FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2016] FCA 453 

ORDERS

THE COURT ORDERS THAT:

1.    The applicant submit to the Court proposed final orders to be made having regard to the reasons for judgment and the matters set out in the following orders which have regard to the orders sought by Annexure A to the principal submissions of the Australian Competition and Consumer Commission (“ACCC”).

2.    As to those draft orders, the Court expresses this position:

(a)    as to draft Order 1, the Court declines to make the declaration sought;

(b)    as to draft Order 2, the Court will make the declaration sought by the applicant;

(c)    as to draft Order 3, the Court declines to make the declaration sought;

(d)    as to the matters set out at paras 4, 5, 6 and 7 of the draft, the Court will make orders in those terms.

3.    As to the Original Millmerran Contract, a pecuniary penalty is to be paid to the Commonwealth of Australia (the “Commonwealth”) by the fourth respondent jointly and severally with the third respondent in respect of the making of the contract by the fourth respondent and the third respondent having been knowingly concerned in the making of the contract, of $3.5 million (Declarations 6 and 7).

4.    As to the Original Millmerran Contract, a pecuniary penalty is to be paid to the Commonwealth by the fourth respondent jointly and severally with the third respondent in respect of giving effect to the relevant provisions of the contract, of $500,000 (Declarations 8 and 9).

5.    No pecuniary penalty is to be ordered in respect of the fifth respondent having acted as a guarantor of the contract (Declaration 10).

6.    As to the Tarong Contract, a pecuniary penalty is to be paid to the Commonwealth by the fourth respondent jointly and severally with the third respondent in respect of the making of the contract by the fourth respondent and the third respondent having been knowingly concerned in the making of the contract, of $5.5 million (Declarations 16 and 17).

7.    As to the Tarong Contract, a pecuniary penalty is to be paid to the Commonwealth by the fourth respondent jointly and severally with the third respondent in respect of giving effect to the relevant provisions of the contract, of $5.5 million (Declarations 18 and 20).

8.    No pecuniary penalty is to be ordered in respect of the third respondent having given effect to the Tarong Contract in the period March, April and May 2003 (Declaration 19).

9.    As to the Amended Millmerran Contract, a pecuniary penalty is to be paid to the Commonwealth by the fourth respondent jointly and severally with the first respondent in respect of the making of the Amended Millmerran Contract by the fourth respondent and the first respondent having been knowingly concerned in the making of the contract, of $850,000 (Declarations 12 and 13).

10.    No pecuniary penalty is to be ordered in respect of the matters at Declarations 14 and 15.

11.    As to the Swanbank Contract in the period up to 31 December 2004, a pecuniary penalty is to be paid to the Commonwealth by the fourth respondent in respect of the making of the extension of the contract to 31 December 2004 by the fourth respondent, of $1.5 million (Declaration 21).

12.    As to the Swanbank Contract in the period from 1 January 2005 to 30 June 2005, a pecuniary penalty is to be paid to the Commonwealth by the fourth respondent jointly and severally with the first respondent in respect of the making of the extension of the contract from 1 January 2005 to 30 June 2005 by the fourth respondent and the giving effect to the extension until 30 June 2005 by the first respondent, of $200,000 (Declarations 22, 24 and 26).

13.    As to the Swanbank Contract in the period up to 31 December 2004, a pecuniary penalty is to be paid to the Commonwealth by the fourth respondent jointly and severally with the third respondent in respect of their having given effect to the contract to 31 December 2004, of $1 million (Declarations 21, 23 and 25).

14.    As to the Swanbank Contract in the period 1 January 2005 to 30 June 2005, a pecuniary penalty is to be paid to the Commonwealth by the fourth respondent jointly and severally with the first respondent in respect of their having given effect to the contract to 30 June 2005, of $50,000 (Declarations 22 and 26).

15.    The seventh respondent pay a pecuniary penalty to the Commonwealth in respect of the conduct set out at Declarations 27 and 28 in an amount of $20,000.

16.    The first to fifth respondents pay 65% of the applicant’s costs of and incidental to the proceeding up to 10 September 2013 and 100% of the applicant’s costs of and incidental to the proceeding on and after 10 September 2013, on a party and party basis to be taxed if not agreed.

17.    The applicant and the first to fifth respondents are to submit a schedule to the Court within 14 days setting out a list of the paragraphs containing data said to be confidential which ought to be removed from the reasons for judgment so as to preserve the confidentiality of the information and in the event that the applicant, on the one hand, and the first to fifth respondents on the other, are not able to agree a schedule, a schedule ought to be submitted by each of the parties setting out their views of the data to be removed from the judgment.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

GREENWOOD J:

PART 1: INTRODUCTION AND RELATED MATTERS

1    These proceedings are concerned with the assessment and determination of an “appropriate” pecuniary penalty in respect of contraventions of provisions of Pt IV of the Trade Practices Act 1974 (Cth) (which, of course, from 1 January 2011, has been known as the Competition and Consumer Act 2010 (Cth)) (the “Act”), by the relevant contravening respondents to the proceeding. The applicant, the Australian Competition and Consumer Commission (“the ACCC”) contends for an appropriate pecuniary penalty of $97.5 million (having regard to two additional matters). The respondents contend for an appropriate pecuniary penalty of up to $4 million. The parties are $93.7 million apart in their views about what is an “appropriate” penalty in the exercise of the discretion.

2    The conduct the subject of the contraventions occurred in a pleaded period from 2002 to 31 December 2006. Where it becomes necessary in these reasons to make reference to the title of the Act specifically, I will continue to refer to the Trade Practices Act and the relevant provisions of the Act in the form in which those provisions existed at the time of the contraventions.

3    On 28 February 2014, the Court determined and declared that Cement Australia Pty Ltd (“Cement Australia”), Cement Australia (Queensland) Pty Ltd (formerly Queensland Cement Ltd) (“CAQ”, which I will describe as “QCL” for the period prior to the merger leading to the name change to “CAQ”), Pozzolanic Enterprises Pty Ltd (“Pozzolanic”) and Pozzolanic Industries Pty Ltd (“PIPL”) had engaged in a total of 22 contraventions of the Act. The Court also determined and declared that Mr Christopher White had engaged in two contraventions of the Act.

4    I will, obviously enough, return to the content of the contraventions later in these reasons but for present purposes it is enough, put simply, to note that the Court found and declared contraventions of the Act as identified in the schedule below:

Synoptic matrix of the contraventions

The formal orders

5    For the sake of completeness, however, the declarations made by the Court on 28 February 2014 supported by the reasons for judgment published that day (Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2014] FCA 148 (the “final orders judgment”) taken in conjunction with Australian Competition and Consumer Commission v Cement Australia Pty Ltd (2013) 310 ALR 165; [2013] FCA 909 (the “principal liability judgment”)) were these:

THE COURT DECLARES THAT:

The Original Millmerran Contract

6.    Pozzolanic Enterprises Pty Ltd (“Pozzolanic”) by entering into a contract on 30 September 2002, described as the “Ash Purchase Agreement” or alternatively described for the purposes of these proceedings as the “Original Millmerran Contract” (the “OMC”) as buyer; Pozzolanic Industries Pty Ltd (“Pozzolanic Industries”) as guarantor; and eight companies collectively described as the Millmerran Power Partners (“MPP”) as seller, containing provisions which had:

6.1    a substantial purpose of;

6.2    the likely effect of; and

6.3    until 31 December 2003 (see declaration numbered 11), the effect of

preventing a rival of Pozzolanic from securing access to unprocessed flyash in the South East Queensland (“SEQ”) unprocessed flyash market, and preventing a rival of Cement Australia (Queensland) Pty Ltd formerly known as Queensland Cement Ltd (“QCL”) from entering the SEQ concrete grade flyash market (being a product market for fine grade concrete grade flyash), and thereby substantially lessening competition in the SEQ unprocessed flyash market and the SEQ concrete grade flyash market, contravened Section 45(2)(a)(ii) of the Act.

