Commerce Commission v Siemens AG HC Auckland CIV 2007-404-2165
[2010] NZHC 1915
•28 October 2010
IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY
CIV 2007-404-2165
BETWEEN COMMERCE COMMISSION Plaintiff
ANDSIEMENS AG Defendant
Hearing: 15-19 & 22 March 2010
Appearances: M Dean QC, N Flanagan and J Donkin for the Plaintiff
J Hodder SC, G Hughes and R Irvine for the Defendant
Judgment: 28 October 2010 at 11:00 a.m.
JUDGMENT OF WOODHOUSE J
This judgment was delivered by me on 28 October 2010 at 11:00 a.m. pursuant to r 11.5 of the High Court Rules 1985.
Registrar/Deputy Registrar
……………………………………
Solicitors / Counsel:
Ms M Dean QC, Barrister, Auckland
Mr N Flanagan, Meredith Connell, Office of the Crown Solicitor, AucklandMr J Hodder SC, Chapman Tripp, Solicitors, Wellington
COMMERCE COMMISSION V SIEMENS AG HC AK CIV 2007-404-2165 28 October 2010
CONTENTS
Para I INTRODUCTION [1] II BACKGROUND [7]
III STATUTORY PROVISIONS AND LEGAL PRINCIPLES
Sections 27 and 30 [20] Statutory definitions [24] “Purpose” in s 31 [25] “Likely effect” [27] “Arrangement” [28] Standard of proof [32]
IV WITNESSES AND THE BROAD NATURE OF THEIR EVIDENCE [34] V WAS THERE A GIS MARKET IN NEW ZEALAND? [49] Sales of GIS [51]
Cost enquiries from New Zealand [52]
Manufacturers expressions of interest and marketing [53] Evidence for Siemens [54] Law [59]
VI THE FIRST CARTEL : DID IT APPLY TO NEW ZEALAND? :
DID IT COVER “BUDGET ENQUIRES”? [66]
Did the cartel apply to New Zealand? [67]
Were “budget enquiries” covered by the cartel? [75]
VII THE FIRST CARTEL AND TRANSACTION 1
The loosening of the cartel and Siemens’ departure [83] The transaction 1 enquiry and Siemens’ response [90] Budget enquiries in general : Mr Mayr’s evidence [101] Budget enquiries in general : evidence of Messrs Widenhorn
and Persson [105]
Budget enquiries in general : Mr Ling’s evidence [110] Budget enquiries in general : evidence from Transpower and Vector [112] Transaction 1 in cartel documents ABD 8 and 11 [114] The other New Zealand “projects” on ABD 8 [118] Cross-examination of Mr Mayr on transaction 1 [124] Siemens’ processes for budget enquiries [128] Transaction 1 : Issue 1 : Was there a cartel provision that applied
to an enquiry of this nature? [135]
Transaction 1 : Issue 2 : Did Siemens use the 1993 cartel price list
for the transaction 1 response? [146]
Transaction 1 : Issue 3 : If there was a cartel provision applying to
IX
transaction 1, is it caught by s 30?
THE SECOND CARTEL AND TRANSACTIONS 2 AND 3
[155] A new cartel?
[156]
Transactions 2 and 3 : the general nature of the evidence [159] Commission evidence on budget enquiries [163] Evidence for Siemens : The second cartel and budget enquiries [179] Siemens’ processes for responding to budget enquiries [184] Transaction 2 [191] Transaction 3 [202] Issue 1 : Was Siemens party to an arrangement requiring it to
fix prices for budget enquiries from New Zealand?
[209]
provision in transaction 2 or transaction 3?
[219]
X
DOES S 30 APPLY TO TRANSACTIONS 1, 2 AND 3?
[236]
XI
RESULT
[259]
Issue 2 : Did Siemens give effect to any cartel budget enquiry
I INTRODUCTION
[1] Siemens is a manufacturer and distributor of electrical equipment. Amongst its products is one known as GIS. This stands for gas insulated switchgear, one type of switchgear used in the transmission of electricity.
[2] Siemens admits that, during two periods between April 1988 and May 2004 it was a member of cartels which fixed prices for the supply of high voltage GIS.
[3] Section 27(2) of the Commerce Act 1986 (the Act) provides, in relevant summary, that no person shall give effect to a provision of an arrangement which has the purpose or likely effect of substantially lessening competition. Section 30(1) of the Act provides, in relevant summary, that a provision of an arrangement which has the purpose or likely effect of fixing, or providing for the fixing, of the price for goods supplied by any party to the arrangement shall be deemed, for the purposes of s 27, to have the purpose or likely effect of substantially lessening competition.
[4] In this case the Commission alleges that Siemens breached s 27, or the combined provisions of ss 27 and 30, by giving effect to a cartel provision for fixing the price of GIS in what were described as responses to “budget enquiries” from Transpower in New Zealand. It will be necessary to consider the nature of budget enquiries in some detail. For present purposes they may be described as enquiries of a preliminary nature from an entity investigating the cost of GIS. The sums recorded in Siemens’ responses were not tendered as an offer capable of acceptance.
[5] The Commission claims that Siemens contravened s 27, or the combined ss 27 and 30, with its responses to budget enquiries on three occasions. I will refer to these as transaction 1, transaction 2 and transaction 3. Transaction 1 occurred during the first period of Siemens’ involvement in a cartel, which I refer to as the first cartel. Transactions 2 and 3 occurred during Siemens’ second period of involvement in a cartel, which I refer to as the second cartel.
[6] The principal issues that arise for determination in this case are as follows:
a) Was there a market for GIS in New Zealand at the relevant time? If not, there can be no liability.
b)Did the first cartel apply to New Zealand and did it have a provision for the fixing of prices for budget enquiries?
c) In respect of the first cartel and transaction 1 specifically:
i)Was there a cartel provision that applied to the transaction 1 enquiry?
ii)Did Siemens use a cartel price list for the transaction 1 response?
d) In respect of transactions 2 and 3 and the second cartel:
i)Was Siemens party to an arrangement requiring it to fix prices for budget enquiries from New Zealand?
ii)Did Siemens give effect to any cartel budget enquiry provision in transaction 2 or transaction 3?
e) Does s 30 apply to transactions 1, 2 and 3?
f) If Siemens did not act in contravention of the combined ss 27 and 30, did it act in contravention of s 27?
II BACKGROUND
[7] Electricity substations operate to convert electricity from high voltages, being around 72 kV and above, to lower voltages. Switchgear is used in the process. Some form of insulation is required to insulate the live elements of the switch. GIS uses high pressured gas. Another type of switchgear is known as AIS, standing for air insulated switchgear. GIS is substantially more expensive than AIS. The
evidence establishes that GIS in the open market is between around two to four times more expensive, depending on the way in which cost is assessed. In some situations GIS will nevertheless be the preferred switchgear, such as at substations where space is at a premium or where there is a harsh environment. In New Zealand AIS has generally been the preferred option because of the absence of relevant constraints such as those.
[8] The initiative for formation of the cartel was that of Mr Günther Viereckt, a senior executive of the Swiss based company, Brown, Boverie & Cie. Brown, Boverie & Cie merged with another manufacturer, Asea, in 1988 and became known as ABB. I will refer throughout to “ABB”.
[9] The principal evidence about the origins of the cartel and the reasons for its formation came from a former senior executive of Siemens, Mr Helmut Troger. This evidence is not in issue and it is convenient simply to reproduce what he said in his brief of evidence. He referred first to a meeting he had with Mr Viereckt, at Mr Viereckt’s suggestion, in about 1984:[1]
[1] Evidence taken from a witness’s brief will be indicated by recording the text with paragraph numbers, without further footnote references, unless that is required for a particular reason.
8. At the time we spoke, the OPEC cartel had long been in existence.
This grouping was the well known “Organisation of Petroleum- Exporting Countries”, largely from the Near and Middle East. These states had specifically organised themselves to divide up the world oil market among themselves and control prices by production quotas. Some of their oil-wealth was invested in infrastructure, including the building of substations.
9.Manufacturers of GIS substations were particularly interested in serving this sizable new market. The main competition was perceived to be between the European and Japanese manufacturers. Since the projects in these countries were mainly large-scale, the competition was likely to be fierce, resulting in de-stabilising of the traditional market situation.
10.Mr Viereckt was aware of these circumstances, just like other GIS manufacturers. That is why he raised the possibility of GIS manufacturers trying to co-ordinate sales to the GIS markets in the Near and Middle East. He had in mind the model of OPEC itself – an accord between international suppliers to manage sales between them. ABB had the greatest interest in fixing its shares of these new markets, as it was the overall world market leader and wished to reinforce this position in these new markets as well.
The ‘GQ Agreement’ document
11. Mr Viereckt organized the first meetings between GIS
manufacturers, initially to try to agree upon their market shares. After some time, the GQ document was presented by ABB for discussion at one of these meetings. There were various discussions which I participated in.
12.Mr Viereckt of ABB had dealings with Japanese companies in the past and acted as the representative of the Europe group of GIS manufacturers to engage the Japanese in discussion. By this means, ABB was effectively the leader of the European group and Mr Viereckt was appointed (and known) by the other companies as “Mr Europe”.
[10] The “GQ Agreement” is a document put in evidence by a witness for the Commission, Mr Erik Mayr, a former ABB employee. Mr Troger said that the GQ agreement was adopted in principle by the European and Japanese companies at the end of 1987. The document produced by Mr Mayr is dated 15 April 1988, the date of the first formal cartel meeting.
[11] There is some conflict between Mr Mayr’s evidence for the Commission and evidence from witnesses for Siemens as to the extent to which the GQ agreement was applied by members of the cartel. I do not consider that it is necessary to make any detailed findings in that regard because it is clear that, whether there was reasonably careful adherence to the provisions of the GQ agreement to begin with, the arrangements became looser over time. It is nevertheless relevant, in relation to central issues in this case, that the GQ agreement refers to what are called “budgetary prices” and it has an appendix indicating that the cartel was to apply throughout the world, apart from expressly excluded countries which did not include New Zealand.
[12] Each of the “budget enquiries” relied on by the Commission arose from a request from or on behalf of Transpower in New Zealand, to Siemens’ subsidiary in New Zealand, Siemens NZ, for what I will at this stage describe in general terms as information relating to the cost of GIS components. In each case the enquiry to Siemens NZ was passed on to Siemens in Germany, the response was prepared by Siemens staff in Germany, and it was sent to Transpower through Siemens NZ without any material change. The next paragraphs provide a brief, preliminary description of the three transactions.
[13] The transaction 1 enquiry was made on 29 June 1998. It was a request for the cost of GIS substations for the purposes of a valuation. Siemens’ response was sent back to New Zealand on 5 August 1998. This enquiry was generally referred to as the “six substation enquiry”.
[14] The transaction 2 enquiry was made on behalf of Transpower on an unspecified date before 18 December 2002. The written enquiry on behalf of Transpower was not produced in evidence. The enquiry was responded to by Siemens over a period of about two days to 20 December 2002. This enquiry was referred to in the statement of claim as the “Hamilton 220 kV budget enquiry”.
