – geographical restraints – injunctions and declarations and order for costs sought by agreement – acting on incorrect legal advice – no pecuniary penalty sought

Trade Practices Act 1974 (Cth) ss 4D, 45, 45A, 75B and 86C(2)(b)

Yorke v Lucas (1985) 158 CLR 661 cited

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v RANU PTY LTD, P R & G CROWE PTY LTD, HAZEL RIDGE PTY LTD, SAWINDAR RANU, PAUL RICHARD CROWE AND ANTANAS VYTENIS STANKEVICIUS

TAD 29 OF 2007

HEEREY J
5 DECEMBER 2007
HOBART


IN THE FEDERAL COURT OF AUSTRALIA

TASMANIA DISTRICT REGISTRY

TAD 29 OF 2007

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
Applicant

AND:

RANU PTY LTD
First Respondent

P R & G CROWE PTY LTD
Second Respondent

HAZEL RIDGE PTY LTD
Third Respondent

SAWINDAR RANU
Fourth Respondent

PAUL RICHARD CROWE
Fifth Respondent

ANTANAS VYTENIS STANKEVICIUS
Sixth Respondent

JUDGE:

HEEREY J

DATE OF ORDER:

5 DECEMBER 2007

WHERE MADE:

HOBART

THE COURT DECLARES THAT:

1.Each of the first and second respondents contravened s 45(2) of the Trade Practices Act 1974 (‘the Act’) by:

1.1.in about May 1992, making the Associateship Agreement, which contained a provision that the parties to the Associateship Agreement, including the first and second respondents, would agree the professional fees each would charge their respective patients, which provision had the purpose and was likely to have had the effect of fixing the price for orthodontic services to be supplied to patients by the parties to the Associateship Agreement, including the first and second respondents, in competition with each other;

1.2.between about May 1992 and about July 2005, making a number of arrangements containing provisions as to the professional fees the parties to the Associateship Agreement, including the first and second respondents, would charge their respective patients, which arrangements contained provisions that had the purpose and effect of fixing the price for orthodontic services to be supplied to patients by the parties to the Associateship Agreement, including the first and second respondents, in competition with each other;

1.3.between about May 1992 and about July 2005, giving effect to the provision referred to in paragraph 1.1 and to the provisions of the arrangements referred to in paragraph 1.2 by:

1.3.1.meeting to agree on the professional fees (including any changes to those fees) the parties to the Associateship Agreement, including the first and second respondents, would charge their respective patients; and

1.3.2.charging their respective patients professional fees in the agreed amounts in most instances;

1.4.between about July 2005 and June 2006:

1.4.1.making a number of arrangements with each other and the third respondent containing provisions as to the professional fees (including any changes to those fees) each of them would charge their respective patients, which arrangements contained provisions that had the purpose and effect of fixing the price for orthodontic services to be supplied to patients by each of the first, second and third respondents, in competition with each other;  and

1.4.2.giving effect to the provisions of the arrangements referred to in paragraph 1.4.1 by charging their respective patients professional fees in the agreed amounts in most instances;

1.5.in about May 1992 making the Associateship Agreement, which contained a provision to the effect that the parties to the Associateship Agreement, including the first and second respondents, who were competitive with each other, agreed that in the event that any party had fewer new patients than the others, then the other party or parties would not supply orthodontic services to new unreferred patients until all parties had the same or close to the same number of new patients, which provision had the purpose of preventing, restricting or limiting the supply of orthodontic services by at least one of the parties to the Agreement to a particular class of potential patients, namely unreferred patients;

1.6.in or about November 1995, making an agreement which contained a provision to the effect that in the event that a party to the agreement, including the first and second respondents, who were competitive with each other, had 20 patients more than any of the other parties, then the first party would not supply orthodontic services to new unreferred patients until all parties had the same or close to the same number of new patients, which provision had the purpose of preventing, restricting or limiting the supply of orthodontic services by at least one of the parties to the Agreement to a particular class of potential patients, namely unreferred patients;