7.    QCL, by funding Pozzolanic’s entry into the OMC on 30 September 2002, with knowledge of the purpose, likely effect and effect of the provisions of the OMC contemplated by the above declaration (numbered 6) herein, was knowingly concerned in Pozzolanic’s contravention of Section 45(2)(a)(ii) of the Act referred to in the above declaration (numbered 6).

8.    Pozzolanic, by giving effect to the provisions of the OMC, having the purpose, likely effect and effect contemplated by the above declaration (numbered 6) herein, in the period 30 September 2002 until 31 December 2003 contravened Section 45(2)(b)(ii) of the Act.

9.    QCL, by giving effect to the provisions of the OMC, having the purpose, likely effect and effect contemplated by the above declaration (numbered 6) herein, by funding Pozzolanic’s day-to-day performance of the contract in the period 30 September 2002 until 31 December 2003 contravened Section 45(2)(b)(ii) of the Act.

10.    Pozzolanic Industries, by electing to act as guarantor of the obligations of Pozzolanic under the terms and conditions of the OMC and by entering into the OMC as guarantor with knowledge of the purpose, likely effect and effect of the provisions of the OMC contemplated by the above declaration (numbered 6), was knowingly concerned in Pozzolanic’s contravention of s 45(2)(a)(ii) referred to in the above declaration (numbered 6).

11.    To the extent that the identified provisions of the OMC contemplated by the above declaration (numbered 6) had the effect or likely effect of substantially lessening competition in the relevant market upon inclusion of the identified provisions when making the OMC, that effect or likely effect became dissipated by 31 December 2003 with the result that any effect or likely effect upon competition in the relevant market was then attributable to the compromised quality of the Millmerran flyash rather than the continuing effect or likely effect of the identified provisions.

The Amended Millmerran Contract

12.    Pozzolanic, by entering into a variation of the OMC called, for the purposes of the proceeding, the Amended Millmerran Contract (the “AMC”), on 28 July 2004, containing provisions which had the purpose of preventing a rival of Pozzolanic from securing access to Millmerran Power Station unprocessed flyash in the SEQ unprocessed flyash market, and preventing a rival of Cement Australia Pty Ltd (“Cement Australia”) from entering the SEQ concrete grade flyash market, and thereby substantially lessening competition in the SEQ unprocessed flyash market and the SEQ concrete grade flyash market with processed Millmerran flyash, contravened s 45(2)(a)(ii) of the Act.

13.    Cement Australia, by causing Pozzolanic to enter into the AMC with knowledge of the provisions contemplated by the above declaration (numbered 12) was knowingly concerned in Pozzolanic’s contravention of Section 45(2)(a)(ii) referred to in the above declaration (numbered 12).

14.    Pozzolanic, by giving effect to the provisions of the AMC contemplated by the above declaration (numbered 12) from 28 July 2004 until 30 April 2005 contravened Section 45(2)(b)(ii) of the Act.

15.    Cement Australia, by causing Pozzolanic to give effect to the provisions of the AMC contemplated by the above declaration (numbered 12) from 28 July 2004 until 30 April 2005 contravened Section 45(2)(b)(ii) of the Act.

The Tarong Contract

16.    Pozzolanic, by entering into a Flyash Agreement with Tarong Energy Corporation (“TEC”) on 26 February 2003 (the “Tarong Contract”) for the acquisition of flyash from Tarong Power Station and Tarong North Power Station (once commissioned and operating), containing provisions which had:

16.1    a substantial purpose of; and

16.2    the likely effect of; and

16.3    the effect of

preventing a rival of Pozzolanic from securing access to unprocessed flyash in the SEQ unprocessed flyash market, and preventing a rival of QCL from entering the SEQ concrete grade flyash market, and thereby substantially lessening competition in the SEQ unprocessed flyash market and the SEQ concrete grade flyash market, contravened Section 45(2)(a)(ii) of the Act.

17.    QCL, by funding Pozzolanic’s entry into the Tarong Contract with knowledge of the provisions contemplated by the above declaration (numbered 16) was knowingly concerned in Pozzolanic’s contravention of Section 45(2)(a)(ii) of the Act, referred to in declaration numbered 16.

18.    Pozzolanic, by giving effect to the provisions of the Tarong Contract contemplated by the above declaration (numbered 16) on and from March 2003 contravened Section 45(2)(b)(ii) of the Act.

19.    QCL, by funding Pozzolanic’s performance of the Tarong Contract until 1 June 2003 contemplated by the above declaration (numbered 16), gave effect to the provisions of the Tarong Contract and thereby contravened Section 45(2)(b)(ii) of the Act, and with knowledge of the relevant provisions, was knowingly concerned in Pozzolanic’s contravention of Section 45(2)(b)(ii) contemplated by the above declaration (numbered 18).

20.    Cement Australia, by funding Pozzolanic’s performance of the Tarong Contract in relation to both the Tarong Power Station and the Tarong North Power Station on and from 1 June 2003 gave effect to the provisions of the Tarong Contract and thereby contravened Section 45(2)(b)(ii) of the Act, and with knowledge of the relevant provisions was knowingly concerned from 1 June 2003 in Pozzolanic’s contravention of Section 45(2)(b)(ii).

The Swanbank Contract

21.    Pozzolanic, by exercising an option on 11 July 2002 to extend the term of the Swanbank Contract to 31 December 2004 on the terms of the amendment letter of 9 September 1998 and the Agreement of 30 September 1998, and further extend the amended Swanbank Contract to 30 June 2005 incorporating the identified provisions conferring exclusive access to Swanbank flyash in Pozzolanic until 30 June 2005, being provisions that would have the likely effect, and had the effect of preventing a rival of Pozzolanic from securing access to Swanbank unprocessed flyash in the unprocessed flyash market from 1 January 2001 to 30 June 2005, and preventing a rival of QCL from entering the SEQ concrete grade flyash market up to 31 May 2003 and thereafter preventing a rival of Cement Australia entering the SEQ concrete grade flyash market, thereby substantially lessening competition in the SEQ unprocessed flyash market and the SEQ concrete grade flyash market, contravened Section 45(2)(a)(ii) of the Act.

22.    Pozzolanic, by entering into an agreement to extend the term of the Swanbank Contract from 31 December 2004 to 30 June 2005 on the terms of the amendment letter of 9 September 1998 and the Agreement of 30 September 1998 incorporating the identified provisions conferring exclusive access to Swanbank flyash in Pozzolanic until 30 June 2005, being an arrangement incorporating the relevant provisions, having a substantial purpose of preventing a rival of Pozzolanic from securing access to Swanbank unprocessed flyash in the unprocessed flyash market until 30 June 2005, and preventing a rival of Cement Australia entering the SEQ concrete grade flyash market until 30 June 2005, thereby substantially lessening competition in the SEQ unprocessed flyash market and the SEQ concrete grade flyash market, contravened Section 45(2)(a)(ii) of the Act.

23.    Pozzolanic, by giving effect to the identified provisions as contemplated by the above declaration (numbered 21) which conferred exclusive access to Swanbank flyash in the period 1 January 2001 to 30 June 2005, contravened Section 45(2)(b)(ii) of the Act.

24.    Pozzolanic, by giving effect to the identified provisions as contemplated by the above declarations (numbered 21 and 22) which conferred exclusive access to Swanbank flyash in the period from 1 January 2005 to 30 June 2005, contravened Section 45(2)(b)(ii) of the Act.

25.    QCL, by giving effect to the identified provisions as contemplated by the above declaration (numbered 21) in the period from 1 January 2001 to 31 May 2003, contravened Section 45(2)(b)(ii) of the Act.

26.    Cement Australia, by giving effect to the identified provisions as contemplated by the above declarations (numbered 21 and 22), contravened Section 45(2)(b)(ii) of the Act.