[15] The transaction 3 enquiry came from Transpower on 27 June 2003. The response from Siemens was sent to New Zealand on 28 August 2003. This transaction was described in the amended statement of claim, being the plaintiff’s pleading at the commencement of the hearing, as the “Transpower 220 kV budget enquiry”. Ms Dean QC, for the Commission, sought leave to amend the particulars from 220 kV to 330/400 kV. Mr Hodder SC, for Siemens, opposed the amendment on the basis that this particular enquiry, whatever the voltage, was part of what he described as a broad ranging feasibility study by Transpower, known as “system vision”. Mr Hodder submitted that, because the Commission had accepted that other system vision enquiries in the original statement of claim should be deleted, this particular one should also be deleted. The nature of Transpower’s enquiry is of central relevance, but that did not appear to me to provide reasons to decline the amendment and it was granted.
[16] The Commission’s claim under s 30(1), stated in a summary way, is that, in each of the transactions, Siemens gave effect to a cartel provision governing responses to enquiries as occurred in these transactions, and that that provision had the purpose, or had or was likely to have the effect, of fixing or providing for the fixing of the price of GIS, being goods supplied by the members of the cartel.
[17] There was a question whether there was one cartel or two cartels. The conclusion I have reached is that there were two cartels. I will explain my reasons in due course. For the purposes of this background summary, it may be noted that
Siemens left the first cartel in September 1999, having begun preparations to leave the cartel in the third quarter of 1998. Two other companies, one Japanese and one European, also left the first cartel in 1999, or thereabouts.
[18] Siemens became a member of what I call the second cartel in March 2002. This cartel came to an end in May 2004. It came to an end as a result of disclosure of the cartel to the European Commission by ABB. In May 2004 ABB also made a disclosure to the New Zealand Commerce Commission. As recorded in Ms Dean’s opening submissions “ABB admitted its part in the cartel and agreed to give evidence in return for immunity (as it had in other jurisdictions worldwide)”.
[19] This proceeding was commenced in April 2007 against Siemens and two other cartel members. The claim against Schneider Electric SA has been dealt with and the claim against the third company, Alstom Holdings SA, is still to be determined. Siemens’ potential liability is limited to the period from May 1998 to May 2004, but evidence of events before and after this period is relevant.
III STATUTORY PROVISIONS AND LEGAL PRINCIPLES
Sections 27 and 30
[20] Sections 27(1) and (2) are as follows:
27 Contracts, arrangements, or understandings substantially lessening competition prohibited
(1)No person shall enter into a contract or arrangement, or arrive at an understanding, containing a provision that has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market.
(2)No person shall give effect to a provision of a contract, arrangement, or understanding that has the purpose, or has or is likely to have the effect, of substantially lessening competition in a market.
The Commission’s claim is founded on s 27(2) alone because no relevant contract, arrangement or understanding was made or entered into in New Zealand.
[21] Section 30(1), omitting paragraph (b), is as follows:
30 Certain provisions of contracts, etc, with respect to prices deemed to substantially lessen competition
(1) Without limiting the generality of section 27 of this Act, a provision of a contract, arrangement, or understanding shall be deemed for the purposes of that section to have the purpose, or to have or to be likely to have the effect, of substantially lessening competition in a market if the provision 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 price for goods or services, or any discount, allowance, rebate, or credit in relation to goods or services, that are—
(a)Supplied or acquired by the parties to the contract, arrangement, or understanding, or by any of them, or by any bodies corporate that are interconnected with any of them, in competition with each other; or
[22] Sections 27(2) and 30(1) refer to contracts, arrangements and understandings, and s 30(1) has a range of further alternatives applying to each of those three matters. Because Siemens admits, in general terms, that it was a member of price fixing cartels, and because of an absence of material dispute about the general application of the various alternatives, it will in general be convenient to reduce the statutory provisions to their essentials in respect of the facts of this case. For example, it is in general unnecessary to consider any distinction between the words contract, arrangement and understanding and I will simply refer to an arrangement unless a distinction is required. Adopting that approach to the relevant parts of ss 27(2) and
30, and combining them, the essential statutory provisions in this case are:
No person shall give effect to a provision of an arrangement that has the purpose, or is likely to have the effect, of fixing, or providing for the fixing, of the price for goods that are supplied by one or more of the parties to the arrangement.
[23] From that abridgement of the statutory provisions, the broad enquiry in this case, applied to the facts, may be expressed as follows:
In respect of each of transactions 1, 2 and 3, did Siemens give effect to a provision of an arrangement that had the purpose, or was likely to have the effect, of fixing, or providing for the fixing, of the price for GIS for supply in New Zealand?
Statutory definitions
[24] Sections 27 and 30 are in Part 2 of the Act, being the part dealing with restrictive trade practices. The definition of “trade” is relevant, along with definitions of a number of other words and phrases. These are as follows, all found in s 2(1) apart from the definition of “market” which is in s 3(1A):
Give effect to, in relation to a provision of a contract, arrangement, or understanding, includes—
(a)Do an act or thing in pursuance of or in accordance with that provision:
…
… the term “market” is a reference to a market in New Zealand for goods or services as well as other goods or services that, as a matter of fact and commercial common sense, are substitutable for them.
Price, includes valuable consideration in any form, whether direct or indirect; and includes any consideration that in effect relates to the acquisition or supply of goods or services … although ostensibly relating to any other matter or thing.
Provision, in relation to an understanding or arrangement, means any matter forming part of or relating to the understanding or arrangement.
Supply,—
(a)In relation to goods, includes supply (or resupply) by way of gift, sale, exchange, lease, hire, or hire purchase; and
…
and supply as a noun, supplied, and supplier have corresponding meanings.
Trade means any trade, business, … activity of commerce, or undertaking relating to the supply or acquisition of goods …
“Purpose” in s 31
[25] Section 30(1) is concerned with a provision that either has a “purpose, or an effect or likely effect”. The main focus in this case is on the question whether there was a provision which had the purpose of fixing prices. In its statement of claim the Commission also alleges that there was a provision which had the relevant effect or likely effect, but I think it is fair to say that Ms Dean did not seek to rely to any great
extent on those alternatives. On the facts of this case I am satisfied that that was a responsible position to adopt. However, an assessment as to whether a provision had or was likely to have the effect of fixing prices has some relevance when considering whether a provision had a prohibited purpose.
[26] In relation to purpose, Ms Dean submitted that the word “implies object or aim and can be established by both objective and subjective evidence”. She referred to Commerce Commission v Port Nelson Ltd.[2] The question whether regard may be had to subjective evidence – evidence of what the defendant was actually thinking – was more recently discussed by the Court of Appeal in ANZCO Foods Waitara Ltd v AFFCO NZ Ltd.[3] The weight that may be attached to subjective evidence is discussed, in particular, in the judgments of William Young J and Glazebrook J. There were some differences in emphasis. For present purposes it is sufficient to adopt the summary on this point in Gault on Commercial Law[4] as follows, with the addition of references to relevant paragraphs in ANZCO:
[2] Commerce Commission v Port Nelson Ltd (1995) 5 NZBLC 103,762 at 103,777.
[3] ANZCO Foods Waitara Ltd v AFFCO NZ Ltd [2006] 3 NZLR 351 (CA).
[4] Thomas Gault (ed) Gault on Commercial Law (looseleaf ed, Brookers) at CA27.08(2).
• Purpose is primarily (perhaps preferably) to be assessed objectively.
However, subjective evidence of anti-competitive purpose is relevant to that assessment: [143], [255].
•Purpose cannot be equated with actual or likely effect. There may be a prohibitive purpose even if there is no actual or likely effect of substantially lessening competition: [152], [153], [257].
•However, if a provision is incapable of such actual or likely effect, that will be relevant to, and may determine, assessment of purpose: [154], [257].
“Likely effect”
[27] The meaning of the word “likely” in the expression “likely effect” was discussed in Commerce Commission v Port Nelson Ltd[5] as follows:
[5] Commerce Commission v Port Nelson Ltd (1995) 5 NZBLC 103,762 at 103,779-103,780.
There is convincing authority “likely” does not mean “more likely than not”. That approach should be accepted. … Clearly also, “likely” means more than “mere possibility” in the sense of “slight possibility” …
While the New Zealand statute is not technically penal there is, with respect, wisdom in Franki J’s[6] caution over setting standards too low. The area of likelihood at issue is a broad one lying somewhere between mere possibility and a chance in excess of 50%. It seems appropriate … to adopt Deane J’s[7] “real or not remote chance or possibility”; and as synonyms for that general sense, his Honour’s formulations “prone”, “with a propensity”, and “liable”. Alternatively, one might usefully borrow the New Zealand formulations from another context which carry a like message: “real risk”, “substantial risk”, or “something that might well happen”.
“Arrangement”
[6] TPC v TNT Management Pty Ltd (1985) 6 FCR 1, at 48-50.
[7] Tillmanns Butcheries Pty Ltd v Australian Meat Industry Employees’ Union (1979) 27 ALR 367 at 380.
[28] There were some differences between counsel as to what is required to be proved to establish an “arrangement” or an “understanding”. This was not directed to the question whether there was an arrangement in the broad sense – the cartel – but more specifically to whether or not a provision relating to budget enquiries had become part of the arrangement.
[29] Mr Hodder submitted that “the central requirement to be proven is a
‘commitment’ to (not a mere factual ‘expectation’ of) a prohibited course of conduct. If a party has reserved to itself the decision, as a matter of commercial judgment, on what it will do in a particular situation, there is no such ‘commitment’.” He referred to two Australian decisions.[8]
[8] APCO Service Stations Pty Ltd v ACCC (2005) ATPR 42-078 (FCA) at [43]-[57]; ACCC v LeahyPetroleum Pty Ltd (2007) 160 FCR 321 (FCA) at [37]-[38], where it was noted that the High Court of Australia refused leave to appeal in the APCO case.
[30] Ms Deane submitted that the approach in New Zealand is different. She referred to the decision of the Court of Appeal in Giltrap City Ltd v Commerce Commission.[9] I do not consider there is any material difference between the leading New Zealand and Australian cases. In any event, the Court of Appeal’s decision in Giltrap City is binding on me. What is required to establish an arrangement was discussed in the joint judgment of Gault P and Tipping J, delivered by Tipping J, as follows:
[9] Giltrap City Ltd v Commerce Commission [2004] 1 NZLR 608 (CA).
[15] We do not consider it appropriate to be tied in any determinative way to the concepts of mutuality, obligation and duty. While the concept of moral obligation is helpful in that it will often reflect the effect of an arrangement or understanding under s 27, the flexible purpose of the section is such that it is best to focus the ultimate inquiry on the concepts of consensus and expectation. A finding that there was a consensus giving rise to an expectation that the parties would act in a certain way necessarily involves communication among the parties of the assumption of a moral obligation.
