FEDERAL COURT OF AUSTRALIA

Australian Competition & Consumer Commission v Gullyside Pty Ltd [2005] FCA 1727

Trade Practices – price-fixing arrangement – admission of conduct by contraveners – penalties – factors relevant to assessing appropriate penalty for corporate and individual contraveners – importance of deterrence – relevance of other cases on penalty – whether conduct remote from the corporations

Statutes

Trade Practices Act 1974 (Cth) ss 45(2)(a)(ii), 45(2)(b)(ii), 155, 76

Cases

Australian Competition and Consumer Commission v ABB Transmission and Distribution Limited (2001) ATPR 41-815 Cited

Australian Competition and Consumer Commission v Ampol Petroleum (Victoria) Pty Ltd (1996) ATPR 41-500 Considered

Australian Competition and Consumer Commission v Australian Safeway Stores Pty Limited (1997) 75 FCR 238 Cited

Australian Competition and Consumer Commission v CC (NSW) Pty Ltd (No 8) (1999) 92 FCR 375 Cited

Australian Competition and Consumer Commission v Leahy Petroleum (No 2) (2005) 215 ALR 281 Distinguished

Australian Competition and Consumer Commission v Leahy Petroleum (No 3) (2005) 215 ALR 301 Cited

Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd [2005] FCA 683 Cited

Australian Competition and Consumer Commission v McMahon Services Pty Ltd (2004) ATPR 42-031 Cited

Markarian v The Queen (2005) 215 ALR 213 Followed

N W Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 Followed

Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 Followed

Trade Practices Commission v Sony (Aust) Pty Ltd (1990) ATPR 41-053 Considered

Trade Practices Commission v TNT Australia Pty Ltd  (1995) ATPR 41-375 Cited

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v GULLYSIDE PTY LTD, O’KEEFFE NOMINEES PTY LTD,  MERIBELL PTY LTD, PARMJIT SINGH,  TERENCE EDWARD JOHN O’KEEFFE

QUD 130 OF 2005

KIEFEL J

BRISBANE

30 NOVEMBER 2005

THE COURT ORDERS THAT:

1.         The second respondent pay to the Commonwealth within ninety days a pecuniary penalty of $350 000 in respect of its contraventions of s 45(2)(a)(ii) and s 45(2)(b)(ii) of the Trade Practices Act 1974 (Cth) (‘the Act’) declared on 15 June 2005.

2.         The third respondent pay to the Commonwealth within ninety days a pecuniary penalty of $70 000 in respect of its contraventions of s 45(2)(a)(ii) and s 45(2)(b)(ii) of the Act declared on 15 June 2005.

3.         The fifth respondent pay to the Commonwealth within ninety days a pecuniary penalty of $50 000 for aiding, abetting, procuring and being directly knowingly concerned in and party to the second and third respondents’ contraventions of s 45(2)(a)(ii) and s 45(2)(b)(ii) of the Act declared on 15 June 2005.

4.         The second, third and fifth respondents pay the applicant’s costs of and incidental to these proceedings agreed in the amount of $80 000, within fourteen (14) days of this order being made.

5.         Liberty to apply with respect to the times for payment referred to in Orders 1, 2 and 3.

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

REASONS FOR JUDGMENT

1                     These proceedings concern arrangements made between two competitors for the price fixing of unleaded petrol and of liquid petroleum gas in Woodridge and surrounding suburbs in Brisbane.  Declarations as to that conduct were made on 15 June 2005.  Presently at issue is the amount of the penalties which should be imposed upon the second, third and fifth respondents.  The first and fourth respondents provided cooperation upon service of a notice under s 155 of the Trade Practices Act 1974 (Cth) (‘the Act’).  As a consequence of the applicant Commission’s leniency policy, no penalty is sought against them.  The proceedings on penalty have been conducted on the basis of a Statement of Agreed Facts.

2                     Retail fuel sales include sales of diesel, lead replacement petrol (‘LRP’), unleaded petrol (‘ULP’), premium unleaded petrol (‘PULP’) and liquid petroleum gas (‘LPG’).  The factors which influence the price charged for motor fuel at a particular service station include the weekly price cycles; the number of competitors in close proximity to the site and their pricing; the location of the site relative to the direction of the traffic; the relative affluence of the area surrounding the site; the acquisition costs for petrol including any price support offered by suppliers; the attractiveness of the site to customers including goods or services other than fuel that it offers; and petrol card arrangements with major customers such as government agencies.