Christopher Stephen White

27.    Mr White was knowingly concerned in Pozzolanic’s contravention of Section 45(2)(a)(ii) of the Act in relation to the conduct contemplated by the above declaration (numbered 22).

28.    Mr White was knowingly concerned in Pozzolanic’s contravention of Section 45(2)(b)(ii) of the Act in relation to the conduct contemplated by the above declaration (numbered 21) from the period 31 December 2004 to 30 June 2005.

6    These reasons are to be read together with the final orders judgment and the principal liability judgment. However, for the purposes of these reasons, I will attempt to address the relevant considerations arising out of the principal liability judgment so that recourse to those reasons is made less necessary. In order to achieve that result, I will quote the paragraphs of the principal liability judgment containing the findings on purpose, effect and likely effect where relevant and useful. Hopefully, most of the immediately relevant paragraphs of the principal liability judgment will be contained within these reasons. When I use the term “SEQ cgf market” I am describing the market as found in the principal liability judgment. In these reasons, all references in the text to paragraph numbers in square brackets is a reference to paragraphs from the principal liability judgment unless otherwise mentioned.

7    The principal liability judgment addresses, as the description suggests, the resolution of the highly contested questions concerning whether or not any one or more of the respondents had contravened a provision of Pt IV of the Act. The assessment and determination of an appropriate pecuniary penalty that might be ordered to be paid by a particular respondent in respect of one or more contraventions of Pt IV was the subject of a separate hearing. That hearing occurred from 15 December 2014 to 18 December 2014 consequent upon quite a number of interlocutory applications in relation to the additional evidence which might be relied upon by any of the parties (and particularly responsive or reply evidence). A number of judgments were delivered on those topics.

8    At the hearing, the applicant relied upon additional material in the form of a tender bundle (being Vol 1 of 1) which was marked Ex 1 in the proceeding. The respondents also relied upon a tender bundle (comprising two volumes divided into Parts) marked Ex 2. Mr White relied upon two affidavits, the first dated 1 April 2014 and the second dated 18 September 2014.

9    At the conclusion of the hearing, the questions in issue were reserved for further consideration.

10    In the early part of 2015, it became apparent that the Full Court of the Federal Court was to consider the question (which, as a general matter, had been the subject of debate in a number of first instance decisions of this Court and other Courts) of the extent to which the decision of the High Court in Barbaro v The Queen (2014) 253 CLR 58 (“Barbaro”) (and the expressions of principle discussed in that decision) might properly inform a principled approach to the determination of a pecuniary penalty under a “civil pecuniary penalty provision” (although the particular statutory regime in the proceedings before the Full Court was to engage the provisions of the Building and Construction Industry Improvement Act 2005 (Cth) (“the BCII Act”)). The relevant provisions of that Act were thought to be a relevant analogue of s 76(1) of the Trade Practices Act. The Full Court delivered judgment in that matter (Director, Fair Work Building Industry Inspectorate v Construction, Forestry, Mining and Energy Union (2015) 229 FCR 331; 320 ALR 631; 105 ACSR 403; [2015] FCAFC 59) and in mid-June 2015, the Commonwealth obtained special leave to appeal from the orders of the Full Court. On 9 December 2015, the High Court delivered judgment in Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 326 ALR 476; [2015] HCA 46 (“Fair Work”).

11    As a consequence of the High Court’s Fair Work decision, the parties to the present proceeding put on further submissions which had the following effect. The ACCC withdrew paras 36 to 43 of its reply submissions dated 14 December 2014 (as updated on 16 December 2014) and withdrew paras 1 to 5 of its supplementary submissions dated 2 June 2015 (filed on 3 June 2015). The respondents withdrew paras 319 to 327 of their submissions of 5 December 2014 and paras 1 to 22 of their submissions of 2 June 2015.

12    It is therefore necessary to consider aspects of the observations of their Honours in the Fair Work decision so as to identify whether matters of principle emerge from that decision relevant to the exercise of the discretion under s 76(1) of the Act in determining a pecuniary penalty in respect of a contravention of Pt IV of the Act having regard to the statutory framework of the Trade Practices Act.

The provisions

13    In the relevant period, s 45(2) of the Act was, relevantly, in these terms:

(2)    A corporation shall not:

(a)    make a contract or arrangement, or arrive at an understanding, if:

(i)    …; or

(ii)    a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or

(b)    give effect to a provision of a contract, arrangement or understanding, … if that provision:

(i)    …; or

(ii)    has the purpose, or has or is likely to have the effect, of substantially lessening competition.

[emphasis added]

14    In the relevant period, s 76 of the Act was, relevantly, in these terms:

Section 76.    Pecuniary penalties

(1)    If the Court is satisfied that a person –

(a)    has contravened any of the following provisions:

(i)    a provision of Part IV;

(ii)    …;

(b)    has attempted to contravene such a provision;

(c)    has aided, abetted, counselled or procured a person to contravene such a provision;

(d)    has induced, or attempted to induce, a person, whether by threats or promises or otherwise, to contravene such a provision;

(e)    has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of such a provision; or

(f)    has conspired with others to contravene such a provision,

the Court may order the person to pay to the Commonwealth such pecuniary penalty, in respect of each act or omission by the person to which this section applies, as the Court determines to be appropriate having regard to all relevant matters including the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission, the circumstances in which the act or omission took place and whether the person has previously been found by the Court in proceedings under this Part or Part XIB to have engaged in any similar conduct.

[The note to s 76(1) does not bear on the questions presently under consideration.]

(1A)    The pecuniary penalty payable under subsection (1) by a body corporate is not to exceed:

(a)    for each act or omission to which this section applies that relates to section 45D, 45DB, 45E or 45EA - $750,000; and

(b)    for each other act or omission to which this section applies - $10,000,000.

(1B)    The pecuniary penalty payable under subsection (1) by a person other than a body corporate is not to exceed $500,000 for each act or omission to which this section applies.

[emphasis added]

15    Section 76(3) of the Act was, relevantly, in these terms:

If conduct constitutes a contravention of two or more provisions of Part IV, a proceeding may be instituted under this Act against a person in relation to the contravention of any one or more of the provisions but a person is not liable to more than one pecuniary penalty under this section in respect of the same conduct.

16    Section 76 of the Act was amended in a significant respect effective from 1 January 2007.

17    The amendment has no application to the determination of a penalty in respect of any of the contraventions found against the relevant respondents in these proceedings. The significant amendment, however, concerned s 76(1A) which, operating prospectively, provides that for each act or omission constituting a contravention of a provision of Pt IV, the pecuniary penalty payable under s 76(1) by a body corporate was not to exceed (for the purposes of a provision of Pt IV other than s 45D, s 45DB, s 45E or s 45EA) “the greatest of the following: (i) $10,000,000; (ii) if the Court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the act or omission – three times the value of that benefit; (iii) if the Court cannot determine the value of that benefit – 10% of the annual turnover of the body corporate during the period (the turnover period) of 12 months ending at the end of the month in which the act or omission occurred” [emphasis added]. The new s 76(1A), like the earlier version, is directed to setting the maximum amount of a pecuniary penalty that might be determined. Such an amount would be appropriate to something in the order of the worst case of contravening conduct. The factors applicable to determining the penalty remain the s 76(1) factors as elaborated upon in the authorities.

18    Plainly enough, s 76 as enacted, maintained (and in the terms quoted at [14] and [15] of these reasons, continued to maintain in the relevant period, as it does today), a clear distinction between civil penalties and criminal penalties in respect of classes of contravention: see ss 78 and 79 of the Act and, in respect of cartel conduct, the criminal cartel provisions.

19    As to the relevant context within which their Honours considered the questions in issue in the Fair Work decision, it should be noted that so far as these proceedings are concerned, no aspect of the matters in controversy in the principal liability proceedings involved any element of agreement between the parties as to any contravention of a provision of Pt IV or the relevant facts.