…
[17] Before there can be an arrangement under s 27 (or for that matter an understanding) there must be a consensus between those said to have entered into the arrangement. Their minds must have met – they must have agreed – on the subject-matter. The consensus must engender an expectation that at least one person will act or refrain from acting in the manner the consensus envisages. In other words, there must be an expectation that the consensus will be implemented in accordance with its terms. If no specific action or inaction is envisaged on anyone’s part, it would be difficult to find an arrangement under s 27, if only for want of the existence of the necessary purpose or effect of substantially lessening competition.
[31] Other statutory provisions will require discussion in due course. At this early stage I simply note that a central part of the case for Siemens is that the Act in general, and ss 27 and 30 in particular, are concerned with what Mr Hodder described in opening as “the real commercial world of actual transactions or offers in trade”. That, Mr Hodder submitted, was to be contrasted with the subject matter of the three transactions relied on by the Commission in this case. In respect of those the general submission was made, supported by reference to statutory provisions, that the Act “is not concerned with exploratory information gathering by parties who may or may not subsequently move towards an actual tender or transaction”. Ms Dean’s submission, in broadest terms, was that the distinction between purpose and effect, or likely effect, and the focus of s 30 on the fact of fixing a price, means that the enquiry is much more focussed. Was there a cartel provision which had the purpose of fixing or providing for the fixing of prices in budget responses and, if so, did Siemens give effect to that, whatever the consequence may have been? Discussion of these submissions is also appropriately deferred.
Standard of proof
[32] If the Commission establishes a breach of s 27, Siemens will be liable to penalties which may be substantial. Mr Hodder submitted that “the character of such a proceeding is effectively quasi-criminal – a hybrid” and the civil onus of proof “is at the higher end of the civil scale”. He referred to a number of cases.[10] Ms Dean resisted the proposition that the standard of proof is higher than the balance of probabilities and cited the Supreme Court decision in Z v Dental Complaints Assessment Committee.[11]
[10] Queen Street Backpackers Ltd v Commerce Commission (1994) 2 HRNZ 94 (CA) at 96-97; Rich v ASIC (2004) 220 CLR 129 (HCA) at paras 22-35; Briginshaw v Briginshaw (1938) 60 CLR 336 (HCA) at 361-362; Z v Dental Complaints Assessment Committee [2008] NZSC 55; [2009] 1 NZLR 1 at [98], [102].
[11] Z v Dental Complaints Assessment Committee [2008] NZSC 55; [2009] 1 NZLR 1 at [26], [102].
[33] The decision in Z is the authority binding on me. The standard of proof is the balance of probabilities, but it is to be applied “flexibly”; with due regard to the gravity of what is alleged. Both counsel referred to [102] in Z and it will suffice to cite that paragraph, and the concluding paragraph on this topic, from the joint judgment of Blanchard, Tipping and McGrath JJ, given by McGrath JJ:
[102] The civil standard has been flexibly applied in civil proceedings no matter how serious the conduct that is alleged. In New Zealand it has been emphasised that no intermediate standard of proof exists, between the criminal and civil standards, for application in certain types of civil case. Balance of probabilities still simply means more probable than not. Allowing the civil standard to be applied flexibly has not meant that the degree of probability required to meet this standard changes in serious cases. Rather, the civil standard is flexibly applied because it accommodates serious allegations through the natural tendency to require stronger evidence before being satisfied to the balance of probabilities standard.
…
[112] Despite these exceptions, the rule that a flexible approach is taken to applying the civil standard of proof where there are grave allegations in civil proceedings remains generally applicable in England. There is accordingly a single civil standard, the balance of probabilities, which is applied flexibly according to the seriousness of matters to be proved and the consequences of proving them. We are satisfied that the rule is long established, sound in principle and that, in general, it should continue to apply to civil proceedings in New Zealand.
(citations omitted)
IV WITNESSES AND THE BROAD NATURE OF THEIR EVIDENCE
[34] The purpose of this section is to identify the witnesses, indicate the employment positions they hold or held and, to the extent necessary by way of background, outline the broad nature of their evidence.
[35] The Commission called four witnesses. Three of them were employees or former employees of ABB (or a subsidiary of the parent company); Messrs Erik Mayr, Leonhard Widenhorn and Mats Persson.
[36] Mr Mayr was employed by the ABB group and predecessor companies from
1968 until 2004. From 1986 to April 1988 he was involved in assisting in the establishment of the cartel. From its establishment in 1988 until July 2002 he was employed solely in work relating to the cartels. Mr Mayr explained the way in which the cartel operated through different types of meeting. In broad terms there were meetings at two levels. Working group meetings met around once a month to discuss and allocate particular projects, to agree on prices, and to deal with the practical running of the cartel on a day to day basis. Arising from these working group meetings there were also job meetings in the earlier stages of the first cartel attended by members who had been allocated a particular project. Management level meetings, attended by more senior executives as well as working group representatives, were held once or twice a year to oversee the cartel and to seek to resolve disputes that may have arisen.
[37] Mr Mayr attended almost all working group meetings over the period from
1988 to 2002. He was therefore involved in this capacity throughout the period of Siemens’ involvement in the first cartel from April 1988 until April 1999. Mr Mayr was removed from his position as one of ABB’s cartel representatives in July 2002. Although he remained as a salaried employee of ABB until 2004 he had no formal position with the company.
[38] Important evidence for the Commission from Mr Mayr concerned the way in which the working group dealt with budget enquiries. He gave evidence of budget enquiries from New Zealand which were responded to by cartel members including,
in particular, transaction 1, which Mr Mayr described as a budget enquiry. Mr Mayr produced the GQ agreement and its appendices. He also produced copies of two electronically recorded spreadsheets listing “projects” said to have been discussed by working group meetings. These refer to transaction 1 and other transactions said to be budget enquiries and, in respect of transaction 1, notations which Mr Mayr said indicate calculation of “prices” in accordance with cartel requirements. I will refer to these documents as ABD 8 and ABD 11.
[39] Mr Widenhorn replaced Mr Mayr in July 2002 as the principal ABB representative at working group meetings. Mr Widenhorn gave evidence that “budget enquiries” continued to be controlled by the cartel operating at that time. He said that budget enquiries for complete substations were usually considered at meetings, while requests for prices for individual GIS components were required to be responded to in accordance with agreed price lists. He could not recall any specific projects relating to New Zealand, but said that New Zealand continued to remain subject to the cartel. Mr Widenhorn took part in working group meetings from around July 2002 until February 2004 when ABB left the cartel. His involvement therefore covers the dates of transaction 2 (December 2002) and transaction 3 (June-August 2003).
[40] Mr Persson assisted Mr Widenhorn in working group meetings of the cartel from around November or December 2002 until February 2004. His evidence-in- chief, in broad terms, was similar to that of Mr Widenhorn.
[41] The fourth witness for the Commission was Mr Roger Brady. At the date of hearing Mr Brady had been employed by Transpower for 11 years. He is a project support manager for grid projects. Mr Brady provided a written brief of evidence. He was not cross-examined. Mr Brady gave general evidence on Transpower’s GIS business and on the nature of the GIS market in New Zealand. He also gave evidence relating to the nature of Transpower’s enquiry for transaction 1. He was not able to give evidence in relation to transactions 2 and 3.
[42] There were eight witnesses for Siemens. Mr Marcus Ling is employed by
Siemens (NZ) Limited. He gave evidence that there was no market for GIS
equipment in New Zealand, on the nature of budget enquiries, and about the three transactions from a New Zealand perspective.
[43] Three witnesses gave evidence about the way in which Siemens made the calculations for transactions 1, 2 and 3. The witnesses were Mr Thomas Neumann, Ms Petra Müller and Ms Stefanie Zimmerman. All three are current employees of Siemens AG and had direct or close involvement in calculations for one or more of the transactions. They also gave evidence about Siemens’ standardised processes for dealing with all responses by Siemens to budget enquiries. The general thrust of this evidence was that Siemens’ standardised processes, coupled with the personal input of the person processing the enquiry, meant that Siemens’ responses were independent of any cartel provisions.
[44] There was evidence from two former employees of Siemens who held senior managerial positions, Messrs Helmut Troger and Hubert Essl. From 1981 until his retirement in 1994, Mr Troger was president of the power transmission and high voltage distribution division of Siemens. Mr Troger was Siemens’ principal representative at management level meetings of the cartel until 1994. As already noted, Mr Troger gave evidence about the origins of the cartel and its primary objective of taking advantage of the new markets in the Near and Middle East whilst maintaining existing market shares, with price fixing for major projects being an essential part of the process. On central issues he said that New Zealand was of no interest to Siemens or to the cartel in respect of its primary objectives and that fixing prices in response to budget enquiries had never been a matter of interest.
[45] Mr Essl was Mr Troger’s successor and held the post from 1994 until 2000. He also replaced Mr Troger as Siemens’ principal representative at management level meetings of the cartel. He gave evidence that the GQ agreement played no part in cartel activities from the time of his involvement, about Siemens’ withdrawal from the cartel in April 1999, of his view that New Zealand was irrelevant to the cartel, and irrelevant to Siemens in respect of GIS, that responses to budget enquiries were not considered by Siemens to be a matter for the cartel at all, and that in any event they were handled independently by Siemens.
[46] Dr Alfred Weinberger was a senior manager for VA Tech, a competitor of Siemens and ABB, and a member of the cartels. Dr Weinberger received information on, and then became involved in, cartel business from September 2003 until February or March 2004. He gave evidence about the operation of the cartel over this period, the absence of discussions about budget enquiries or about New Zealand and the nature of projects which were discussed at cartel working group meetings. He also gave some evidence, based on advice he received (without challenge from the Commission) comparing the first and second cartels.
[47] The remaining witness for Siemens was Mr Manfred Lühn. Mr Lühn is employed by Siemens as a divisional compliance officer. Between June and August
2004 he carried out an extensive internal investigation for Siemens about its involvement in the cartel. One general point of his evidence was that, in his extensive investigations, including interviews of Siemens’ personnel involved in working group meetings of the two cartels, there were no references to New Zealand. He provided more specific evidence intended to indicate that there was no cartel influence, or use of cartel prices, in transactions 1, 2 and 3.
[48] There was no evidence from Siemens employees who attended cartel working group meetings. These were, in particular, Messrs Rohde, Schröder and Zellmann. The Siemens representative of most significance in respect of the issues in this case is Mr Schröder. He was the Siemens representative at cartel working group meetings for both cartels. I am satisfied, from evidence provided by Siemens, that this is not a case where an adverse inference can be drawn against Siemens because Mr Schröder did not give evidence. But aspects of his involvement or activities will require consideration.
V WAS THERE A GIS MARKET IN NEW ZEALAND?
[49] Both parties approached the question whether there was a market in New Zealand at the relevant time on the basis, at least implicitly, that the market would be one for high voltage GIS. There was no submission that the market should be more broadly defined, such as a market for high voltage switchgear. I consider that the focus on a market for GIS is appropriate and proceed on that basis.