3                     At the relevant time petrol pricing across Brisbane usually followed a weekly price cycle.  In the Woodridge area the price of motor fuel generally followed the Brisbane price cycle.  In the Brisbane price cycle prices usually rose sharply in a single step on Thursday or Friday, peaking and then decreasing gradually until the following Thursday or Friday when the pattern repeated itself.  Retail service stations rely on the peak periods to achieve a reasonable average margin on fuel sales.  At the low point in the cycle they sell at, near, or sometimes below their break-even price.  A retailer’s profit also derives from the retail sales of other goods and services.

4                     At the relevant time, there were nineteen sites selling fuel in the Woodridge area and there was a very high level of competition between them.  The area often had one of the lowest prices in Brisbane for ULP.  If one of the sites in an area such as Woodridge did not follow the price cycle up, other sites in the area would be likely to come back down to the price of the site that did not follow.

5                     The first respondent (‘Gullyside’) owned and operated three service stations which were branded as BP sites – at BP Logan City, BP Compton Road and BP Wembley Road.  BP Logan City was a ‘high visibility’ site.  Each of the sites was operated by the fourth respondent who is the son of the owners of Gullyside.

6                     The Matilda Woodridge site was owned by the third respondent (‘Meribell’) who leased the land and premises to the second respondent (‘OKN’).  OKN had a commission agency agreement with Meribell pursuant to which Meribell was appointed agent for the sale of motor fuels save for LPG.  In accordance with the agreement Meribell was to sell fuel at prices and on terms as instructed by OKN.  Meribell purchased and sold LPG at the site itself and operated other facilities.  Meribell had entered into a management contract with Terence O’Keeffe Management Services Pty Ltd (‘TOMS’) by which TOMS was to operate and manage the site, including the service station and other facilities.  The fifth respondent, on behalf of TOMS and as its sole shareholder, operated and managed the Matilda Woodridge site.

7                     Meribell’s directors were Peter O’Keeffe and Lawrence O’Keeffe, brothers of the fifth respondent Terence O’Keeffe.  Meribell was the trustee for the Meribell Unit Trust which had issued units to trustees for the family trust of each of the three O’Keeffe’s.  OKN is the trustee of the O’Keeffe Family Trust which is the family trust of Peter O’Keeffe.  OKN’s sole director was Peter O’Keeffe.

8                     The price discounters in the area in question were Gullyside, at its BP Logan City site, OKN and Woolworths at its site, which was situated opposite Logan City.  Throughout the price cycle they usually maintained prices at, or slightly lower than, the cheapest of their competitors, although OKN did not sell below its purchase price even if its competitors’ prices fell below that price.  Because of their position as independent operators and price discounters in the Woodridge area, Gullyside and OKN tended to be the last to increase prices in the upward cycle and were often the first to lead prices down at the commencement of the downward cycle.  The Woolworths site would often wait for BP Logan City’s prices to go up and it would then follow.

9                     OKN and Gullyside together accounted for approximately 13 per cent of the automotive spirit sales in the Woodridge area, which is to say sales of ULP, PULP and LRP.  The volume of automotive spirit sold by OKN at Matilda Woodridge averaged 385 000 litres per month which is approximately 70 per cent of Gullyside’s volumes of sales from its three sites.  The volume of automotive spirit sold by Gullyside at its BP Logan site averaged 220 000 litres per month, approximately 60 per cent of Matilda Woodridge’s volume.  OKN estimates monthly average automotive motor spirit sales in the Woodridge area to be 7 million litres. 

10                  The conduct in question between the fifth respondent, Terence O’Keeffe, and the fourth respondent arose from an informal contact between them in 2001.  Discussions about prices and the fuel cycle led to the arrangements the subject of the proceedings.  Overall the conduct extended for some twenty months from May 2002 to January 2004, except for a period of four months from May 2003 through to August 2003.  In about May 2002 they reached an agreement (‘thefirst arrangement’) that they would communicate and agree upon the time at which and amount to which they would mutually increase their prices for ULP in the weekly price cycle.  The arrangement applied to prices during the upward price cycle and not to prices when they began to decrease.  The arrangement was put in place after their competitors (save usually for the Woolworth’s site opposite BP Logan City) had already increased their prices. 