20    Far from it. These proceedings represent the far end point along a continuum where agreement as to foundation facts and opinions as to an appropriate penalty represent the other end of that continuum.

21    Virtually no aspect of the matters to be considered in the determination of an amount the Court might consider appropriate in respect of any contravention found against any of the relevant respondents is the subject of agreement.

22    Much of the discussion in the Fair Work decision is concerned with the extent to which the parties might put to the Court joint submissions as to the facts to be found and joint submissions as to the penalty that might be then thought to be appropriate in respect of any contravention so established on the face of the joint submissions on the facts, or separate opinions from the parties as to penalty.

23    Plainly enough that is not this case.

24    Nevertheless, their Honours in the Fair Work decision have made observations about the very nature of civil penalty proceedings and the scope and social utility of enabling a regulator and respondents to make quite focused submissions about, especially, the amount of a pecuniary penalty that might be thought to be appropriate (based on an acceptance of a relevant contravention or, as here, in relation to relevant contraventions as found) with a view to urging the Court to order such a penalty to be paid by the contravener.

25    It is important therefore to have regard to some aspects of the observations of their Honours going to these matters of principle and apart from anything else, the observations of their Honours have, in this matter, directly led to the participants making changes to their submissions having considered the Fair Work decision.

PART 2: THE FAIR WORK DECISION; THE RELEVANT PRINCIPLES TO BE APPLIED IN EXERCISING THE DISCRETION UNDER SECTION 76 OF THE ACT

The Fair Work decision

26    In Barbaro, French CJ, Hayne, Kiefel and Bell JJ held that where a Court is called upon to pass sentence on an offender in criminal proceedings, the “prosecution’s statement of what are the bounds of the available range of sentences is a statement of opinion” which a sentencing judge may not “take into account in finding the relevant facts, deciding the applicable principles of law or applying those principles to the facts to yield the sentence to be imposed”: Barbaro at 66, [7]. That follows because, apart from the “conceptually indeterminate boundaries” of the available range of sentences (and “systemic problems” which would likely result from a criminal sentencing judge being seen to be influenced by the Crown’s opinion as to the available range of sentences), the Crown’s opinion would, in all probability, be informed by an assessment of the facts and relative weighting of the relevant sentencing considerations “different from the judge’s assessment”: Fair Work, the plurality at 491 [56]. Having regard to that consideration, the plurality at [56] also said this: “That is why it was held in Barbaro that it is inconsistent with the nature of criminal sentencing proceedings for a sentencing judge to receive a submission from the Crown as to the appropriate sentence or even as to the available range of sentences”.

27    However, what was said in Barbaro “applies only to criminal proceedings”: Fair Work, the plurality at [50].

28    That follows because there are “basic differences” between a criminal prosecution and civil penalty proceedings and it is those basic differences that provide the “principled basis” for excluding the application of Barbaro from civil penalty proceedings. Those basic differences between a criminal prosecution and a civil penalty proceeding include these considerations: a criminal prosecution is an accusatorial proceeding governed by the fundamental principle that the burden lies in all things upon the Crown to establish guilt beyond reasonable doubt; civil penalty proceedings are “civil” and therefore adversarial with issues and the scope of relief framed by the parties as they choose; and, a criminal prosecution is aimed at securing a criminal conviction whereas a civil penalty proceeding is “precisely calculated” to “avoid the notion of criminality as such”: see Fair Work, the plurality at [53]-[54].

29    No less important, however, is the consideration that the imposition of criminal penalties is conditioned by notions of “retribution” and “rehabilitation” as well as general and specific deterrence, whereas the “purpose” of a civil penalty is primarily, if not wholly, “protective” in promoting the public interest in compliance with the law: Fair Work, the plurality at [55]. Civil penalties, like most other civil remedies, are “essentially deterrent or compensatory” and therefore “protective”: Fair Work, the plurality at [59]. Moreover, neither retribution nor rehabilitation “have any part to play in economic regulation of the kind contemplated by Pt IV [of the Trade Practices Act]”, and the principal, and probably the only, “object” of the penalties imposed by s 76, is to attempt to “put a price on contravention that is sufficiently high to deter repetition by the contravener and by others who might be tempted to contravene the Act”: Fair Work, the plurality at [55] adopting the observations of French J in Trade Practices Commission v CSR Ltd [1991] ATPR 41-076 at 52,152 (“TPC v CSR”).

30    Because a civil penalty and a civil penalty proceeding bear these characteristics, there is nothing exceptional about a Court approving an agreed settlement provided the Court is persuaded that the settlement is, in the statutory language, “appropriate”. That additional matter is not relevant for these proceedings. However, it also follows from these propositions that the Court can quite properly receive either joint or separate submissions from the parties, and particularly a regulator, as to the facts and penalty.

31    As to the position of a regulator, the plurality said this at [60]:

As was emphasised in [NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 (“NW Frozen Foods”)], it is the function of the relevant regulator to regulate the industry in order to achieve compliance and, accordingly, it is to be expected that the regulator will be in a position to offer informed submissions as to the effects of contravention on the industry and the level of penalty necessary to achieve compliance.

32    At [61], the plurality note the logical qualification upon that proposition that the submissions of a regulator on those questions are to be considered on their merits (in the same way as the submissions of a respondent are to be considered), supported as they must be, by findings of fact referable to properly adduced evidence, the agreement of the parties or concessions made by the relevant respondents. The relevant facts must be exposed and the Court bears the responsibility of ensuring that those matters are properly exposed. At [61], the plurality also said this:

But, subject to that imperative, there is no indication in the purpose or text of the BCII Act that the court should be less willing to receive a submission as to the terms and quantum of penalty in a civil penalty proceeding than to receive a submission as to the terms and quantum of relief put up for approval by the court in any other kind of civil proceeding.

[emphasis added]

33    Equally, there is no indication in the purpose or text of the Trade Practices Act that suggests that the Court ought to be unwilling to receive submissions as to the quantum of the penalty in the exercise of the Court’s discretion under s 76(1) of the Act.

34    At [56], the plurality in Fair Work also observe that in “criminal proceedings” the imposition of “punishment” is a “uniquely” judicial exercise of “intuitive” or “instinctive synthesis” (as that term is understood having regard to the observations of Gaudron, Gummow and Hayne JJ in Wong v The Queen (2001) 207 CLR 584 at 611-612, [74]-[76] and the later observations of Gleeson CJ, Gummow, Hayne and Callinan JJ in Markarian v The Queen (2005) 228 CLR 357 at 373-375, [37]-[39]) of the sentencing facts, as found by the sentencing judge, and the judge’s “relative weighting” and application of relevant sentencing considerations, in accordance with established sentencing principles. The plurality in Fair Work also observe at [56] that there is “no room” in an exercise of “that nature” for the sentencing judge to take account of the Crown’s opinion as to the appropriate length of sentence.

35    In contrast, however, that is not the position in relation to civil penalty proceedings: Fair Work, the plurality at [56].

36    At [62], the plurality also observes in relation to the BCII Act, that the legislation expressly provided that the Director’s functions included intervening in proceedings and making submissions in accordance with the Act. The legislation did not impose any “express limitation” or “restriction” on the evidence, materials or submissions which could be received from the Director.

37    Moreover, as a matter of construction of the BCII Act in this regard, by providing for “civil penalty proceedings”, the BCII Act “implicitly assumes the application of the general practice and procedure regarding civil proceedings and eschews the application of criminal practice and procedure”: Fair Work, the plurality at [62]. There is no relevant point of differentiation between the BCII Act provisions in this regard and the provisions of the Trade Practices Act. It therefore follows, as a matter of construction of the Trade Practices Act, that by providing for civil penalty proceedings the Act implicitly assumes the application of the general practice and procedure relating to “civil proceedings” and eschews the application of criminal practice and procedure (in relation to the provisions of the Act relevant to these proceedings).