[50] The evidence establishes the facts set out in the following three paragraphs. It is these facts which the Commission relies on, in large measure, as establishing the existence of a GIS market.
Sales of GIS
[51] In the early to mid 1980s Transpower purchased GIS for six substations. These six GIS substations compare with around 170 Transpower AIS substations. In
1997 the New Zealand company Vector purchased GIS equipment from one of the cartel members, Schneider, for a substation in Liverpool Street, Auckland. In 1999
Vector purchased further GIS equipment from Schneider for the same substation. In
2008, following tenders put out in September 2007, Transpower purchased GIS, at a cost of around $13m, for a substation in Otahuhu, Auckland. There was a tender from Siemens. The sale went to Alstom, another former cartel member.
Cost enquiries from New Zealand
[52] During the relevant period (1998-2004) – the period of potential liability for Siemens – there were at least 10 enquiries about the cost of GIS components from New Zealand companies to one or more manufacturers of GIS. The Commission referred to all of these as “budget enquiries”, but the question whether all of these enquiries, which include the three directed to Siemens, come within a relevant meaning of the expression “budget enquiry”, remains for determination. The enquiries referred to in the evidence, in addition to the three enquiries to Siemens, were to two other cartel members, Schneider and Alstom. None of these enquiries led to the purchase of GIS.
Manufacturers’ expressions of interest and marketing
[53] There was some limited evidence under these general headings. The Commission submitted that there was marketing of GIS by Siemens, but I do not consider that the evidence establishes that Siemens was actively marketing GIS, as opposed to maintaining good relations with Transpower for the purposes of securing
sales of AIS. In October 2000 Toshiba wrote to Transpower asking that it be added to Transpower’s list of approved tenderers for a wide range of electrical equipment, including GIS. Toshiba said in its letter to Transpower that it was in the process of completing Transpower’s pre-qualification documents. Brochures were sent, including brochures for Toshiba medium and high voltage GIS. In February 2004
Alstom made a presentation on the advantages and disadvantages of GIS compared with AIS.
Evidence for Siemens
[54] Messrs Troger and Essl both said, in effect, that they did not consider there was any market for GIS in New Zealand. The basic reason for this assessment was that AIS was bound to be the choice in New Zealand because it was considerably cheaper[12], and possible constraints, such as limited space or a harsh environment, which might require GIS, did not exist in New Zealand.
[12] In relation to cost the evidence from Mr Ling was that GIS is three to four times more expensive than AIS. Mr Brady said that GIS “tends to cost around 1 ½ to 2 ½ times more than an equivalent AIS solution”. Mr Ling said that his figure was on a straight component cost comparison and he assumed Mr Brady was comparing what Mr Ling called a “total package” which, in the case of AIS, would include additional expense such as that relating to more land. The precise difference is not material. All witnesses who gave evidence on the point agreed that GIS is substantially more expensive than AIS.
[55] Mr Troger said he visited New Zealand some time before the cartel started “to get a picture of the demand for GIS substations”. He said he came away thinking that the demand was non-existent and he made it clear to his staff that there was “no point in making market launch efforts”.[13] Mr Essl said that “relatively early” after he replaced Mr Troger in 1994 he gave instructions that GIS projects in New Zealand were not of any interest to Siemens because there was no market.[14]
[13] Brief of evidence 38.
[14] Notes of evidence, p 113, l 4 and p 115, l 22.
[56] Mr Brady of Transpower said that AIS is Transpower’s preferred option “wherever possible, because of the difference in price between it and GIS”. Mr Brady also said:
16.I note for completeness that the period from 1998 to 2004 was one of little investment in the National Grid, due to Transpower’s then “glide path” policy, which in short involved the notion that distributed generation (where electricity is generated near to where it is consumed) would largely replace the need for major transmission assets. As a consequence little was spent on new substations, and so GIS was not ordered. That said, the cost of GIS is such that had it been necessary in any project, and some projects require it because AIS is not suitable, the dollar amounts involved would have been relatively large.
[57] Mr Ling provided evidence on this question, based on his experience in the industry, and with his evidence backed by a reasonable amount of relevant detail. His evidence in relation to Siemens was consistent with the evidence of Messrs Troger and Essl. On the question of a market generally, the thrust of his evidence was that there was no interest of any consequence in high voltage GIS. He expressed his opinion as to why there was no real interest in GIS and this was consistent with the other evidence that AIS was the preferred option.
[58] Mr Ling was cross-examined on this evidence. Ms Dean submitted that his answers in cross-examination in fact confirm that “as a matter of common sense a GIS market existed pre, during and post the cartel”. The submission for the Commission summarised the acknowledgements from Mr Ling in a manner which I consider to be accurate. That summary is as follows: Siemens NZ “maintains a presence in New Zealand”; GIS is part of its “portfolio” of products; if Siemens has an “opportunity” to sell GIS, it will do so; Siemens will “respond to budget enquiries to GIS when they come in”; if GIS brochures are requested, they will be sent; GIS is expensive equipment so projects “don’t have to be frequent for the sales or the profits to be quite large amounts of money”; while AIS is cheaper, GIS is the only alternative in certain circumstances – where heavy pollution occurs; in urban areas; where substations are underground; where existing GIS equipment may be damaged
– “something that can just happen at any time”; Siemens tendered for the recent Otahuhu GIS job; sales of GIS were made in 1997 and again in 1999 by Schneider to Vector; budget enquiries were made for GIS in that period; “people were interested at least in GIS in the period 1998-2004”.
Law
[59] There was a submission for the Commission, in opening, that the definition of a market is not an end in itself, but rather to assist with the analysis of the conduct at issue. Reference was made to the decision of the High Court of Australia in Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd.[15] It was further submitted, in this context, that “s 30 strictly requires only definition of a ‘service’ [sic] rather than ‘market’ as such”. (On the facts of this case “goods” should be
substituted for “service” but the point remains whichever it is.)
[15] Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) 167 CLR 177.
[60] I agree, picking up a further point of Ms Dean’s, that this case is not concerned with issues relating to definition of a market. What is required, as the Commission’s principal submissions on this issue recognised, is proof of the existence of a GIS market in New Zealand. That clearly is required because s 30 is an extension of s 27 and s 27 is concerned with the lessening of competition in a market. If there is no market s 27 and, therefore, s 30 have no application.
[61] The Act requires a market to be identified having regard to, amongst other things, “fact and commercial common sense”.[16] These words were given emphasis by Mr Hodder, and with reference to relevant leading authorities.[17] The issue of law that arises on the facts of this case is whether there must be current trade or traffic for there to be a market. This question arose in the Queensland Wire case and was answered in the negative.[18] Deane J said, at 196:
[16] Section 3(1A): see [24] above.
[17] Re Queensland Co-operative Milling Association Ltd (1976) 25 FLR 169, at 186-190; QueenslandWire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) 167 CLR 177 (HCA), at 191; Brambles NZ Ltd v Commerce Commission (2003) 10 TCLR 868 (HC), at [73]-[77].
[18] Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) 167 CLR 177.
… a market can exist if there be the potential for close competition even though none in fact exists. A market will continue to exist even though dealings in it be temporarily dormant or suspended. Indeed for the purposes of the Act, a market may exist for particular existing goods at a particular level if there exists a demand for (and the potential for competition between traders in) such goods at that level, notwithstanding that there is no supplier of, nor trade in, those goods at a given time – because, for example, one party is unwilling to enter any transaction at the price or on the conditions set by the other.
And Dawson J said, at 200:
But the existence or non-existence of sales of a product cannot conclude whether a market exists or not. It must be sufficient to constitute a market that there is a product for exchange, regardless of whether exchange or negotiation for exchange has actually taken place.
[62] The question was discussed more broadly in Re Queensland Co-op Milling
Association Ltd[19] as follows, with Ms Dean’s emphasis added:
So a market is the field of actual and potential transactions between buyers and sellers amongst whom there can be strong substitution, at least in the long run, if given a sufficient price incentive.
[19] Re Queensland Co-operative Milling Association Ltd (1976) 25 FLR 169, at 190.
[63] Applying the relevant statutory provisions, and in particular the definition of market, with due weight on the need for an assessment based on commercial common sense, and the principles from the cases noted, I am satisfied that during the relevant period from 1998 to 2004, there was a market for high voltage GIS in New Zealand. Undoubtedly it was a thin market. And no doubt the thinness of the market was a disincentive to manufacturers such as Siemens from putting in marketing efforts. However, although the assessment of those in the market is relevant, and has been taken into account, that assessment alone cannot be determinative.
[64] The facts of most significance are the sales just before, during and not long after the liability period from 1998 to 2004. Sales which occurred before and after what I call the liability period cannot be ignored in assessing whether a market existed. The fact that the sale by Alstom to Transpower in 2008 occurred after the cartel had come to an end, and there was a tender from Siemens, has some added relevance.
[65] There may be a market, even though the sales are few and far between. A conclusion whether there is a market when the sales are few and far between will, as required, turn on the particular facts and commercial common sense. In this respect one factor I consider to be important is that, with GIS, the value of occasional
transactions is reasonably high. As Mr Ling said, projects “don’t have to be frequent for … the profits to be quite large amounts of money”.[20]
VI THE FIRST CARTEL : DID IT APPLY TO NEW ZEALAND : DID IT COVER “BUDGET ENQUIRES”?
[20] Notes of evidence, p 87, l 9-10.
[66] These issues were identified by Ms Deane in opening as two key issues, there was a body of evidence on the issues, and they were both fully addressed in closing submissions. It is convenient to deal with these issues at this point and to do so reasonably briefly. This is because I am satisfied that the first cartel did apply to New Zealand and to responses by cartel members to “budget enquiries”, but those rather general conclusions, although essential foundations for the Commission’s case, do not take the enquiry very far in respect of the three transactions at the heart of the case which are said to found the liability of Siemens.
Did the cartel apply to New Zealand?
[67] Appendix 2 to the GQ agreement commences: “Subject Matter Territory: All countries worldwide”. The world is divided into five regional groups, with identified countries excluded from two groups. Group 5 applies to New Zealand and is recorded as “Oceania without exception”.
[68] Mr Mayr was the only witness who had been involved in working group meetings of the first cartel. He said that the cartel “operated on a global scale with the exception of certain countries”, which exception did not include New Zealand. His reference to the way in which the cartel “operated” in fact is important in the light of the evidence for Siemens that the GQ agreement was not used for cartel operations. Mr Mayr said New Zealand projects were discussed by the members of the cartel. In a supplementary brief, in response to evidence for Siemens, Mr Mayr said that “the GQ agreement was closely adhered to in my experience, including that
the Cartel extended to all of Oceania, including New Zealand”.[21]
[21] 2nd brief of evidence at [2].
[69] Mr Mayr produced and discussed three cartel documents which record, in one case, the allocation of a GIS contract in New Zealand and in other cases what are at least enquiries from New Zealand about GIS.[22]
[22] The contract was one between Schneider and Mercury Energy (subsequently Vector) for the Liverpool Street substation, noted at [51] above. Enquiries included that from Transpower for transaction 1.