11                  On fifteen occasions between May 2002 and April 2003, one or other of the fourth or fifth respondent would call the other to communicate the time and amount of the increase and then raise their prices at the appointed time.  The Commission does not assert that one party was more responsible than the other.  The contact usually occurred on a Thursday or Friday after one of them noticed the upward price cycle commencing.  They would inform each other of the prices and enquire when the other would raise that price and by how much.  Upon being informed of the other’s intention, the enquirer would then indicate their assent.  The price agreed would usually be a fraction of a cent below the lowest observed price in the area.  From the upper point of the cycle, prices would start to gradually decrease usually within four to five hours or, at the latest, within twenty-four hours. 

12                  The first arrangement broke down in April 2003 because the fifth respondent refused to give effect to an arrangement by increasing the price of ULP to a price nominated by the fourth respondent.  The fourth respondent retaliated by reducing the first respondent’s prices and the parties ceased talking to each other.

13                  The directors of Meribell and OKN were not involved in, nor aware of, this contravening conduct.

14                  During the period of the first arrangement, and on 7 November 2002, the fourth and fifth respondents also agreed to mutually increase the price of LPG.  This occurred on only one occasion.  The directors of Meribell were not involved in nor aware of this arrangement.  Wholesale purchase prices for LPG were generally adjusted on a monthly basis.  There was a price increase of 3.3 cents per litre on 6 November 2002 which increased the price to 46.1 cents per litre.  Pursuant to the arrangement, Meribell’s price for LPG at Matilda Woodridge rose to 52.9 cents per litre on 7 November 2002.  The price remained at that level for 24 hours, dropping to 50.9 cents per litre on 8 November 2002 and dropping again to 48.9 cents per litre on 14 December 2002.

15                  The ‘second arrangement’ with respect to ULP was made in about August 2003 and was in identical terms to the first.  The fourth and fifth respondents gave effect to the arrangement on seven occasions between August 2003 and January 2004 in the same manner as applied with respect to the first arrangement.  The directors of Meribell and OKN did not know of the arrangement.   The second arrangement ceased when they became aware of the applicant’s investigation because of the service of notices under s 155 of the Act. 

16                  The fourth and fifth respondents did not seek to involve other competitors but did not need to do so in order to give effect to their arrangement.  The fifth respondent did not tell his brothers of the arrangements.

17                  The respondents admit that:

(a)         each of Gullyside and OKN, by entering into the first arrangement and the second arrangement, on each occasion contravened s 45(2)(a)(ii) of the Act;

(b)        each of Gullyside and OKN, by giving effect to the first arrangement on fifteen occasions and by giving effect to the second arrangement on seven occasions, on each occasion contravened s 45(2)(b)(ii) of the Act.

(c)         each of Gullyside and Meribell, by entering into the LPG arrangement contravene s 45(2)(a)(ii) of the Act and by giving effect to that agreement, contravene s 45(2)(b)(ii) of the Act.

(d)        Terence O’Keeffe procured, aided or abetted and was knowingly concerned in or party to each of the contraventions of OKN.

18                  Section 76 of the Act provides that if the Court is satisfied that a person has contravened a provision of Part IV or has been in any way directly or indirectly knowingly concerned in, or party to, the contravention or aided, abetted, counselled or procured a person to contravene such a provision, the Court may order that person to pay to the Commonwealth a pecuniary penalty.  The factors to which the Court is to have regard, amongst all relevant matters, include the nature and extent of the act or omission; any loss or damage suffered as a result of the act or omission; the circumstances in which the act or omission took place; and whether the person has previously been found by the Court to have engaged in similar conduct.  French J in Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 at 52,152-153 (‘TPC v CSR’) suggested other matters which might be taken into account.  The Full Court in N W Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 at [292] (‘NW Frozen Foods’) approved them as elaborations of ‘the circumstances in which the act or omission took place’.  French J listed the following further matters as relevant.

·                   the size of the contravening company;

·                   the degree of power it has, as evidenced by its market share and ease of entry into the market;

·                   the deliberateness of the contravention and the period over which it extended;

·                   whether the contravention arose out of the conduct of senior management or at a lower level;

·                   whether the company has a corporate culture conducive to compliance with the Act as evidenced by educational programs and disciplinary or other corrective measures in response to any acknowledged contravention;

·                   whether the company has shown disposition to cooperate with the authorities responsible for the enforcement of the Act in relation to the contravention.