38    Apart from these observations about the fundamental differences between a criminal prosecution and a civil penalty proceeding and the conclusion, as a matter of construction of the legislation, that the BCII Act eschews the application of criminal practice and procedure, the plurality made this further observation at [64] about the role of a regulator in what might be regarded as “typical” civil penalty regimes:

In contradistinction to the role of the Crown in criminal proceedings, it is consistent with the purposes of civil penalty regimes of which Pt 1 of Ch 7 of the BCII Act is typical, and therefore with the public interest, that the regulator take an active role in attempting to achieve the penalty which the regulator considers to be appropriate and thus the regulator’s submissions as to the terms and quantum of a civil penalty be treated as a relevant consideration.

39    There is no point of distinction, so far as the Trade Practices Act is concerned, with the BCII Act, which would render those observations of the plurality inapplicable to the exercise of the discretion under s 76(1) of the Act.

40    Although I have largely confined, in these reasons, my attention to the observations of the plurality in Fair Work, the observations of Gageler J and Keane J are consistent with the statements of principle identified by the plurality.

41    Two things follow from these considerations.

42    First, plainly enough, submissions can properly be made as to the quantum of the penalty and any terms which might attach to the imposition of a pecuniary penalty, by either side, including the regulator.

43    Second, the following question arises. If the purpose of a civil penalty is (at least primarily) protective, that is to say, essentially to deter and thus protective, and the Trade Practices Act (at least in relation to the provisions of the Act relevant to these proceedings) assumes, as a matter of construction, the application of the general practice and procedure relating to civil proceedings (thus eschewing the application of criminal practice and procedure), to what extent do the principles identified in the authorities which govern the exercise of the discretion under s 76(1) (and, for that matter, typical analogous civil penalty regimes), deriving from sentencing principles identified in a number of authorities in the context of criminal sentencing practice and procedure, continue to have any application to the exercise of the discretion under s 76(1)?

44    Further, since in criminal proceedings punishment of the offender is a uniquely judicial exercise of “instinctive synthesis” or “intuitive synthesis” (and a long line of authority holds that the purpose of a civil penalty provision is not punishment; NW Frozen Foods, 297, Burchett and Kiefel JJ); and the Trade Practices Act, so far as relevant to these proceedings, eschews the application of criminal practice and procedure, to what extent does the notion of instinctive synthesis have any application to the exercise of the discretionary judgment to be made when determining an “appropriate” pecuniary penalty under s 76(1)?

45    In exercising the discretion under s 76(1) (and analogous civil penalty regimes) the orthodox position has been to apply, as relevant to the exercise of the discretion, principles derived from a range of authorities identifying appropriate practices applied by judges in the exercise of discretionary sentencing of criminal offenders. As to relatively recent examples, Jacobson J observed in 2014 in Registrar of Aboriginal and Torres Strait Islander Corporations v Matcham (No 2) (2014) 97 ACSR 412 at [124] (“Registrar v Matcham (No 2)”) that it is “well-established that the principles of sentencing which have been developed in the criminal law apply to the exercise of the discretion to impose civil penalties in those areas of the law which are regulated by civil penalty regimes”. See also the approach adopted by Foster J in Clean Energy Regulator v MT Solar Pty Ltd [2013] FCA 205 applying the same principle at [68] and citing at [76] Mornington Inn Pty Ltd v Jordan (2008) 168 FCR 383 at [42]-[46] (Stone and Buchanan JJ) (“Mornington”) and Construction, Forestry, Mining and Energy Union v Cahill (2010) 269 ALR 1 at [39] (“CFMEU v Cahill”), Middleton and Gordon JJ.

46    I propose to proceed on the following basis in the exercise of the discretion under s 76(1).

47    First, the principled distinctions identified in Fair Work between a criminal prosecution and a civil penalty proceeding provide the basis for the answer to the specific question addressed by their Honours in Fair Work of whether the proposition identified at [7] by the plurality in Barbaro (see [26] of these reasons) applies only to criminal proceedings.

48    Second, as to other matters, although the principled distinctions between a criminal prosecution and a civil penalty proceeding identified by their Honours in Fair Work, and the matters of statutory construction identified by their Honours (as applied to the relevant provisions of the Trade Practices Act, see particularly [37] of these reasons) hold good for all purposes, the exercise of the discretionary judgment to be made under s 76 of the Act continues to engage the notion of instinctive synthesis as a substantive matter of methodological approach to the exercise of the discretion rather than a matter of criminal practice and procedure.

49    Third, the matters of statutory construction identified by the plurality in Fair Work and discussed at [30]-[33] and [38]-[39] of these reasons informs the exercise of the discretion under s 76 even though there is no question here of agreement or joint submissions.

50    Fourth, the statements of principle concerning the purpose of a civil penalty proceeding identified by the plurality in Fair Work and discussed at [29] of these reasons informs the exercise of the discretion under s 76 of the Act.

51    Fifth, substantive matters of methodological approach to the exercise of the sentencing discretion (rather than matters of criminal practice and procedure as such) discussed in the authorities continue to be matters relevant to the exercise of the discretion under s 76 of the Act.

The relevant principles

52    Section 76(1) of the Act provides that where a person has contravened a provision of Pt IV of the Act, the Court may order the person to pay, “in respect of each act or omission by the person to which this section applies”, such pecuniary penalty as the Court determines appropriate “having regard to all relevant matters”. The section then inclusively identifies some of those matters as follows:

    the nature and extent of the act or omission;

    the nature and extent of any loss or damage suffered as a result of the act or omission;

    the circumstances in which the act or omission took place; and

    whether the person has previously been found by the Court in proceedings under, relevantly here, Pt VI of the Act, to have engaged in any similar conduct.

53    These expressly identified factors do not exhaust “all relevant matters” but they do reflect the considerations to which the Parliament expressly turned its attention.

54    Because pecuniary penalty proceedings are not “classed as criminal proceedings”, it is not necessary to measure the contravening conduct against “some general community morality in which the law is embedded”. Aspects of some commercial behaviour such as “ruthlessness” and “expansionary ambition” are not elements of the “classes of conduct prohibited by Pt IV” of the Act, nor even “aggravating factors”: TPC v CSR at 52,151, French J. Seeking to characterise contravening conduct in terms of “a morality larger than that which is defined by the legislative purpose is misplaced” [emphasis added]: TPC v CSR at 52,151.

55    In J McPhee & Son (Australia) Pty Ltd v Australian Competition and Consumer Commission (2000) 172 ALR 532 (“J McPhee v ACCC”) at 579 [166], Black CJ, Lee and Goldberg JJ accepted that the provisions of the Act (contraventions of s 45 of the Act were there under consideration) are not designed to regulate or proscribe moral conduct, “but they are calculated and intended to proscribe particular aspects of commercial conduct” and in examining those “particular aspects” of commercial conduct, reflected in the relevant provisions of Pt IV, it is relevant, in determining the pecuniary penalty under s 76 to consider whether there has been a deliberate contravention or a deliberate attempt to contravene the Act. Such a consideration of deliberateness does not involve a moral issue but “takes into account the deliberateness or the calculated manner in which a course of conduct has been undertaken”. Thus, in fixing penalties under s 76, it is appropriate and relevant to take into account whether the contravening conduct was “systemic, deliberate or covert”: J McPhee v ACCC at 577 [158] and [163], Black CJ, Lee and Goldberg JJ. There needs to be “commercial realism” in fixing a penalty and the penalty should be proportionate to the deliberation with which the defendant contravened the Act: TPC v CSR at 52,153; Trade Practices Commission v Stihl Chain Saws (Aust) Pty Ltd [1978] ATPR 40-091 (“Stihl Chain Saws”), Smithers J at 17,896.