[70] Mr Troger said:
23.The adoption of the GQ agreement framework led to the forming of the cartel in 1988. However, neither the two groups [i.e. Europe and Japan] nor their members were in possession of the final text. So, the GQ document formed a rough basis, a kind of framework, for the functioning of the cartel, but did not reflect the ideas of the cartel members in every detail.
…
33.New Zealand was never the focus, and it was never planned or intended to include New Zealand. I did not believe New Zealand was part of the cartel.
…
36. I represented Siemens AG at the cartel from its forming until 1994.
I do not believe a project in New Zealand was discussed even once.
At 36 Mr Troger was referring to his attendance at management meetings.
[71] Mr Troger said he had never seen appendix 2 with the country list. However, there was no challenge to the authenticity of appendix 2. Moreover, Mr Troger also said:
20.The reason for the cartel was the Middle East sales, but the GQ draft proposal extended this idea (perhaps, like the OPEC model) to a framework that could be applied to other parts of the world too, provided there were no anti-trust laws. …
21.Other suppliers, including Siemens, did discuss the GQ agreement as a draft document, but concentrated attention on the suggested respective market shares and defended them doggedly. I do not remember concentrating on other details of the draft put forward by ABB.
[72] Mr Troger’s evidence was supported by evidence from Mr Essl, although Mr
Essl had no involvement until 1994. There was also the evidence from Siemens’
internal investigator, Mr Luhn, who said that in his very extensive investigations there had never been any mention of New Zealand. I do not attach any significant weight to that evidence save to the extent that it indicates that New Zealand was not of significance in relation to GIS. There was no evidence from Mr Luhn that he asked any of the people he interviewed, who included Siemens representatives at working group meetings, whether New Zealand had been discussed at cartel working group meetings, or otherwise been the subject of cartel activities.
[73] The evidence for Siemens on these matters has significance in relation to other issues. However, on the present issue it does not materially contradict Mr Mayr’s evidence of what actually occurred at working group meetings, which evidence is supported by the three documents Mr Mayr produced. And what these documents indicate occurred at the working group meetings is consistent with the “framework” in the appendix to the GQ agreement.
[74] Answering the question in the broad terms in which it was posed, I am satisfied on the balance of probabilities that “the first cartel applied to New Zealand”.
Were “budget enquiries” covered by the cartel?
[75] Clause 23 of the GQ agreement is as follows:
Reference Price List
Budgetary prices, price indications and quotations from sole notifiers must be given in accordance with reference price list as per Appendix No. 9.
Swiss Franc prices of reference price list shall be converted into other currencies by applying [Financial Times Data].
Review of reference price list shall be made annually. …
[76] Appendix 9 simply says: “Reference Price List: enclosed”. Mr Mayr produced a document (ABD 3) which he said was a price appendix, being a copy he had retained. He said that ABD 3 is a version of the price list referred to in clause
23. There was no material challenge to this. And some of the content is consistent with the wording in clause 23: prices are in Swiss francs and there are indications of
some price list reviews with a reference to revision 3 in September 1991 and revision
4 in March 1993. No price appendix later than March 1993 was produced.
[77] Mr Mayr said:
38.The Cartel was also designed to rig the responses to customer requests for budget enquiries and price indications. These were of a less formal nature than tender invitations and occurred on a much more regular basis. The enquiries usually involved a potential customer asking the local subsidiary of a Cartel member to provide an estimate of the cost to supply GIS components. The parent company would be passed the budget enquiry from the local subsidiary and would notify the Cartel Secretary that it had received such an enquiry. During my time of involvement in the Cartel, all budget enquiries had to be notified to the Cartel Secretary, who then circulated that information to Cartel members. The project would then be discussed at working level meetings of the Cartel and a price would be determined with reference to an agreed Reference Price List, which was Appendix 9 to the GQ-Agreement. If a budget enquiry required response before the next Cartel meeting, the budget enquiry – including the budget price to be offered – was discussed by fax or phone. The relevant price would eventually be transmitted back to the customer via the local subsidiary. Those estimates were then used by the customer to budget for future projects and could potentially lead to invitations for tender. In that way there was complete control of pricing levels.
39.The Cartel applied to such requests because it was important to control all aspects of pricing, including even at the enquiry level to ensure that the existence of the Cartel was not discovered. For example, it would have raised suspicion if budget prices were consistently lower than an actual tendered one.
Mr Mayr returned to budget enquiries following a discussion of the cartel processes for dealing with tenders. He said:
66. The same essential process took place for budget enquiries.
Documentary records of budget enquiries discussed by the Cartel are more difficult to locate because of the informal nature of that
process. The enquiries involved a local customer asking the New
Zealand subsidiary of a Cartel member to provide an estimate of the cost to supply GIS components. The Cartel member would then notify the Cartel Secretary that it had received a budget enquiry, which would be put on the enquiry list and discussed at working level meetings. If the enquiry was still at a very early stage, then discussion about it would often be postponed to a later date.
67.Once it became more likely that the project would progress, the Cartel would discuss which factors should be taken into account in determining the appropriate overall price, which was calculated with reference to the budget price lists in the GQ-Agreement (Appendix
9). The final price was reached by multiplying the appropriate budget price by a numerical factor which took into account the relevant features of the project, as agreed by the Cartel.
[78] Mr Mayr referred to the information recorded on what he described as the
“project lists” (ABD 8 and 11) and said:
74.I note that these project lists are by no means an exhaustive list of the New Zealand projects discussed by the Cartel and only represent the status of Cartel discussions at a particular point in time (namely the period for which I happened to have retained project lists). But I know from my own participation that during the relevant period many New Zealand projects were discussed and, in the case of budget enquiries, determined with reference to the agreed prices set out in Appendix 9. …
From the evidence as a whole, I am not satisfied that Mr Mayr had any independent recollection of discussions relating to specific New Zealand “projects”, but I am satisfied as to the reliability of his general evidence.
[79] By reference to ABD 8 and ABD 11 Mr Mayr identified entries for five “budget enquiries” from New Zealand, including transaction 1 with notations indicating budget prices based on the 1993 price list and agreement on price multipliers. I will discuss the detail of transaction 1 later.
[80] The evidence from Siemens on the general issue whether the first cartel was concerned with budget enquiries also came principally from Mr Troger, with some support from Mr Essl. Mr Troger’s evidence on the specific issue was given in the light of his earlier evidence that the focus of the cartel was on the Middle East and maintaining market shares for major GIS projects. He also said, with support from other Siemens’ witnesses, that the cartel was concerned only with “real projects” not vague enquiries, which is what budget enquiries were said to be. His evidence included the following:
40.It is understandable that the term “budget offer” found its way into the GQ arrangements. Budget offers were used by the cartel to gather information on imminent major projects. But they are nothing more. They were not to be discussed or allocated. …
[81] There was substantially more in the evidence from Siemens’ witnesses than this bare summary indicates. As with the Siemens’ evidence on the relevance of
New Zealand, I will need to come back to the further evidence on the relevance of budget enquiries. The outline I have provided is nevertheless sufficient for present purposes. The position in relation to the evidence is in broad terms similar to the position on the issue whether the cartel applied to New Zealand: there was no significant evidence contradicting Mr Mayr’s evidence as to what actually occurred in general terms at working group meetings. Whatever may have been the intentions of the senior executives who established this cartel, and who continued to be involved at the management level, those responsible for the detailed workings of the cartel did extend the arrangements to responses to budget enquiries.
[82] But again, this does not take the enquiry very far in respect of the three transactions said to found the liability of Siemens. The conclusion in general terms that the cartel’s activities extended to responses to what were described as “budget enquiries” did not address the more focussed issues that arise in relation to the three transactions and the essential elements of ss 27 and 30. For example, the conclusion at this point that the cartel applied to budget enquiries, is not a conclusion that any of the transactions in issue was what the cartel considered “budget enquiries” to be. And there are the further issues identified in the introduction.
VII THE FIRST CARTEL AND TRANSACTION 1
The loosening of the cartel and Siemens’ departure
[83] The evidence establishes that, from around 1994-1996, some of the cartel members began to pay less attention to its provisions. And in mid 1998 Siemens, through Mr Essl, became concerned about Siemens’ participation in the cartel and began planning Siemens’ departure from the cartel in the third quarter of 1998. Siemens left the cartel in April 1989. Siemens’ response to the Transpower enquiry in transaction 1 was sent to New Zealand on 5 August 1998.
[84] The evidence of a loosening in cartel arrangements came from Mr Essl and Mr Mayr. In his evidence-in-chief Mr Mayr explained how the cartel members allocated actual projects to individual members. By “actual projects” I mean
projects that were available for tender and for that reason were reasonably likely to lead to a contract for sale of GIS substations, or components. In this context Mr Mayr also explained how prices were fixed for the tender from the cartel company allocated the job, and for competing bids from other members of the cartel to give an appearance of competition.
[85] At the end of this section of his evidence Mr Mayr said:
37.The Cartel was successful in this regard and the parties strictly adhered to this method, particularly in the first six-eight years of the Cartel’s existence.
[86] The reasonable inference from this is that from around 1994-1996, cartel members were not so diligent in relation to allocation of projects and pricing for tenders. This was borne out in cross-examination. Mr Mayr said:[23]
… What I wanted to express is that in the late years it may not, every time it may not every time be exact behaviour of the members I saw specially this may be not so much for the Europeans but for the Japanese. I have some memory that the smaller Japanese companies were trying not to hundred percent to behave to giving prices but this was actually in the late years only and before everything worked well.
[23] Notes of evidence, p 42, l 25-30. This is the unedited transcription.
[87] This bears on a question of relevance in this case whether, in this later period, there was less adherence to arrangements that may earlier have existed in relation to budget enquiries. My conclusion is that, given that there was less adherence to matters of direct importance, being the maintenance of market shares by fixing prices for tenders, it is reasonably likely that there was less adherence to any provisions relating to responses to budget enquiries, whatever the true nature of enquiries covered by that expression. This is because, whatever the significance of responses to enquiries may be in relation to the objectives of the cartel, it was bound to be less than the significance of responses to invitations to tender for the actual supply of GIS.
[88] Mr Essl’s evidence on this topic, and on Siemens’ departure from the cartel, included the following:
18.By mid-1998, I had considerable concerns about Siemens AG’s participation in the Cartel. In part, this was because the principles of it were not being implemented particularly effectively. Secondly, and this was the decisive aspect, Siemens AG had recently imposed a comprehensive compliance programme in early 1998. This compliance programme was a company policy that required Siemens AG to comply with relevant laws and internal rules and regulations.
19.Involvement in the Cartel operations could not be reconciled with the compliance programme. In order to remove the personal risk for myself, but also for my employees in the PTD H Division [which included Siemens’ representatives for all Cartel activities], I decided in the third quarter of 1998 to discontinue Siemens AG’s participation in the Cartel.