19                  Meribell acquired the Matilda Woodridge site in 2000.  It employed two managers in succession from March 2001 but they were not satisfactory.  Terence O’Keeffe ceased employment with OKN in July 2001 after a falling out with Peter O’Keeffe and it was decided that he should manage the site for Meribell, through his company TOMS.  Although Meribell was to sell fuel, except for LPG, at prices instructed by OKN, Terence O’Keeffe declined to accept pricing direction from OKN’s general manager and was permitted by OKN and Meribell to set the price himself.  This permission was given because of the family relationship.

20                  It is convenient to deal first with the arrangements concerning the price of motor fuel apart from LPG.  The two arrangements applied during the upward price cycle and applied after the contraveners’ competitors had increased their prices.  The Woodridge area (it not being defined as a market in the proceedings) maintained some of the lowest prices for ULP in Brisbane, there being a high level of competition amongst retailers in the area.

21                  It is agreed that any agreement causing a rise in the ULP price had the effect of causing a corresponding rise in PULP and LRP prices at the Matilda site.  Beyond that observation it is agreed that it is not possible to quantify the economic effect of the conduct or the loss or damage caused because, absent the arrangements, Gullyside and OKN may have followed the market up in any event and the timing and increments by which they would have done this cannot be known.  On the other hand it is also possible that, without their arrangements, Gullyside and OKN could have caused the price level of the whole Woodridge area to come back down whilst they tried to out-wait the other.  The arrangements were applied to petrol on twenty-two occasions of the weekly upward price cycle during this sixteen month period.  On some occasions, which were not the subject of arrangements during this period, Gullyside and OKN followed the market up in the Woodridge area.  The Woolworth’s site opposite BP Logan City generally waited until BP Logan City raised its price and then followed it up, so it also may have raised prices later if the arrangement had not been in place, even though it was not involved in it.  As these three sites were generally the last to go up, it is agreed that the conduct had the effect of stabilising the price cycle.  Nevertheless OKN submits that the effect of the arrangement to raise prices did not affect the level of prices because it applied only after its competitors had increased their prices.  It and Gullyside usually maintained prices at or slightly below the lowest prices of their competitors.

22                  It was submitted for OKN and the fifth respondent that it is of some importance that the extent of the conduct was very limited.  It points to the fact that the effect of the arrangement lasted only a short time because, after prices had been increased from the low point, prices would start to decrease again by small reductions usually within four to five hours.  However the arrangements were undertaken over a considerable period.  The first arrangement occurred over an eleven month period and was put into effect on fifteen occasions;  the second took place over five months and on seven occasions.  I do not think it can be said that the conduct was as limited as they would contend.

23                  In any event whilst any known effect may be of considerable importance to the question of penalty, an inability to quantify it is not a factor which operates in the favour of contraveners.  This inability will often be present.  Significantly the statute deems there to be an effect.  As Lindgren J observed in Australian Competition and Consumer Commission v CC (NSW) Pty Ltd (No 8) (1999) 92 FCR 375 at [182], all conduct involving price-fixing is banned because of its actual or potential threat to the central nervous system of the economy;  see also Australian Competition and Consumer Commission v McMahon Services Pty Ltd (2004) ATPR 42-031 at 49,228 [16]; [2004] FCA 1425 (‘ACCC v McMahon’), and Australian Competition and Consumer Commission v Leahy Petroleum (No 2) (2005) 215 ALR 281; [2005] FCA 254 at [17] (‘Leahy Petroleum (No 2)’) where Merkel J pointed out that actual market outcome is not necessarily important, except perhaps as a circumstance of aggravation.

24                  OKN and Meribell also submitted that account should be taken of the fact that the fifth respondent was neither an officer of, nor employed by, them.  He should be viewed as an employee of a contractor, one engaged by Meribell and therefore distant from them.  Further, his conduct took place in the context of breaches of the commercial arrangements made between OKN and Meribell with respect to pricing.