56    The object of the Act, relevantly, is to “enhance the welfare of Australians through the promotion of competition” (s 2, the Act) and, as to Pt IV, its purpose is the adoption of provisions which “proscribe and regulate agreements and conduct and which are aimed at procuring and maintaining competition in trade and commerce”: Refrigerated Express Lines (A/asia Pty Ltd v Australian Meat and Livestock Corp [No 2] (1980) 44 FLR 455 at 460, Deane J. The “object” to be served by s 76 is to promote competitive conduct in trade or commerce by the use of penalties sufficient to deter acts that would tend to be destructive of such competition: Trade Practices Commission v Prestige Motors Pty Ltd [1994] ATPR 41-359 at 42,699, Lee J; Australian Competition and Consumer Commission v Rural Press Ltd [2001] ATPR 41-833 at 43,289 [12] (“ACCC v Rural Press”), Mansfield J. Specifically in the context of Pt IV questions, Finkelstein J said this at [13] and [14] in Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (No 2) (2002) 190 ALR 169; [2002] FCA 559 (“ACCC v ABB (No 2)”):

[13]    Next I propose to say something about the seriousness of contraventions of antitrust legislation. Our economic system is based upon a philosophy of private enterprise and competition. Antitrust legislation has as its object the promotion of free competition by proscribing the misuse of monopoly or oligopoly power, and by making unlawful conduct such as market rigging, collusive tendering, price fixing, and other acts that inhibit the minimisation of production costs and the efficient allocation of resources. That is to say, antitrust legislation is founded on the underlying premise that free competition is essential for the welfare of the state. Conduct that affects the public, such as the anti-competitive behaviour that is outlawed by the Trade Practices Act, can never really be considered as anything other than serious.

[14]    Moreover, antitrust contraventions do not occur as a result of passion or accident. The agents of a corporation have the choice to engage or refrain from engaging in the anti-competitive behaviour. A contravention most often occurs when there is a belief that the financial gain that is anticipated to result from the anti-competitive behaviour will be considerable, and well worth the risk of detection and the cost of prosecution. In many cases the expected financial gain will be very large, and in some markets could be in the millions of dollars. The corresponding losses that are suffered will fall across a range of organisations including competitors. But ultimately the losses are borne by consumers who are usually economically weak and do not have meaningful power to obtain redress.

57    In TPC v CSR, French J notes at 52,152 the “primacy” of the deterrent purpose in the imposition of a penalty under s 76 of the Act having observed (see [29] of these reasons) that the principal and probably the only object of penalties imposed by s 76 is to attempt to “put a price on contravention” sufficiently high to deter repetition by the contravener and others tempted to contravene the Act – that is, general and specific deterrence. His Honour then formulates these factors as ones which properly serve the assessment of a penalty of “appropriate deterrent value”:

1.    The nature and extent of the contravening conduct.

2.    The amount of loss or damage caused [by the contravening conduct].

3.    The circumstances in which the conduct took place.

4.    The size of the contravening company.

5.    The degree of power it has, as evidenced by its market share and ease of entry into the market.

6.    The deliberateness of the contravention and the period over which it extended.

7.    Whether the contravention arose out of the conduct of senior management or at a lower level.

8.    Whether the company has a corporate culture conducive to compliance with the Act as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention.

9.    Whether the company has shown a disposition to cooperate with the authorities responsible for the enforcement of the Act in relation to the contravention.

58    In Australian Competition and Consumer Commission v Kokos International Pty Ltd (No 2) [2008] ATPR 42-212 at 48,813, French J at [51] accepted that the following three matters are also relevant to the exercise of the discretion (continuing my numbering):

10.    Whether the respondents have engaged in similar conduct in the past.

11.    The financial position of the respondents.

12.    The deterrent effect of the proposed penalty.

59    At [51], his Honour observed that he was “satisfied that the above list [1 to 12] is sufficiently comprehensive”. In Trade Practices Commission v TNT Australia Pty Ltd [1995] ATPR 41-375 (“TPC v TNT”) at 40,169, Burchett J identified two other considerations relevant to the exercise of the discretion: first, whether the total penalty for related offences ought not to exceed what is proper for the entire contravening conduct and second, the extent to which, by admitting the allegations, the respondents saved the community the burden of litigating a lengthy and expensive case. The inverse position might be the extent to which the respondents caused the community to incur the cost and burden of litigating a lengthy and expensive case resulting in proven contraventions. The first consideration may simply be a reference to the “totality principle”, a matter discussed later in these reasons together with an anterior consideration relevant to multiple contraventions, the “one transaction” or “course of conduct” principle. The second consideration is really part of factor 9.

60    It seems to me that great caution must be exercised when considering, in the exercise of the discretion as to penalty, the circumstance that respondents have contested the claims of the ACCC. If it can be demonstrated that the defences advanced by respondents were entirely unmeritorious in the sense that upon examination of the evidence there was really no proper basis upon which, on that evidence, the claims could have been resisted, that would be one thing. If, on the other hand, respondents to the proceeding have a serious question to be tested, that is an entirely different matter. In circumstances where a matrix of fact is in controversy and out of that matrix some claims advanced by the ACCC have been unsuccessful and others successful, it becomes a difficult matter, in the exercise of the discretion, to say that the penalty ought to be informed by a failure on the part of respondents, in those circumstances, to capitulate on the matters ultimately shown to give rise to contraventions of the Act. There is a qualitative element to be examined in the conduct of the respondents.

61    French J observes in TPC v CSR at 52,153, that the first three factors (described at [57] of these reasons) are all expressly mentioned in s 76(1) and thus they ought to be regarded as measures of the scope and impact of the conduct. It follows that it is conducive to deterrence that the “greater the significance” of these elements, “the heavier the penalty should be”, although, of course, all relevant matters must be weighed in the balance.

62    The determination of the penalty is also a matter which serves the public interest in the enforcement of the Act: TPC v CSR at 52,153.

63    There are other factors and particular emphasis within those factors.

64    Some of them are these.

65    Because the Act places on the shoulders of the Court the responsibility of determining the “appropriate” penalty having regard to the statutory requirement of “all relevant matters”, the “effects upon the functioning of markets, and other economic effects, will generally be among the most important matters to be considered as relevant …”: NW Frozen Foods at 290, Burchett and Kiefel JJ. See also the observations of Finkelstein J at [56] of these reasons.

66    In Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640 at 659 (“ACCC v TPG Internet”), French CJ, Crennan, Bell and Keane JJ observe at [65] that general and specific deterrence must play a “primary role” in assessing the appropriate penalty in cases of “calculated contravention” of legislation where “commercial profit is the driver of the contravening conduct”. In that context, their Honours at [65] took account of TPG’s particular campaign in issue in those proceedings (in contravention of ss 52, 53C (a campaign of advertising broadband services at a flat monthly rate with much less prominence given to other bundled services required to be taken up); the period of the campaign (13 months); its cost ($8.9 million); the revenues generated from it ($59 million); the estimated profit deriving from it ($8 million); and the growth in the customer base (during the period of the campaign - 9,000 to 107,000 customers). The growth in customers, however, was not at the expense of TPG’s competitors. At [64], their Honours observe that the Full Court in Singtel Optus Pty Ltd v Australian Competition and Consumer Commission (2012) 287 ALR 249 (“Singtel Optus v ACCC”) correctly observed that the Court, in fixing a penalty, must make it clear to the contravener and the market that the cost of courting a risk of contravention cannot be regarded as an acceptable cost of doing business.

67    As to profit gains, Finkelstein J observes in Australian Competition and Consumer Commission v ABB Transmission and Distribution Limited [2001] ATPR 41-815; [2001] FCA 383 at [13] that “most antitrust violations are profitable” and, accordingly, “the penalty must be at a level that a potentially-offending corporation will see as eliminating any prospect of gain”. As to “profit stripping”, Keane CJ, Finn and Gilmour JJ said this at [61] to [64] in Singtel Optus v ACCC in the context of contraventions by Singtel Optus of ss 52 and 55A of the Trade Practices Act in relation to advertisements for Broadband data plans:

Profit stripping?