1.7.on or about each of 30 June 2000, 14 June 2005 and 1 July 2005, making an agreement which contained a provision to the effect that in the event that a party to the agreement, including the first and second respondents, who were competitive with each other, had 10 patients more than any other, then the first party would not supply orthodontic services to new unreferred patients until all parties had the same or close to the same number of new patients, which provision had the purpose of preventing, restricting or limiting the supply of orthodontic services by at least one of the parties to the Agreement to a particular class of potential patients, namely unreferred patients;

1.8.between about May 1992 and about June 2006, giving effect to the provisions referred to in paragraphs 1.5, 1.6, and 1.7 by ceasing or restricting the supply of orthodontic services to new unreferred patients in accordance with the terms of those provisions;

1.9.on or about 3 March 2003, making an agreement with Ashwani Gupta Pty Ltd (all three parties being competitive with each other), which contained a provision that until at least 31 December 2010, with minor exceptions, required the first and second respondents, to only provide orthodontist services in ‘the Northern Division of Tasmania’ and Ashwani Gupta Pty Ltd to only provide orthodontist services in ‘the Southern Division of Tasmania’, which provision had the purpose of preventing, restricting or limiting the supply of orthodontic services:

1.9.1.by the first and second respondents to a particular class of persons, namely potential patients seeking orthodontic treatment from orthodontic premises in ‘the Southern Division of Tasmania’; and

1.9.2.by Ashwani Gupta Pty Ltd to a particular class of persons, namely potential patients seeking orthodontic treatment from orthodontic premises in ‘the Northern Division of Tasmania’;

1.10.between about 3 March 2003 and June 2006, giving effect to the provision referred to in paragraph 1.9 by no longer offering to supply orthodontic services to potential patients seeking orthodontic treatment from orthodontic premises in ‘the Southern Division of Tasmania’;  and

1.11.on or about 14 June 2005, making an agreement with each other and, on or about 1 July 2005, with the third respondent (all three parties being competitive with each other), which contained a provision that, except with the consent of the other parties, no party and no principal orthodontist of a party would, directly or indirectly, supply orthodontic services, or be engaged or interested in carrying on the profession of an orthodontist, from premises within 20 kilometres of the premises jointly used by the parties, which provision had the purpose of preventing, restricting or limiting the supply of orthodontic services by any of the parties to the agreement to a particular class of persons, namely those potential patients seeking orthodontic treatment from orthodontist premises in Launceston, Burnie or Devonport, in particular circumstances, namely while the party remained a party to the agreement and for 3 years from the date the party ceased to be party to the agreement.

2.The third respondent contravened s 45(2) of the Act by:

2.1.on or about 1 July 2005, making an agreement with the first and second respondents, who were competitive with each other and with the third respondent, which contained a provision:

2.1.1.to the effect that in the event that a party to the agreement had 10 patients more than any other, then the first party would not supply orthodontic services to new unreferred patients until all parties had the same or close to the same number of new patients, which provision had the purpose of preventing, restricting or limiting the supply of orthodontic services by at least one party to the agreement to a particular class of potential patients, namely unreferred patients;  and

2.1.2.that except with the consent of the other parties, no party and no principal orthodontist of a party would, directly or indirectly, supply orthodontic services, or be engaged or interested in carrying on the profession of an orthodontist, from premises within 20 kilometres of the premises jointly used by the parties, which provision had the purpose of preventing, restricting or limiting the supply of orthodontic services by any of the parties to the agreement to a particular class of persons, namely those potential patients seeking orthodontic treatment from orthodontist premises in Launceston, Burnie or Devonport, in particular circumstances, namely while the party remained a party to the agreement and for 3 years from the date the party ceased to be party to the agreement;

2.2.between about July 2005 and about June 2006:

2.2.1.making a number of arrangements with the first and second respondents containing provisions as to the professional fees (including any changes to those fees) each of them would charge their respective patients, which arrangements contained provisions that had the purpose and effect of fixing the price for orthodontic services to be supplied to patients by each of the first, second and third respondents, in competition with each other;  and

2.2.2.giving effect to the provisions of the arrangements referred to in paragraph 2.2.1 by charging its patients professional fees in the agreed amounts in most instances;

2.2.3.giving effect to the provision referred to in paragraph 2.1.1 by ceasing or restricting the supply of orthodontic services to new unreferred patients in accordance with the terms of that provision;

3.Each of the fourth and fifth respondents, by making the agreements and arrangements referred to in paragraph 1 on behalf of the first and second respondents respectively, were knowingly concerned in and party to the contraventions of the first and second respondents, respectively, referred to in paragraph 1 above.