25                  It may be correct to distinguish this case from others where, for example, a number of employees and managers are involved in giving effect to an unlawful arrangement.  And it may be observed that there was a lack of knowledge on the part of those responsible for the companies’ operations here.  Beyond that it does not seem to me that their culpability should be regarded as low, as is contended.  It would be a simple matter for corporations to create an impression of being removed from pricing decisions.  The reality here is that OKN did not maintain its control of pricing and the brothers responsible for each of OKN and Meribell ceded that control to the fifth respondent.  Meribell took no steps to ensure compliance of its agent TOMS with the Act and OKN did not ascertain whether such steps had been taken.

26                  The conduct was deliberate and covert.  It extended over two substantial periods of time.  OKN and Gullyside could not be said to have a large share of the market, but they played an important part in setting lower prices and influencing competition in that way.  It is not suggested that the respondents have engaged in similar conduct in the past.

27                  The matter of the arrangement relating to LPG prices may be stated shortly.  It occurred on one occasion.  Its effect on prices was not great nor was the profit realised by Meribell from the conduct. It is agreed that it is not possibly to quantify the effect of this arrangement on the price of LPG.  It is not possible to establish whether Matilda Woodridge would have followed this price up in any event, or the degree to which the market price for LPG was stabilised by the conduct.  The total volume of LPG sold in the 48 hour period was 3,527 litres.  Because of the limited value of LPG sold in the 24 hour period the price of 52.9 cents per litre applied, the gross profit of LPG in the 48 hour period was less than $200.00.  Again, it is not suggested that the conduct was engaged in previously.

28                  OKN has approximately 39 petrol retail sites operated by commission agents and it supplies fuel to another four service stations.  It made net profits of $79 492 in 2004;  $576 360 in 2003;  $447 137 in 2002 and a loss of $1.284 million in 2001.  Its turnover for those years was respectively $143 million, $150 million and it has investment properties worth approximately $3.5 million.  The properties are subject to a mortgage which secures the finance of its business operations.  The lending bank would require payment of approximately 70 per cent of any proceeds of sale.

29                  Meribell is the trustee of the Meribell Unit Trust.  It has 90 units issued to trustees of each of Peter, Lawrence and Terence O’Keeffe’s family trusts.  Its directors and shareholders are Peter and Lawrence O’Keeffe.  It owns the Woodridge site and owns another five, which it also leases to OKN.  It does not operate or manage those sites.  Its sales turnover, exclusive of sales of automotive motor spirit as agent for OKN, for 2004 was $2 987 017;  for 2003 $2 847 717;  for 2002 $2 081 574 and $472 253 for 2001.  Its net profit before tax in 2004 was $56 498 and in 2002 $55 706.  It had losses of $110 974 and $345 700 in each of 2003 and 2001.  Its net assets are of the order of $3.7 million.  If its assets were sold its lending lease would also require payment of the order of 70 per cent of the proceeds.

30                  Terence O’Keeffe has a gross income of approximately $69 000 per annum and a taxable income of approximately $48 300.  He has net assets of about $350 000.  He is a discretionary beneficiary of the Terence O’Keeffe Family Trust which in turn is the beneficiary of another trust.  The trustee of that latter trust, Danstar Pty Ltd, has a one-third holding in Meribell, which is valued at approximately $1 240 000.  He has superannuation with a current value of $56 000.  His company TOMS has no assets or income apart from monies paid by Meribell for staff wages and his services.  He does not enjoy good health and ongoing health problems have the potential to reduce his capacity to earn income in the future. 

31                  When served with a notice under s 155 of the Act, OKN and Meribell agreed to assist the Commission, but had no source of information about whether the conduct had occurred.  Their position was made more difficult because Terence O’Keeffe did not initially admit the contraventions.  Shortly after his examination under s 155, on 16 February 2004, the solicitors for the second, third and fifth respondents entered into discussions with the Commission.  Open admissions of the contravening conduct as alleged were made by all three respondents on 24 December 2004.  The Commission accepts that the admissions have reduced the time for hearing by the Court significantly and have saved it significant further costs.  OKN has previously provided extensive assistance to the Commission in relation to various inquiries and investigations concerning the petroleum industry in Australia.