…
21.My experience was that in the latter years before 1999 the Cartel lost its effectiveness and infringements by the Cartel members became more frequent. It was for me just a question of time: sooner or later the Cartel would break down and fierce competition would erupt. I wanted to be prepared for that. For me it was important to throw off the Cartel straitjacket as quickly as possible and to fight for a positive starting position for the time after the end of the Cartel.
…
23.To prepare ourselves, the Siemens’ management team met to discuss strategies. The management team included heads of all segments (including Mr Schreider, the GIS head), plus my assistant, and commercial partners of the segments. Mr Schröder was also included in the strategy meetings because of his role in the Cartel arrangements.
…
25. The plan to leave the Cartel led, initially, to Siemens AG
aggressively contending for particular projects towards the end of
1998. By this I mean definite projects, not tentative enquiries of the sort that were received all the time in great number. …
26.In April 1999, the annual conference of the GIS manufacturers was to be held in Sydney. Prior to this conference, I gave the order that Siemens AG should withdraw from the Cartel. I notified this within my Division particularly to my direct sub-ordinate, Mr Schreider and also Mr Schröder.
[89] The other members of the cartel were advised of Siemens’ withdrawal from it either immediately before or at the conference on 22 April 1999. Hitachi also left the cartel either at the end of 1999 or in early 2000, as did VA Tech.
The transaction 1 enquiry and Siemens’ response
[90] On 29 June 1998 consultant engineers wrote to Siemens NZ on behalf of
Transpower:
You may be aware that we are engaged by Transpower in the ODV costing exercise.
As part of this exercise we need the per bay costs for each of the GIS substations configurations shown on the attached sheets (only the GIS part, not the rest).
Please advise how much would it cost (including the already provided prices for GIS substation costs) for Siemens to produce these costs.
[91] “ODV” stands for “Optimised Deprival Value”. This is a valuation methodology. Mr Brady, in his unchallenged evidence, said:
12.… Essentially, ODV is a valuation methodology, the aim of which is to value assets at the level at which they can be commercially sustained in the long term, and no more. It provides a proxy for the market value of assets in the absence of a ready market for such assets.
13.The purpose of such an enquiry was essentially to assess the replacement cost of these substations so as to value Transpower’s assets for the purpose of setting rates for its services. That was an exercise then carried out by the Ministry of Economic Development (“MED”) … pursuant to s 170 of the Electricity Act 1992, which set out the requirement for a valuation based on ODV. Transpower gather the information and passed it on to the MED, who used it to prepare an ODV of its fixed assets, which was then used to set Transpower’s charges and make investment and planning decisions. As such, there was no intention by Transpower to purchase the equipment set out in this budget enquiry, but the prices Siemens responded with were designed to flow directly into the charges levied by Transpower for electricity transmission to distributors.
[92] Mr Brady referred to the enquiry for Transpower as a “budget enquiry”. I attach no weight to his use of the expression for the purpose of determining whether the transaction 1 response was covered by a relevant provision of the cartel. As Mr Brady noted, there was no intention on the part of Transpower to purchase any equipment. And as he noted earlier in his evidence, the GIS components in Transpower’s six substations had all been acquired in the early to mid 1980s. There was further evidence that these components have an expected life of around 40 years.
[93] Siemens NZ sent the enquiry to Siemens, for the attention of Mr Neumann, by letter dated 6 July 1998, with the following covering message:
The consultant is asking for prices only, not a technical description. The price should be as per a turnkey bid for the switchgear – that is design, manufacture, install and commission.
Could you please how long [sic] it would take you to produce the pricing, and how much you will charge for your time? The consultant would like to know by return fax so that he can arrange a job number to cover our cost.
[94] Mr Neumann responded with a preliminary enquiry to Siemens NZ. He asked whether the layouts in the attached drawings were fixed, and suggested alternatives. He said, referring to the drawings that came with the enquiry, that he had never seen such a complicated design. Mr Neumann commented that the design was “very expensive at least and makes no sense for the safety of the system. Please try to convince them to go back to simple double bus design.”
[95] Mr Neumann’s queries were referred to Transpower’s engineer. He responded that one aspect of Mr Neumann’s proposal was “okay”, but on another aspect he said the “configurations need to be as per the drawings we sent to you as they are related to the existing substations”. This advice was sent by Siemens NZ to Siemens with a comment including the following: “I am sorry about the delay in responding. I have been away on a trip trying to generate some real business.”
[96] Siemens’ response would have been prepared by Mr Neumann because he had responsibility for New Zealand and Australia. However, Mr Neumann was absent and Ms Müller dealt with it. Ms Müller said:
48.I can remember the process for this enquiry because Transpower requested a host of technical solutions that appeared to be largely representative of our whole scope of products or services, rather than based upon any specific location or project. The technical requests were very unusual because it was a mixture of both double and triple busbar technologies … It seemed to be based more on theoretical ideas than on any actual proposal for a real substation.
[97] Ms Müller used the information provided by Transpower’s engineer to prepare the technical details and the necessary drawings for a response. She said she then “inserted this information into our standard budget offer letter”.
[98] Ms Müller said that “the ultimate decision on the value to include needed to be made by a more senior staff officer”. As Mr Neumann was away she asked Mr Schröder to do this. The evidence establishes, and the Commission accepts, that Ms Müller had no knowledge of the cartel, let alone Mr Schröder’s part in it. Ms Müller said:
52.I do not recall having any specific discussions with Mr Schröder about the budgetary value. From my point of view, it made sense for him to be involved, since the technical details as presented were complex and unusual, and this was at a time (1998) before we had any Excel application guideline available to assist.
53.Mr Schröder provided me with a list of values or estimates in a memorandum dated 5 August 1998, which I then took and added the rest of the details needed to complete the budget offer letter.
The “Excel application” referred to by Ms Müller is discussed later.
[99] The completed “Budgetary Offer”, as it was described, was sent by Ms Müller to Siemens NZ on 5 August 1998 for forwarding to Transpower’s engineers. This letter, in addition to being described by Siemens as a “Budgetary Offer”, includes the following expressions given some emphasis for the Commission: two references to “the scope of supply”; an offer to “review or modify [the] proposed configuration”; advice that the “offer includes” certain tests and drawings; provision for packing the equipment when shipped; a date for delivery after a confirmed order; and a statement “these prices are for budgetary purposes only”.
[100] The word “offer” is used in this and some other documents relevant to the central issues. I mention this to put it to one side. Nothing turns on that word for the purpose of determining any of the issues in this case, compared with the significance the word might have in a case concerned with formation of a contract.
Budget enquiries in general : Mr Mayr’s evidence
[101] Mr Mayr’s main evidence-in-chief on budget enquiries is recorded at [77]. This is relevant to the meaning of the rather general expression “budget enquiries” and to the nature of the enquiry in transaction 1. Mr Mayr’s general evidence on the
nature of budget enquiries was not consistent with his evidence suggesting that
Transpower’s transaction 1 enquiry was a budget enquiry.
[102] One of the column headings in ABD 8 and ABD 11 is “project”. Mr Mayr was asked what a “project” was for the purposes of the cartel. He said:[24]
A project consists of an enquiry from a utility and ya, that is mainly the explanation and an enquiry for a particular plant they have decided or are intending to build and that is a project.
[24] Notes of evidence, p 41, l 15-17.
[103] The following questions in cross-examination[25] followed from Mr Mayr’s confirmation that ABB had thousands of employees and that senior executives were concerned to make sure there was work to keep the factories going.
[25] Notes of evidence, p 40, l 5ff; p 41 l 18 – p 42, l 10.
Q. And that meant that they needed to have real projects allocated to them?
A.Ya, all members were interested in real projects, I cannot fill factories with non real projects.
…
Q. Is a project something that can be allocated?
A. In certain instances, yes, yes if it is a fixed project with a tender then it can be allocated. If it is a budget enquiry then it is not yet at that point, the time to allocate. You have always to wait until the customers make it more concrete.
Q.When you have used the word project in your evidence you include all enquiries, correct?
A. Yes.
Q.And so you use it differently from Mr Troger who refers to things that can be allocated?
A.Yes it his understanding but it is not the way the Cartel has run. In the Cartel every enquiry regardless, more or less regardless of the substance was notified and regarded as a project.
Q. Is it reasonable to draw a distinction between projects that could be allocated and those that could not be allocated?
A. Yes you have, yeah.
Q.And is it reasonable to make that distinction because it is only the ones that are ready to be allocated that can affect the market share?
A. Yeah.
Q.Do you agree that budget offers involve fairly basic requests for information?
A. For instance yes.
Q.And was it your experience at ABB that there were a lot of requests for budget offers?
A. Yes.
Q. And only a small percentage of those became tenders? A. This is true, yeah.
[104] At a later point Mr Mayr was being questioned notations in ABD 8 indicating that a particular project had been postponed. There was the following:[26]
[26] Notes of evidence, p 52, l 16-19.
Q. What would be the usual reason for postponing for a period?
A.Well the reason is we couldn't make a decision and this may have several reasons either no unique opinion about who shall get it or the project was not matured yet for allocation.
Budget enquiries in general : evidence of Messrs Widenhorn and Persson
[105] Messrs Widenhorn and Persson also gave evidence on the nature of these sorts of preliminary enquiries that the cartel might be interested in. This evidence has relevance to the first cartel.
[106] Mr Widenhorn’s evidence in respect of projects generally was that the cartel’s principal focus was on projects which were capable of being allocated for the purpose of a tender. When Mr Widenhorn referred to budget enquiries, the thrust of his evidence related to enquiries which, at the least, had some prospect of progressing to a request for tenders and, therefore, the ability to allocate a project to a cartel member.[27] This was repeated in Mr Widenhorn’s second brief of evidence when referring to price lists for budget enquiries:
Mr Schroder nor Mr Zellmann from Siemens mentioned New Zealand. He said that
New Zealand was never a subject of discussion by any participant at a meeting. This related to Dr Weinberger’s involvement from October 2003.
[213] There was also the evidence for Siemens from Mr Luhn arising from his extensive internal enquiry at Siemens. He said that in the course of his enquiries he found no reference to New Zealand and no person he interviewed mentioned New Zealand.
[214] The Commission has to establish two things on the facts of this case. The first is that, in the period from March 2003, when Siemens resumed cartel activities, the cartel members had an expectation that each of them was bound to respond to a GIS budget enquiry from New Zealand by applying the cartel’s fixed prices in budget enquiry responses. The second is that, if there was that shared expectation, it arose from a meeting of minds of the cartel participants which led to consensus on
the point.[44]
[44] See Giltrap City Ltd v Commerce Commission [2004] 1 NZLR 608 (CA), discussed at [30] above.
[215] Subject to one possible qualification, I am not satisfied that Siemens bound itself, in the relevant legal sense, to fix prices in its responses to budget enquiries from any country. Whatever the position of other cartel members may have been, the evidence in respect of Siemens’ position is clear. And this is consistent with the evidence from Dr Weinberger in respect of the way in which VA Tech dealt with GIS budget enquiries. The evidence of the Commission witnesses falls well short of indicating a contrary position so far as Siemens is concerned.