4.The sixth respondent, by making the agreement and arrangements referred to in paragraph 2 on behalf of the third respondent, was knowingly concerned in and party to the contraventions of the third respondent referred to in paragraph 2 above.

THE COURT ORDERS BY CONSENT THAT:

5.The first, second and third respondent (whether by its directors, employees or agents or otherwise howsoever) be restrained, for the period of five years from the date of this order, from making, arriving at, giving effect to, or attempting to make or arrive at or give effect to, any contract, arrangement or understanding with any supplier of orthodontic services in Tasmania that contains a provision or provisions that:

5.1.has the purpose, or has or is likely to have the effect, of fixing, controlling or maintaining the professional fees charged by any of the parties to the contract, arrangement or understanding for the supply of orthodontic services to their respective patients in Tasmania;

5.2.has the purpose of preventing, restricting or limiting the supply by any of the parties to the contract, arrangement or understanding of orthodontic services to particular patients or potential patients or to particular classes of patients of classes of patients.

6.The fourth, fifth and sixth respondents (whether themselves or by employees or agents or otherwise howsoever) be restrained, for a period of 5 years from the date of the order, from being knowingly concerned in, or a party to, the making, arriving at, giving effect to, or attempting to make or arrive at or give effect to, by a corporation of any contract, arrangement or understanding with any supplier of orthodontic services in Tasmania that contains a provision or provisions that:

6.1.has the purpose, or has or is likely to have the effect, of fixing, controlling or maintaining the professional fees charged by any of the parties to the contract, arrangement or understanding for the supply of orthodontic services to their respective patients in Tasmania;

6.2.has the purpose of preventing, restricting or limiting the supply by any of the parties to the contract, arrangement or understanding of orthodontic services to particular patients or potential patients or to particular classes of patients of classes of patients.

7.The first, second and third respondents will each establish an education and training program in accordance with Annexure ‘A’ to this order.

8.The respondents will pay the applicant’s costs of this proceeding in the sum of $15,000.

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


ANNEXURE A

Trade Practices Act 1974 (Cth), s 86C(2)(b)

Education and Training Program

1.The first, second and third respondents will each establish, and maintain for a period of three years from the date of this order, an education and training program in accordance with this order for employees and other persons involved in the respondent’s business.

Requirements of the education and training program

2.The education and training program will consist of an annual oral presentation and a compliance manual.

3.The respondent will require its office holders, practice managers and any other person who is responsible for the determination of the respondent’s prices, and those persons who represent the respondent in the negotiation of agreements with other orthodontic businesses, to attend the annual oral presentation which will:

3.1.be given by a solicitor;

3.2.describe the general application of ss 45(2), 45A and 4D of the Act;

3.3.outline the agreed facts in this proceeding and explain the application of s 45(2) of the Act to those facts;

3.4.be of not less than four hours in duration spread over not more than two consecutive days;  and,

3.5.be provided, in the first instance, within two months of the date of this order and thereafter at intervals of not more than 12 months following the last presentation.

4.The respondent will cause a compliance manual to be located at each of the premises at which it conducts its business and to be available to staff at those premises.  The compliance manual is to be made available within two months of the making of this order, and shall consist of at least the following:

4.1.an outline of ss 45(2), 45A and 4D of the Act;

4.2.a description of the potential liability of a company, employee, servant or agent, who engages in, or is knowingly concerned in, conduct in contravention of Part IV of the Act;

4.3.a copy of these orders; and,

4.4.an unequivocal statement that the board of directors of the respondent does not condone, authorise or expect the respondent’s office holders, employees, servants or agents to engage in conduct that contravenes Part IV of the Act.