[61]    Optus contends that considerations of deterrence do not justify a penalty of the severity imposed in this case. The primary judge found that there was a “non-trivial connection” between the campaign and the overall profits made by Optus from the plans, but the profits made from the contravention were not distinguished from other profits lawfully made. Optus contends that it is excessive to impose a penalty apt to strip Optus of profit not shown to stem directly from the contravention.

[62]    There may be room for debate as to the proper place of deterrence in the punishment of some kinds of offences, such as crimes of passion; but in relation to offences of calculation by a corporation where the only punishment is a fine, the punishment must be fixed with a view to ensuring that the penalty is not such as to be regarded by the offender or others as an acceptable cost of doing business. The primary judge was right to proceed on the basis that the claims of deterrence in this case were so strong as to warrant a penalty that would upset any calculations of profitability. The purpose of Optus’s conduct was to generate sales, and hence, profits. The advertising deployed by Optus was calculated to win business from its rivals. The same share of business might not have been attracted by a more balanced presentation of the advantages of the plans. There is no room to doubt that Optus knows its business sufficiently well that it is safe to proceed on the footing that its course of conduct in the campaign reflected informed calculation. While one cannot isolate the profits attributable to the campaign, it is necessary and desirable to impose a penalty which is apt to affect in a substantial way the profitability of Optus’s misconduct.

[63]    Generally speaking, those engaged in trade and commerce must be deterred from the cynical calculation involved in weighing up the risk of penalty against the profits to be made from contravention. The primary judge did not engage in a surgical exercise calculated to deprive Optus of the profits referable to the increase in business generated by the campaign. It cannot seriously be suggested that [his] Honour was concerned to engage in an exercise in “profit stripping”. To so describe his Honour’s approach is to distract from the legitimate claims of deterrence in a case like the present.

[64]    In the present case the sheer magnitude of the advertising campaign, and its likely effect in the market, mean that a penalty which did not substantially affect the profitability of Optus’s campaign could not reasonably be countenanced.

[emphasis added]

68    Apart from these statements of principle, it should be noted that the Full Court found that Optus could not be regarded as a “first offender” and, in that context, their Honours observed that the Court was required to “fashion a penalty which makes it clear to Optus, and to the market, that the cost of courting a risk of contravention of the Act cannot be regarded as [an] acceptable cost of doing business”: Singtel Optus v ACCC, the Court, at [68].

69    Australian Competition and Consumer Commission v Roche Vitamins Australia Pty Ltd [2001] ATPR 41-809 (“ACCC v Roche”) was a case that concerned contraventions of per se provisions of s 45(2) of the Act read together with s 4D (exclusionary provisions) and s 45A (arrangements, put simply, in relation to prices by participants in competition with each other) in relation to market-sharing arrangements in the supply of particular animal vitamins. In determining the penalty for these admitted contraventions, Lindgren J regarded these questions as relevant to the exercise of the discretion: first, by “how much was each respondent better off as a result of its contraventions [than it would have been had the contraventions not occurred]?”; second, “what was the additional amount the market paid to each respondent as a result of its contraventions [than the market would have paid had the contraventions not occurred]?” The first question goes to “benefit” and the second goes to “market harm”. Lindgren J at [34] accepted, in the circumstances of the case before him, the difficulty in isolating data which would provide properly focused answers to the two questions. Lindgren J also accepted at [42] the “thrust” of the orthodoxy reflected in the authorities discussed at [71] of these reasons to this general effect. Where information is unavailable or, alternatively, unable to be calculated so as to precisely answer the two questions of “but for” benefit and market harm, the authorities reflect other approaches to reliance upon financial data as relevant to penalty.

70    Some examples of those various approaches are these.

71    In Australian Competition and Consumer Commission v Pioneer Concrete (Qld) Pty Limited [1996] ATPR 41-457, the Court imposed significant penalties where the only material put to the Court (on these financial issues) consisted of the value of sales of pre-mix concrete the subject of the collusive arrangements. In Australian Competition and Consumer Commission v Tyco Australia Pty Ltd [2000] ATPR 41-740, the Court imposed penalties upon the corporations in question of $3.3 million and $1.4 million (as recommended by the parties) in circumstances where the Court noted that no attempt had been made to give any estimate of the order of magnitude of the losses imposed on consumers by the anti-competitive arrangements (see p 40,573). In Australian Competition and Consumer Commission v Foamlite (Australia) Pty Ltd [1998] ATPR 41-615, the Court found that the loss or damage caused to customers could not be precisely determined and assessed the deterrent effect of the penalties (suggested by the parties) of $1.2 million and $600,000 by comparing the proposed penalties with post-tax profits of the corporations. In Australian Competition and Consumer Commission v Tubemakers of Australia Ltd [2000] ATPR 41-745, the Court considered the overall size of the relevant market measured in dollar terms and sales by the corporate respondents of the relevant product in assessing and approving the recommended penalties of $1.2 million and $550,000. In TPC v TNT and Trade Practices Commission v Hymix Industries [1995] ATPR 41-369 and the penalty decision reported at [1996] ATPR 41-465, the Court imposed penalties without making any estimate of the profits made or losses sustained as a result of the contraventions. In Australian Competition and Consumer Commission v NW Frozen Foods [1996] ATPR 41-515 (the primary decision), the Court observed that in view of the period of conduct in question in that case it was not possible to determine what the price would have been but for the price fixing agreements in question (p 42,442). The Court did have regard to invoices which suggested prices, when discounting had been occurring, which were significantly lower than prices as a result of the price fixing agreements: these matters were not questions alive before the Full Court in the NW Frozen Foods decision. In Trade Practices Commission v Simsmetal [1996] ATPR 41-449, the Court was satisfied that the agreed penalties proposed by the parties had a sufficient deterrent effect to counter-balance the profit apparently derived from the contravening conduct (p 41,512) although it is not clear whether any specific “profit calculations” entered into evidence.

72    In other cases, however, it may be possible to identify the profits made by the contravener or the loss occasioned as a result of the contraventions or both for the purpose of determining an appropriate penalty.

73    In Secretary, Department of Health and Ageing v Export Corporation (Australia) Pty Ltd (2012) 288 ALR 702 at [62], Perram J in taking into account “factor (k)”, namely, the “financial position of the contravener, including any benefits derived” (see [49] of these reasons), observed, based on the agreed facts put before him, that in the period January 2007 to May 2008 the goods the subject of the proceedings (80 separate acts of importation during the period comprising a total of 35 separate therapeutic goods in the course of 19 shipments) constituted 15% of the respondent’s total imports and 14% of total supplies by it. His Honour observed that this conduct resulted in net earnings of $694,539 and he inferred, from those figures, that the respondent’s total net earnings for the 17 month period of the contravening conduct was approximately $5 million ($4,960,992). His Honour took into account the relativity between net earnings derived from the conduct and total net earnings in the period of the conduct.

74    The Full Court in Singtel Optus v ACCC, in making the quoted observations at [61] to [64] (at [67] of these reasons), made reference to the term “punishment”. In NW Frozen Foods at 296 and 297, Burchett and Kiefel JJ observe that “penalties imposed by s 76 are, as we have said, not criminal sanctions, and their purpose, established now by a long line of cases, is not punishment”. However, French CJ, Crennan, Bell and Keane JJ in ACCC v TPG Internet had regard to the observations of the Full Court in Singtel Optus v ACCC; approved aspects of the observations of the Full Court; and did not express any disapproval of references to the term “punishment” in the Full Court’s reasons. In Australian Competition and Consumer Commission v Ithaca Ice Works Pty Ltd [2002] ATPR 41-851 at 44,543; [2001] FCA 1716, the Full Court, in imposing penalties under s 76 said this:

… we see little or indeed no difference between taking into account, in computing the penalty, the deliberate nature of the conduct in question (a matter the relevance of which is not in dispute) and taking into account the fact that the penalty should act as a punishment of the offender.