[216] I indicated that the conclusion I reach is subject to a possible qualification. That concerns the fixing of budget prices for, in Mr Widenhorn’s words, “large or complex complete GIS substations”. Mr Widenhorn said, and I accept, that budget enquiries of that type might require discussion at a cartel meeting. But as he also said, transactions 2 and 3 did not fit within this description. Moreover, and more particularly, there is no evidence of any discussion between cartel members relating to transactions 2 and 3, or any other New Zealand project of any description, whether a budget enquiry, a tender or an order.
[217] The Commission’s case in this regard turns in considerable measure on the evidence of Mr Widenhorn and Mr Persson that the second cartel extended to all countries, apart from those expressly excluded, and the proposition that the ABD 13 price list and its precursors applied to all countries for budget enquiries as well as tenders and orders. If there had been no evidence for Siemens, that might have been sufficient to allow the necessary inferences to be drawn against Siemens. But those inferences in my judgment cannot be drawn in the face of the large body of evidence, of different kinds, for Siemens.
[218] This conclusion is sufficient to dismiss the claims relating to transactions 2 and 3, but I will consider the principal remaining issues.
Issue 2 : Did Siemens give effect to any cartel budget enquiry provision in transaction 2 or transaction 3?
[219] Ms Dean’s submissions for the Commission on this issue may be summarised as follows:
a) At the time of transactions 2 and 3 there was a list for fixing prices for budget enquiries, tenders and orders.
b) Members, including Siemens, had these lists.
c) For most budget enquiries, including those in transactions 2 and 3, members were not required, as in the earlier period, to report the enquiry to the cartel secretary and enquiries were not discussed at cartel meetings. But members were expected to fix prices from the current list.
d)There is no direct evidence that Siemens used the list to fix the responses in transactions 2 and 3. But the reasonable inference from the evidence, largely contained in the preceding points, and relevant evidence relating to the first cartel, is that Siemens did use the list.
e) This inference is reinforced by Mr Widenhorn’s evidence that Siemens’ figures in their budget responses for transactions 2 and 3 were the same as the figures in ABD 13.
[220] Ms Dean further submitted that Siemens’ contention that its system for responses to budget enquiries was independent of any cartel price requirements is not borne out on analysis. It was submitted that there is a flaw in Siemens’ reasoning apparent from Siemens’ own evidence. There were two principal points made in this regard:
a) Mr Schröder fixed the price for the transaction 3 response.
b)There is evidence justifying an inference that Mr Schröder fed cartel budget prices into Siemens’ database known as VDB, so that the cartel prices were applied without other Siemens staff members being aware of this; in this case without Mr Neumann or Ms Zimmerman being aware of this.
[221] The essence of Mr Hodder’s submissions for Siemens was that Siemens’ processes for responses to budget enquiries were independent of the cartel, or any specific cartel provision and, in respect of transactions 2 and 3, the evidence establishes that the processes followed by Ms Zimmerman for transaction 2 and Mr Neumann for transaction 3 were independent of any cartel provision or direct influence of Mr Schröder.
[222] The pivot of the Commission’s argument is its response to Siemens’ contention that the Siemens process was independent. And at the heart of this response are the propositions of involvement of Mr Schröder. If these submissions are not borne out the Commission’s case on this point falls away in large measure. This is because there was no challenge to the evidence of Mr Neumann and Ms Zimmerman, supplemented by Ms Müller’s evidence, that the general process for fixing budget enquiry figures was inherently independent of external influence and that the specific budget responses for transactions 2 and 3 were in fact done independently by Ms Zimmerman and Mr Neumann respectively.
[223] The Commission’s first point relating to Mr Schröder was that, however independent Siemens’ processes may have been in general, the MP-Kalk and VDB tools did not prevent Mr Schröder from fixing the price in accordance with cartel requirements at the end of the process. Ms Dean submitted that it was not in dispute that MP-Kalk and VDB “do not set the price on their own”. I agree. She then submitted:
7.25Accordingly, on Siemens’ own evidence its suggestion that some mechanistic or objective method of responding to budget enquiries precluded the Cartel’s operation lacks substance. Ensuring that Siemens’ prices met or exceeded the levels mandated by the Cartel was simply a matter of setting the ‘market price factor’ at the right level.
[224] Siemens did not contend that the system was entirely mechanistic. This is clear from the evidence discussed and recorded earlier. However, I agree that, by adopting an appropriate market price factor, as the last step in the process, it would have been arithmetically possible to produce budget figures at or above the prices in the relevant cartel list. From this Ms Dean submitted that “all Mr Schröder had to do was ensure an appropriate market price factor and budget prices would be in line with the Cartel”. That is also correct, as a theoretical proposition, but it is not available as a proposition which might justify an inference because it is contrary to the evidence as to what actually happened, being uncontradicted evidence and evidence which I accept. Mr Schröder had no involvement of any description in transaction 2. Mr Neumann did speak to Mr Schröder in relation to transaction 3, but the positive evidence is that Mr Schröder did not fix the market price factor, or any other figure for transaction 3. He merely approved a figure already determined by Mr Neumann as the last step taken by Mr Neumann in a process over which Mr Neumann had complete control. Approval by Mr Schröder of a number already calculated independently by Mr Neumann, even if that number produced a result the same as a figure based on the cartel list, would not constitute Siemens giving effect to a cartel provision.
[225] The second submission for the Commission that there was influence from Mr Schröder related to his involvement in setting up Siemens’ system for budget responses. The submission, at its heart, was as follows:
[P]ast pricing had been fixed by the Cartel. That meant that by inputting fixed prices into the VDB system, fixed prices came out, ensuring on-going Cartel implementation irrespective of staff awareness. In other words, the VDB facilitated Cartel compliance, regardless of whether Mr Schröder personally set the market price factor, as was the case for the second budget enquiry [i.e. transaction 3].
[226] I am unable to accept this submission. The Commission relied on evidence from Mr Essl in support of the proposition that Mr Schröder was in a position to manipulate the process in the manner described in the Commission’s submission. But Mr Essl’s evidence was that Mr Schröder had a “very important” role in setting up MP-Kalk. This evidence was not concerned with the VDB system. Further, cartel figures loaded by Mr Schröder into Siemens’ computerised systems, whether into VDB or MP-Kalk, would not ensure compliance with cartel prices. This is for the reason stated in Ms Dean’s first submission on the question of the independence of the system; Siemens’ budget figures were not purely computer generated – it was not “mechanistic”. In other words, the second submission for the Commission, with which I am now dealing, was not consistent with the foundation for the first submission, being the foundation I agree with: the person responsible for preparing the response effectively adds in his or her adjustment at the end. If Mr Schröder was not involved in that final step, there was no means of guaranteeing compliance.
[227] There was evidence for the Commission that the cartel required budget figures to be no less than those recorded in the cartel price list, with the implication that it would be acceptable if they were higher. This came in particular in a supplementary brief of evidence from Mr Persson. If the cartel requirement was that the budget response figures be at or above the price list, that may have made it easier to manipulate Siemens’ computerised system. But this theoretical possibility does not advance the Commission’s case in my judgment. In the first place, Mr Persson’s evidence was not consistent with other evidence that, where there were budget responses from two or more cartel members, they should be within 1-2% of each other. Ensuring a budget figure at or above the cartel price list could also not be guaranteed without Mr Schröder’s direct involvement because, assuming Mr Schröder could have loaded cartel prices into the computer system so that “fixed prices came out”, a final multiplier less than 1 would produce a figure below the cartel benchmark.
[228] Because of the unchallenged evidence relating to the nature of the VDB database, including the sources of information fed into it, I am not satisfied that manipulation to the extent required would have been possible. I am also not persuaded that the evidence as a whole could support an inference that Mr Schröder covertly fed cartel budget figures into the system which could have resulted in cartel prices being produced without other staff members becoming aware of this.
[229] It remains to consider Mr Widenhorn’s evidence that the figures in Siemens’ budget responses were the same as the ABD 13 figures. There was no evidence challenging what Mr Widenhorn said.
[230] Mr Widenhorn’s evidence emerged in the course of cross-examination. This does not cause me to doubt Mr Widenhorn’s credibility, although it is surprising that there was no evidence-in-chief on this important point, with a fuller explanation from Mr Widenhorn by reference to the documents (ABD 13 and the budget responses) supported by relevant calculations. This may be contrasted with the comparative analysis undertaken by Ms Müller of Siemens’ figures for the transaction 1 response and the same exercise done using MP-Kalk. This evidence was supported by detailed schedules.
[231] There is some doubt on Mr Widenhorn’s own evidence, leaving aside the evidence for Siemens, on the question whether the similarity of the figures is indicative of prices taken from a cartel price list. Mr Widenhorn said that Siemens’ budget figures in transaction 2 and 3 were the same as the figures in ABD 13. The uncertainty that arises from this is that transactions 2 and 3 pre-date the prices contained in ABD 13. Siemens had completed its response for transaction 3 by 28
August 2003. The earliest date for the ABD 13 prices is 2 October 2003.[45] In
[45] See ABD 13, p 68. At p 64 there are references to earlier dates – 21 March, 30 July and 11 September 2003. However, they do not appear to relate to the price list but rather dates of agreement on the applicability of the security net. In any event all ABD 13 dates post-date the completion of transaction 2.
consequence, on the available evidence, the figures were not available for Mr
Schröder to put into the system for them to have had any influence on the transaction
2 and 3 responses. The evidence does establish that there were earlier price lists, but that does not remove the uncertainty in relation to what Mr Widenhorn was saying.
That is because Mr Widenhorn made clear that he was referring only to the ABD 13 price list, the evidence establishes that the ABD 13 prices were new prices, and in any event earlier lists were not put in evidence.
[232] To this needs to be added the uncontradicted evidence of Ms Zimmerman that two of the four factors used in MP-Kalk had not changed from the time she began work responding to budget enquiries in December 2002. These are the basis price and the individual component figures. In consequence there was no updating of these items.
[233] A further consideration is the relative complexity and sophistication of Siemens’ process for responding to budget enquiries compared with the simplicity of the price list in ABD 13. Mr Widenhorn’s evidence-in-chief included a statement that for budget figures members “quoted from standardised price lists”.[46] Siemens’ system, as explained by the Siemens witnesses, was substantially more complex and had a great deal more sophistication than what was described by Mr Widenhorn.
This difference is not altered by the fact that Siemens’ system was largely computerised with the result that budget responses could be dealt with quickly. The method for calculating budget responses apparently stipulated in the GQ agreement appendix 9 document, ABD 3, which played no part in the second cartel, was also substantially more complex than the basic ABD 13 price list. This marked difference between Siemens system and ABD 13 is given emphasis by the fact that the Siemens’ system was designed as a means of responding to budget enquiries from any country, not just those subject to the cartel. Amongst countries not subject to the cartel were the USA, Canada, China and Russia – four large markets.