IN THE FEDERAL COURT OF AUSTRALIA

TASMANIA DISTRICT REGISTRY

TAD 29 OF 2007

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
Applicant

AND:

RANU PTY LTD
First Respondent

P R & G CROWE PTY LTD
Second Respondent

HAZEL RIDGE PTY LTD
Third Respondent

SAWINDAR RANU
Fourth Respondent

PAUL RICHARD CROWE
Fifth Respondent

ANTANAS VYTENIS STANKEVICIUS
Sixth Respondent

JUDGE:

HEEREY J

DATE:

5 DECEMBER 2007

PLACE:

HOBART

REASONS FOR JUDGMENT

  1. The respondents are corporations and their controlling individuals who carry on practice as orthodontists in Northern Tasmania.  They operate what have been referred to as “co-location” arrangements in Launceston, Devonport and Burnie.  Under these arrangements the respondents operate from the same premises and share some common administrative and operational costs.  However they are not partners.  They retain their own patients and the incomes derived therefrom and do not share profits or losses.  They compete in the market for the provision of orthodontic services.

  2. Such arrangements are frequently adopted by members of professions in Australia, a notable example being barristers at independent Bars who share chambers and the cost of secretarial and other administrative expenses but do not practice in partnership.  There is nothing illegal or dubious in such arrangements and in some respects they have important advantages, which enure to the interest of the public as much as for the practitioners themselves.  Practitioners have the benefit of mutual support and the ability to exchange professional learning and experience on a daily basis without the liability and other risks of partnership. 

  3. However practitioners adopting such arrangements are, like everyone engaged in professions or businesses, subject to the laws against anti-competitive conduct.  This is so whether the practitioners adopt corporate identities and are thus subject to Pt IV of the Trade Practices Act 1974 (Cth) or whether they practice as individuals or partnerships and are governed by the uniform Competition Policy Reform Acts and the Competition Code.

  4. In the present case the corporate respondents admit that they made and gave effect to arrangements for price fixing and market sharing which contravened s 45 of the Trade Practices Act. The individual respondents admit that they were knowingly concerned in such conduct.

  5. The respondents have admitted liability and joined with the Commission in seeking appropriate injunctions, declarations and other orders.  As will be discussed in more detail below, the Commission does not seek any pecuniary penalties. 

  6. The first respondent is Ranu Pty Ltd (Dr Ranu’s company) which is controlled by the fourth respondent Dr Sawindar Ranu.  The second respondent is P R & G Crowe Pty Ltd (Dr Crowe’s company) which is controlled by the fifth respondent Dr Paul Richard Crowe.  The third respondent is Hazel Ridge Pty Ltd (Dr Stankevicius’ company) which is controlled by the sixth respondent Dr Antanas Vytenis Stankevicius.

  7. Other entities involved were F & P G Pty Ltd (Dr Goldschmied’s company) which was controlled by Dr Felix Goldschmied and Ashwani Gupta Pty Ltd (Dr Gupta’s company) which was controlled by Dr Ashwani Gupta. 

  8. All the orthodontists referred to were retained by their respective companies to provide orthodontic services.  Such services include correcting the alignment of teeth that may be misaligned as a result of tooth irregularity or incorrect jaw and upper mouth dimensions and relationships.  The services involve gradual, repetitive and long term adjustment of teeth by an orthodontist over a period of months or years.

    The price fixing conduct

  9. In May 1992 Dr Ranu’s company, Dr Crowe’s company and Dr Goldschmied’s company entered into a written agreement (the Associateship Agreement) dated 15 May 1992.  The Associateship Agreement included a provision that all professional fees charged by each associate were to be fixed by mutual agreement or, in the event of the parties failing to reach agreement, were to be those fixed or recommended by the Australian Dental Association (Tasmania Branch) Incorporated.

  1. From about May 1992 until about June 2000 each of Dr Ranu’s company, Dr Crowe’s company and Dr Goldschmied’s company gave effect to that provision by holding meetings from time to time during which they agreed the professional fees to be charged by the associates for the supply of orthodontic services to their respective patients.

  2. During those meetings agreement was reached on whether the professional fees charged by the associates should be changed and if so by what percentage and to what particular amount the fees would be changed and the date on which the parties would simultaneously implement the new fees.