32                  An assessment of the penalty which is appropriate is discretionary and is to be based upon all relevant factors with careful attention to be given to maximum penalties:  Markarian v The Queen (2005) 215 ALR 213 at [27] and [31] (‘Markarian’).  Markarian is a case dealing with criminal sanctions, but the process of which it speaks has been applied to the assessment of pecuniary penalties under s 76:  see Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd [2005] FCA 683.  The maximum penalties invite comparison between the worst possible case and the case before the Court at the time.  They provide a yardstick, which is to be taken and balanced with all of the other factors:  Markarian at [31]. 

33                  In assessing penalty, similar contraventions should incur similar penalties, other things being equal:  N W Frozen Foods at 295, although, as the Court there pointed out, other things will rarely be equal where contraventions of the Act are concerned.  The total penalty for related offences ought not exceed what is appropriate for the entire contravening conduct (‘the totality principle’):  Trade Practices Commission v TNT Australia Pty Ltd  (1995) ATPR 41-375 at 40,169;  Australian Competition and Consumer Commission v Australian Safeway Stores Pty Limited (1997) 75 FCR 238 at 243.

34                  The object of penalties to be imposed by s 76 of the Act is to deter repetition by the offender and by others:  TPC v CSR at 52,152, approved in N W Frozen Foods at 292.  The Commission places emphasis upon this purpose in conjunction with its submission that a penalty must be sufficiently high in order that it be taken seriously.  A low penalty might be factored as a business risk by those intending to contravene.  In this regard the Commission relies upon statements made in Trade Practices Commission v Sony (Aust) Pty Ltd (1990) ATPR 41-053 at 51,691 (‘Sony’);  ACCC v McMahon at 49,228 [15];  Australian Competition and Consumer Commission v ABB Transmission and Distribution Limited (2001) ATPR 41-815 at 42,938 [13];  [2001] FCA 383.  In the Sony case, Pincus J questioned whether, given continued contraventions despite attempts to enforce compliance with the Act, penalties had been taken seriously.  Their deterrent effect may have been insufficient.  Similar comments have been made by other judges from time to time.

35                  The maximum penalty payable by a corporation is $10 million:  s 76(1A) of the Act;  and the maximum payment for an individual is $500 000: s 76(1B) of the Act.  The Commission submits that an appropriate penalty to impose upon OKN is in the range of $400 000 to $750 000; upon Meribell  a penalty in the range of $150 000 to $350 000:  and upon Terence O’Keeffe a penalty in the range of $75 000 to $150 000. 

36                  The parties have previously discussed and agreed upon penalties which might be put forward as appropriate to the Court and for its consideration.  On 25 February 2005 it was agreed that the recommendations to the Court would be penalties of $200 000 for OKN, $70 000 for Meribell and $30 000 for Terence O’Keeffe.  The penalties now sought by the Commission are substantially greater.  It explains that those previously agreed to are no longer considered as in the appropriate range, in the light of the penalties imposed in Leahy Petroleum (No 2) and Australian Competition and Consumer Commission v Leahy Petroleum (No 3) (2005) 215 ALR 301;  [2005] FCA 265 (‘Leahy Petroleum (No 3)’).  The Commission also explains that when it came to an agreement with the respondents about appropriate recommendations for penalty it was not aware of the true financial background of the parties.   It does not suggest that the respondents were in any way responsible for this misunderstanding.  The respondents for their part submit that the penalties should be somewhat less than was agreed upon, although the basis for their change of view is not apparent.  They do not however contend that they are unable to meet penalties of the order now proposed by the Commission.

37                  In Leahy Petroleum (No 2) Merkel J found that an appropriate penalty to be imposed upon the corporate respondents was $5 million and upon individuals $250 000, in the absence of mitigating circumstances.  In the result, penalties of $5 million, $4 million, $3 million and $1 million were imposed upon the corporations and penalties of $100 000 and $200 000 upon the individuals involved.  In the following case of Leahy Petroleum (No 3) penalties ranging from $2.5 million to $4 million were imposed upon the corporate respondents and $25 000 to $100 000 upon employees involved in the contraventions.  The Commission submits that there are features of this case which are present in Leahy Petroleum (No 2).  It may however be inferred, from the penalties it suggests as appropriate, that it accepts that there are significant differences between the cases.  A consideration of the factors identified by Merkel J confirms that to be so. 