[46] Brief of evidence 20.
[234] The remaining consideration is that, although there was no evidence contradicting what Mr Widenhorn said, there was not only no evidence contradicting what was said by Mr Neumann, Ms Zimmerman and Ms Müller, their evidence was not challenged at all. That evidence was not only on the matters touched on in this section but all of the evidence earlier set out in some detail. Against the inference the Commission asks the Court to draw from Mr Widenhorn’s evidence of similarity
in the figures, there is the direct evidence, which I accept, from Mr Neumann, Ms Zimmerman and Ms Müller, that the figures that were in fact produced were not subject to any overt influence and could not have been subject to any covert influence.
[235] For the Commission to succeed on transactions 2 and 3 I needed to be persuaded, on the balance of probabilities, that Siemens, in its responses, gave effect to a cartel price list. I am not persuaded to that effect. I am in fact satisfied that Siemens did not give effect to a cartel price list in its responses in transactions 2 and
3.
X DOES S 30 APPLY TO TRANSACTIONS 1, 2 AND 3?
[236] In the event that the preceding conclusions, which are primarily ones of fact, are wrong, the question then is whether provisions governing transactions of the nature of transactions 1, 2 and 3 are within the terms of s 30(1).
[237] The essence of Ms Dean’s submission for the Commission on this point concerned the meaning of the word “price” in s 30(1). She referred to the definition in s 2 of the Act, earlier recorded, and the definition in the Concise Oxford Dictionary[47] as follows:
[47] 9th ed, Clarendon Press, Oxford, 1995.
1a. The amount of money or goods for which a thing is bought or sold, b. value or worth; 2 What is or must be given, done, sacrificed etc to obtain or achieve something.
(emphasis in the submission)
[238] Based on the definition in the Act and this dictionary definition it was submitted that price “is an expansive concept and it is beside the point that a
‘budgetary price’ may be preliminary or non-binding; it is a ‘price’ nonetheless”.
[239] Mr Hodder’s submissions for Siemens began with the statutory context. In respect of the Commerce Act as a whole he submitted that it is designed “to regulate actual competition in goods and services, not planning or feasibility studies, nor
valuation exercises”. Sections 27 and 30 are contained in Part 2 of the Act which is designed to protect competition in markets. The definitions in the Act of competition and market were referred to, and in particular the definition of market in terms of matters of “fact and commercial common sense”. Part 2 of the Act is concerned with restrictive trade practices. The definition of trade is relevant because it refers to the “supply or acquisition of goods or services”.
[240] Mr Hodder referred to the meaning of the word “price” in its s 30 context, with a submission that this also pointed to a focus on actual buying and selling. He noted the definition of “price” in the 5th edition of the Shorter Oxford English Dictionary: “The … sum in money or goods for which a thing is or may be bought or sold.”
[241] From this the submission was made for Siemens that “the crucial point is that competition law must be applied to actual or real market and business decisions”. Two leading Australian decisions under the (Commonwealth) Trade Practices Act
1974 were cited.[48]
[48] Re Queensland Co-operative Milling Association Ltd (1976) 25 FLR 169, at 186-190; Queensland
Wire Industries Pty Ltd v Broken Hill Pty Co Ltd (1989) 167 CLR 177, at 191.
[242] Both counsel advised that they had not been able to locate any case dealing with allegations of price fixing in responses to budget enquiries. Each took from this a point favourable to their case. I proceed on the basis that no relevant point should be drawn from the absence of an earlier case.
[243] Section 30 is concerned with price fixing by sellers and buyers and in respect of services as well as goods. For convenience, in the discussion which follows, I will focus on the context of this case – the supply of goods.
[244] I am satisfied that s 30 has no application if the provision in question has no connection with commercial transactions which at the least might result in the actual sale of goods. Section 30 is not limited to cases involving the fixing of the actual price of sale in a transaction. The scope of s 30 is wider than that, and Mr Hodder did not contend otherwise. The task is to define the dividing line between conduct
relating to price fixing which is caught by s 30 and conduct which is not. In one sense the question is to determine at what point the conduct involved in the provision in question becomes too remote from the fixing of the price at which goods are sold.
[245] The statutory context referred to by Mr Hodder does indicate a limit on the scope of s 30. The Act is concerned with competition in actual or real markets.
[246] Provisions in s 30(1) contain further limitations on the scope of the provision. As noted, both counsel referred to dictionary definitions of “price”. The meaning of the word is important. Ms Dean, as noted, submitted that the definitions she referred to mean that “price” is an “expansive concept”. I do not consider that the definitions referred to justify the conclusion. The starting point is the definition in the Act. It is set out at [24] above. The primary purpose of the definition appears to be to make clear that price “includes any consideration”. But the definition also refers to consideration that “relates to the acquisition or supply of goods” – actual transactions.
[247] A further dictionary definition is as follows:[49]
[49] Webster’s Encyclopaedic Unabridged Dictionary of English Language, 1996.
The sum or amount of money or its equivalent for which anything is bought, sold or offered for sale.
This is a useful definition because it extends the definition to a commonly understood meaning; this is that “price” includes the consideration for which something is offered for sale. An offer to sell goods for a stipulated price is, of course, an everyday occurrence in trade and clearly something covered by s 30, as well as the consideration on an actual sale.
[248] Pausing at this point, my conclusion is that the statutory and dictionary definitions of price, and with those definitions considered in the broader statutory context, do not, as Ms Dean submitted, indicate an “expansive concept”. It is at least arguable, having regard to what has been considered to this point, that s 30 is limited to provisions which have the purpose, effect, or likely effect, of fixing or providing
for the fixing of prices at which goods are in fact sold or offered for sale on terms where acceptance will result in a contract.
[249] As just noted, s 30(1) refers to provisions which fix a price or provide for the fixing of a price. If the alternative of “providing for” was absent, I would conclude that s 30 would not extend beyond the limit just described. The question then is whether the alternative of “providing for” the fixing of the price extends the reach of s 30 beyond a contractual offer or actual sale price.
[250] The first point to notice, with this closer textual analysis, is that s 30 is directed to a provision of an arrangement, not the arrangement as a whole; that is to say, the enquiry is whether the provision has the stipulated purpose or effect. In this case there were provisions of the cartel arrangement directed to fixing the prices for tenders and for sales. These would be covered by s 30. That does not assist in determining whether the provisions assumed at this point to apply to the budget responses in this case are covered by s 30, and notwithstanding the further assumption at this point that the figures in Siemens’ budget responses were fixed in
accordance with cartel provisions.[50]
[50] Other cartel provisions may be relevant in determining the meaning of provision dealing with budget enquiries. And pursuant to s 3(5) it may be necessary to construe more than one provision. Those matters relate to enquiries different from the present enquiry as to the scope of s 30.
[251] Two relevant definitions of the verb “provide” in the Shorter Oxford English Dictionary are: “to take appropriate measures in view of a possible event; make adequate preparation (followed by for, against); prepare, get ready, (to do); prepare, get ready or arrange (something) beforehand”.
[252] I was not referred to, and am not aware of, any New Zealand authority which has discussed the expression “providing for”. The expression is discussed in a decision of the full Court of the Federal Court of Australia in Apco Service Stations Pty Ltd v ACCC.[51] The Court said:
[51] Apco Service Stations Pty Ltd v ACCC (2005) ATPR 42-078. The reference is to s 45A of the Australian Trade Practices Act. Section 45A was repealed in 2009 and replaced by Part IV Division 1 from 24 July 2009. See, now, s 44ZZRD(2).
49.We were not referred to any authority on the term “providing for” in s 45A. In this context the term, coming from the Latin providere, to see before, suggests arranging for or stipulating beforehand (Macquarie) or to make preparation for, get ready (Shorter Oxford). What is it that is to happen in the future as a result of these arrangements or preparations? It must be price fixing, that is to say competitors agreeing on prices they will charge consumers for goods or services.
50.Examples of “providing for” price fixing in this sense would be an arrangement that prices would increase by a particular formula, or an agreement that if one competitor increases prices the others will follow. In short, “providing for” must be a means to the end of price fixing.
[253] I agree with these observations. It is to be noted that the Court also touched on the meaning of “price”, with a conclusion consistent with my earlier conclusion as to the meaning.
[254] In Gault on Commercial Law there is the following opinion in respect of the expression “providing for”:[52]
Section 30 will apply not only where the provision itself fixes, controls, or maintains prices but also where it provides for the fixing, controlling, or maintaining. An arrangement may create a basis or system which provides the means for the price to be fixed, controlled, or maintained. For example, an arrangement may provide that the parties will determine their prices according to some set formula or yardstick, or that some third party such as a trade association or an independent accountant will set the prices.
[52] Thomas Gault (ed) Gault on Commercial Law (looseleaf ed, Brookers) at CA30.09.
[255] This interpretation suggests that price fixing will be provided for if there is some provision to achieve that result by means other than direct fixing. I do not consider that the expression should be confined in this way; that is to say, confined to alternatives to direct fixing. The expression “providing for” naturally contemplates steps taken prior to the direct fixing of the price as well as alternative means of achieving that result. The broader interpretation also appears to be what was contemplated in the Apco decision.
[256] What this leads to is the need to find a sufficient nexus between the conduct required by the provision in question and the fixing of a price as earlier defined. What, then, is a sufficient nexus? In Apco the Court said that for the provision in question to provide for price fixing it “must be a means to the end of price fixing”. That, with respect, is rather open ended, although somewhat less open ended than “a sufficient nexus”. The focus of the enquiry is suggested in the first paragraph cited from Apco: “What is it that is to happen in the future as a result of these … preparations?”
[257] In this case, given the fact that the “prices” provided by Siemens in its three responses were given on the basis that they were, in effect, indicative only, I am not satisfied that the provision of these prices was connected in any relevant way to the future objective of fixing the price of a tender, even assuming that the customer in any of the transactions was going to seek a tender. Price fixing on a formal tender sought by Transpower, had there been a request for a GIS tender from Transpower for any of the transactions, could be achieved whether or not there had been price fixing in the preceding budget enquiry. The provision that is at this point assumed to exist and to have governed Siemens’ responses, could not have had the effect or likely effect of fixing prices for the actual supply of GIS. And, whatever the purpose of the cartel members in having the provisions relating to budget enquiries – and it may have included facilitating the future fixing of tender and offer prices – those purposes do not in my judgment come within the provisions of s 30(1) in respect of transactions 1, 2 and 3.
[258] For these reasons I am not satisfied that s 30, as a matter of interpretation, applied to the transactions in this case. As noted in the introduction, the Commission relied, in the alternative, on s 27 standing alone. Ms Dean candidly acknowledged, this alternative was very much a “fallback”. I am satisfied that the Commission has not established liability under s 27 in respect of any of the transactions.
XI RESULT
[259] The claims are dismissed.
[260] Siemens is entitled to costs. Memoranda should be submitted if the parties
are unable to agree on the quantum of costs.
Peter Woodhouse J
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