  3. The agreed fee changes were documented by way of preparation and adoption by the associates of a list of fees to be charged for standard orthodontic services effective from the date the changed fees were scheduled to be implemented.

  4. In June 2000 Dr Gupta’s company was admitted as a party to the Associateship Agreement, which was amended accordingly.  From then until 28 February 2003 the three respondent companies and Dr Gupta’s company gave effect to the fee fixing arrangements in the way already described.

  5. On about 28 February 2003 Dr Goldschmied retired from practice and his company ceased to be an associate or to supply orthodontic services to patients.

  6. Shortly thereafter, on about 3 March 2003, Dr Gupta’s company ceased to be an associate.  It thereafter supplied orthodontic services to new patients only in Southern Tasmania.  The remaining associates, Dr Ranu’s company and Dr Crowe’s company, continued to fix fees in the way already described. 

  7. On 14 June 2005 Dr Ranu’s company and Dr Crowe’s company entered into an agreement (the Practice Agreement) to make certain arrangements for their practices to share premises, equipment and overheads. 

  8. By an agreement made on 1 July 2005 Dr Stankevicius’ company became a party to the Practice Agreement.  Thereafter until about June 2006 Dr Ranu’s Company, Dr Crowe’s company and Dr Stankevicius’ company continued to fix fees in the way already described.

    Patient allocation conduct

  9. To return to May 1992, another term of the Associateship Agreement involved an arrangement to share what were referred to as “unreferred patients”.  The Associateship Agreement defined this concept in these terms:

    (a)Patients who are referred to a particular Associate or orthodontist employed by that Associate or who requests treatment by a particular associate or orthodontist employed by that Associate shall be deemed to be patients of that Associate;

    (b)Patients seeking orthodontic treatment and not coming within the provisions of Sub-clause (a) hereof shall be deemed to be unreferred patients;

    (c)All unreferred patients shall be directed to such of the Associates as shall enable so far as is possible an equal distribution between the Associates of all new patients both referred and unreferred. 

    “Unreferred patients” would be recognised by barristers as analogous to floating briefs.

  10. On or about about 10 November 1995 this arrangement was modified by a written agreement between Dr Ranu’s company, Dr Crowe’s company and Dr Goldschmied’s company to the effect that if a party to the agreement had 20 patients more than any other of the parties, then the first would not supply orthodontic services to new unreferred patients until all parties had received the same or close to the same number of new patients.

  11. There was a further modification on or about 30 June 2000 when Dr Ranu’s company, Dr Crowe’s company, Dr Goldschmied’s company and Dr Gupta’s company entered into a written agreement to the effect that the limit was 10 new patients. 

  12. A similar arrangement was made on 14 June 2005 between Dr Ranu’s company and Dr Crowe’s company.

  13. A third 10 patient limit agreement was made on about 1 July 2005 between Dr Ranu’s company, Dr Crowe’s company and Dr Stankevicius’ company.

  14. All these arrangements were implemented by instructing the reception staff at the shared premises and maintaining and referring to a list of current patients for each party and distributing unreferred patients between the parties from time to time in accordance with the instructions.

    The North-South restraint

  15. Between July 1997 and March 2003 Dr Ranu’s company, Dr Crowe’s company and, until 28 February 2003, Dr Goldschmied’s company operated an orthodontic practice in partnership in Hobart.  They took over the goodwill of a practice formerly carried on by Dr Philip Rogers.

  16. Dr Gupta’s company was also a party to this arrangement from about July 1998 until about March 2003.

  17. Upon his withdrawal from the arrangement Dr Gupta’s company agreed in writing with Dr Ranu’s company and Dr Crowe’s company that the latter companies would have their primary practice in “the Northern Division of Tasmania” and Dr Gupta’s company would have its primary practice in “the Southern Division of Tasmania”.  Those areas were defined, respectively, as the areas north and south of the 42nd degree of south latitude.

  18. It was agreed that Dr Ranu’s company and Dr Crowe’s company would not supply orthodontic services to any new patients in the Southern Division of Tasmania for a period of seven years.