38                  Leahy Petroleum (No 2) did concern price-fixing of retail petrol.  And, as his Honour observed, local petrol markets for petrol are particularly vulnerable to price-fixing.  None of the participants in the arrangement had a significant degree of market power, but that was a factor which led to their collusion.  The instigator was a company having a similar turnover to OKN.  The factors present in Leahy Petroleum (No 2) which are not present in this case are however substantial.  The case involved nearly all participants in a distinct market.  The corporations benefited significantly from their conduct, which had the effect of raising the price paid for petrol by members of the public.  The contraventions were numerous.  They involved a number of employees at management level.  The case can be seen to have had more significant and far-reaching effects than the present case.  And, in connexion with mitigation, there were absent many of the features here present, including the level of co-operation.

39                  In its submissions the Commission also referred to Australian Competition and Consumer Commission v Ampol Petroleum (Victoria) Pty Ltd (1996) ATPR 41-500 at 42,300 (‘Ampol’).  There Jenkinson J fined Best Oil Company Pty Ltd $175 000.  It was a company of modest means, had admitted its contraventions and undertaken to ensure future compliance.  The corporate respondent was ordered to pay a penalty of $175 000 and its manager $40 000.

40                  The question which arises is what use may be made of the Leahy Petroleum (No 2)  decision on penalties.  In N W Frozen Foods (at 296) it was pointed out that an authority cannot govern the amount of penalty which should be applied in the different circumstances of another case.  Despite the Commission’s considerable attempts to identify common features, there are insufficient parallels in the two cases for the penalties in Leahy Petroleum (No 2) to provide much by way of guidance in the present case.

41                  The Commission also submitted that Leahy Petroleum (No 2) should be used as a ‘yardstick’.  It seems to me that it can be viewed as a case involving quite serious contraventions, which is not to detract from the importance which attends every arrangement involving price-fixing.  It was a case involving, effectively, a whole market and the participants in it.  The conduct had a distinct effect on prices.  It was a case which, of its nature, required the Court to give a strong message in order to deter others.  The perceived need to do so may be seen at a number of points in the reasons of Merkel J.

42                  I infer that the Commission is encouraged by what it sees as the imposition of a substantial penalty for deterrence to seek higher penalties here, as if Leahy Petroleum (No 2) conveyed something about the approach which Courts should now take, but had not before.  There is however no new principle involved that case.  The need for penalties which are effective as deterrents, especially as general deterrents, has consistently been spoken of.  It is not possible to conclude that Leahy Petroleum (No 2) stands as a marked upward shift in the quantum of penalties, albeit that they were not insubstantial and higher than some penalties previously imposed in petrol price-fixing cases.  Meaningful comparisons between it and previous cases is not possible.  In my view Leahy Petroleum (No 2) should be seen as applying the object of deterrence, amongst other things, to the particular circumstances of that case, circumstances which called for strong measures.

43                  At the other end of the spectrum, Ampol is put forward as a case of lesser significance by reference to the number of contraventions and the period over which they took place.  So much may be accepted, but again that furnishes little by way of guidance to an appropriate penalty here. 

44                  The two arrangements for which OKN is responsible involved two competitors in an area where nineteen operated.  They were given effect to on twenty-two occasions over two periods of eleven and six months, although neither benefit nor actual economic effect is demonstrated.  The one contravention involving Meribell should be seen as occurring in the circumstance of those other arrangements.  It was an effect of them rather than an independent action undertaken on its behalf.

45                  Both OKN and Meribell co-operated with the Commission to the full extent that they were able.  The fact that they were unable to initially, because of the fifth respondent’s denials, should not disadvantage them.

46                  OKN has substantial cash flow but would appear to have small profit margins.  It does have assets which may be utilised to meet a pecuniary penalty.  Meribell’s financial position does not assume such importance, since I am of the view that it should not be subjected to a substantial penalty for one action taken in a lengthy course of conduct.  In both cases however regard is necessary to the need to ensure no repetition of such conduct by these respondents and to deter others from contemplating it.  The penalty appropriate to OKN is $350 000 and to Meribell $70 000.

47                  Although the fifth respondent, Terence O’Keeffe, later co-operated he did not initially.  It is not suggested that he did not understand what he was doing when making the arrangements and carrying them out.  His personal circumstances may affect his income, but he has available assets to meet penalties which would ordinarily be imposed.  He will be ordered to pay $50 000 by way of penalty.

48                  The parties are agreed upon the order to be made for the Commission’s costs.

Associate:

Dated:              30 November 2005