  19. It was also agreed that, save for certain arrangements relating to treatments already commenced, until at least 31 December 2010 Dr Ranu’s company and Dr Crowe’s company would provide orthodontic services only in the Northern Division and Dr Gupta’s company would provide such services only in the Southern Division.

  20. That agreement was implemented in that from March 2003 Dr Gupta’s company stopped offering the supply of orthodontic services to potential patients in the Northern Division and Dr Ranu’s and  Dr Crowe’s companies stopped offering to supply such services to potential patients in the Southern Division.

  21. On 20 September 2006 Dr Ranu’s company and Dr Crowe’s company, in a letter from their solicitors, advised Dr Gupta’s company that they did not accept that the agreement was invalid and that they declined to release Dr Gupta and his company from it.  Apparently Dr Gupta then reported the matter to the Commission.  The Commission has applied its immunity in respect of Dr Gupta and his company and as a result they have note been made respondents to these proceedings.

    The 20 km restraint

  22. In the Practice Agreement made in 2005 there was a term that while an associate was a party to the Agreement and for three years from the date ceasing to be a party, the Associate would not except with the consent of the others, directly or indirectly, supply orthodontic services from the premises within 20 kilometres of the premises jointly used by the Associates.  Shortly thereafter Dr Stankevicius’ company became a party to this agreement.

    Contraventions of the Trade Practices Act

  23. The provisions in the various arrangements between the parties to fix fees were, by virtue of s 45A, deemed to have the purpose or effect of substantially lessening competition. Thus when the corporate respondents entered into contracts containing such provisions they contravened s 45(2)(a)(ii). Giving effect to such provisions contravened s 45(2)(b)(ii).

  24. The provisions in the various arrangements which prevented, restricted or limited the provision of services to “unreferred” patients or to patients by reference to geographical limitations were exclusionary provisions within the meaning of s 4D. The effect of those provisions was to restrict the ability of potential patients to choose one (ostensibly) competing orthodontist in preference to another for price or other reasons. Thus when the corporate respondents entered into contracts containing such provisions they contravened s 45(2)(a)(i). Giving effect to such provisions contravened s 45(2)(b)(i).

  25. All the individual respondents were knowingly concerned in such contraventions and thus are liable by virtue of s 75B. They were aware of the essential facts which constituted the contraventions – indeed it was the individuals themselves who engaged in the relevant conduct. That they were not aware that the conduct was unlawful is relevant to the fixing of penalty but does not avoid liability: Yorke v Lucas (1985) 158 CLR 661.

    Penalties

  26. The original 1992 Agreement and its amendments and successive agreements were conceived by the orthodontists with extensive and ongoing legal advice. There seems to have been a widespread misunderstanding amongst the lawyers involved (and possibly many other lawyers) that professions were not subject to the Trade Practices Act. The assumption of legality was reinforced when Dr Gupta, prior to becoming a signatory to the Agreement in 2000, furnished the then existing contracts to a separate solicitor for perusal and that solicitor similarly failed to raise any competition law issues. The same occurred when Dr Stankevicius joined the arrangements.

  27. While of course ignorance of the law is not an excuse, the Commission, properly in my view, accepts that the failure of lawyers in separate firms to properly advise their clients is a matter that goes some way towards explaining and mitigating the conduct of the orthodontists. 

  28. Also the respondents cooperated with the Commission to such an extent that it did not need to resort to its powers of compulsion under s 155.

  29. I think in all circumstances it is appropriate not to order any pecuniary penalty.  However there will be orders for injunctions, declarations, an order for education and training programs and an order that the respondents pay the costs of the Commission fixed by agreement at $15,000.

I certify that the preceding thirty eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey.

Associate:

Dated:        5 December 2007

Solicitor for the Applicant Australian Government Solicitor
Solicitors for the First, Second, Fourth and Fifth Respondents: Ware & Partners
Solicitors for the Third and Sixth Respondents: Douglas & Collins
Date of Hearing: 5 December 2007
Date of Judgment: 5 December 2007
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Yorke v Lucas [1985] HCA 65
Yorke v Lucas [1985] HCA 65