75    It may be that in Fair Work at [56], the plurality regarded the notion of punishment as something adapted to a criminal prosecution rather than a notion inherent in the exercise of the discretion in a civil penalty proceeding in determining an “appropriate” penalty. In Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 3) (2005) 215 ALR 301 (“ACCC v Leahy”), Goldberg J, although noting at [38] the observations of the Full Court in NW Frozen Foods and the contrary proposition in Ithaca Ice Works, seems to have exercised the s 76 discretion in respect of contraventions of s 45(2)(a)(ii) and (b)(ii) by reference to specific and general deterrence: [39]. The Full Court in J McPhee v ACCC found it unnecessary to decide whether punishment is a relevant factor to be taken into account in the exercise of the discretion under s 76 of the Act: the Court, [170].

76    I propose to exercise the discretion under s 76 having regard to all of the identified relevant matters except that I place no emphasis on the notion of “punishment” as that term is regarded in the context of a criminal prosecution. This may ultimately be a distinction without a difference in this case because the references by the Full Court to the term “punishment” in Singtel Optus v ACCC seem to me to have been used taxonomically in the sense of imposing the burden of an order for the payment of a pecuniary penalty in the exercise of the statutory discretion upon the relevant contravener having regard to all relevant matters rather than as a term properly descriptive of punishing a person as if convicted of a criminal offence. I infer that the plurality in ACCC v TPG Internet understood the references to punishment in the Full Court’s reasons (which the plurality expressly considered) as a taxonomic reference in the sense I have just described.

77    In Markarian v The Queen (2005) 228 CLR 357, an accused person pleaded guilty to a charge under the Drug Misuse and Trafficking Act 1985 (NSW) of knowingly taking part in the supply of a commercial quantity of heroin. The accused was sentenced to imprisonment for two years and six months with a non-parole period of 15 months. The sentence took into account the commission of four other drug offences admitted by the accused. The contextual facts were that the accused, a heroin addict at the time of the conduct, had acted as a driver for a heroin dealer and had been paid for his services in heroin. The maximum period of imprisonment for the offence was 20 years. A Crown appeal to the Court of Criminal Appeal was allowed and a term of imprisonment of eight years with a non-parole period of four years and six months imposed. In imposing that sentence, the Court had adopted as a “starting point” the maximum period of imprisonment applicable to a less serious drug offence and then made “proportional deductions” and “increases” from that starting point so as to reflect matters specifically relevant to the circumstances of the accused.

78    The determination of a sentence is, like the exercise of the discretion under s 76, a discretionary judgment: Markarian v The Queen at [25], Gleeson CJ, Gummow, Hayne and Callinan JJ. At [27], the plurality observe that apart from express legislative provisions, principle does not dictate the particular path that a sentencer must follow in reasoning to the conclusion reached that the sentence to be imposed should be fixed as it is when passing sentence (in cases where the penalty is not fixed by statute).

79    At [27], the true principle is put this way:

The judgment is a discretionary judgment and, as the bases for appellate review reveal, what is required is that the sentencer must take into account all relevant considerations (and only relevant considerations) in forming the conclusion reached. As has now been pointed out more than once, there is no single correct sentence. And judges at first instance are to be allowed as much flexibility in sentencing as is consonant with consistency of approach and as accords with the statutory regime that applies.

[emphasis added]

[citations removed]

80    At [30], the plurality observe that legislatures do not enact maximum available sentences as “mere formalities” particularly as judges “need sentencing yardsticks”. The plurality observe that it is “well accepted that the maximum sentence available may in some cases be a matter of great relevance”.

81    At [31], the plurality observe:

It follows that careful attention to maximum penalties will almost always be required, first because the legislature has legislated for them; secondly, because they invite comparison between the worst possible case and the case before the court at the time; and thirdly, because in that regard they do provide, taken and balanced with all of the other relevant factors, a yardstick. That having been said, in our opinion, it will rarely be, and was not appropriate for Hulme J here to look first to a maximum penalty, and to proceed by making a proportional deduction from it. That was to use a prescribed maximum erroneously, as neither a yardstick, nor as a basis for comparison of this case with the worst possible case.

[emphasis added]

[citations removed]

82    At [32], the plurality observe that the primary judge having started where he did, at a maximum, and then making deductions from it, failed to make an assessment of the sentence called for by the “objective facts”.

83    In Markarian v The Queen, the High Court was invited to reject sequential or two-tiered approaches to sentencing taking as a starting point the maximum penalty available, in favour of a process of “instinctive synthesis”. However, the plurality observe that no universal rules can be stated in those terms as much turns upon what exactly is meant by a sequential or two-tiered approach to determining penalty. Similarly, the process of instinctive synthesis might be wrongly understood as enabling a sentencer to pass sentence without giving exposed reasons for the sentence.

84    At [37], the plurality observe that a sentencing Court will, after weighing all the relevant factors, reach a conclusion that a particular penalty is one that should be imposed. In doing so, adopting, as a method, a mathematical approach to sentencing in which there are to be “increments to” or “decrements from” a predetermined range of sentences (that is to say, a “two-stage approach” to sentencing), is both wrong in principle and apt to give rise to error and should not be adopted.

85    In this respect, the plurality adopted the observations of Gaudron, Gummow and Hayne JJ in Wong v The Queen (2001) 207 CLR 584 at 611-612, [74]-[76]. As to the notion of “instinctive synthesis”, the plurality, again adopting the observations of Gaudron, Gummow and Hayne JJ in Wong v The Queen at [75], observe that the task of the sentencing judge is to “take account of all of the relevant factors and to arrive at a single result which takes due account of them all” [emphasis added] and that this is “what is meant by saying that the task is to arrive at an ‘instinctive synthesis’”. The expression is not used to “cloak the task of the sentencer in some mystery” but is intended to reflect an obligation to balance “many different and conflicting features”.

86    Thus, the process of “instinctive synthesis” requires all of the factors to be balanced in a way which reflects an application of the “rules of reason” (rationality) taking into account all relevant matters, excluding extraneous or irrelevant matters and accurately having regard to the objective facts, all brought together in exposed reasons for the exercise of the discretion in the particular way, serving the public interest in transparency.

87    “Instinctive synthesis” certainly does not mean “informed gut reaction”. Nor, in truth, is it a result based on “instinct” but rather, it is a synthesis of all of the factors mentioned at [85] of these reasons. The term is probably better understood by reference to the substitutable taxonomy of “intuitive synthesis”: Fair Work, the plurality at [56].

88    In determining the amount of a pecuniary penalty, having regard to all of these considerations, it nevertheless remains important to recognise that “insistence upon the deterrent quality of a penalty should be balanced by insistence that it ‘not be so high as to be oppressive’”: NW Frozen Foods, Burchett and Kiefel JJ at 293 F-G, adopting the observations of Smithers J at 17,896 in Stihl Chain Saws.

89    It should also be recognised that a penalty that “would deter a small company might have little effect on a very large one”, for the obvious reason: TPC v TNT at 40,168, Burchett J; see also TPC v CSR at 52,154, French J; ACCC v Leahy (No 3) (2005) 215 ALR 30 at [39], Goldberg J; Luke, Ch 21, Verses 1-4, Authorised King James Version.

90    A further important consideration is the following matter.

91    In the exercise of the s 76 discretion “all relevant matters” must be considered and although the circumstances of every case will inevitably vary and the facts relevant to the contravening conduct will be different in each case and so too will the facts relevant to the 12 factors informing the exercise of the discretion, it nevertheless follows that to the extent that conduct in one case exhibits, in a broad sense, essential similarities with conduct in other cases which have attracted a particular pecuniary penalty, “similar penalties should be incurred”. That follows because “a hallmark of justice is equality before the law, and, other things being equal, corporations guilty of similar contraventions should incur similar penalties”: NW Frozen Foods at 295A-B, Burchett and Kiefel JJ adopting the observations in Trade Practices Commission v Axive Pty Ltd [1994] ATPR 41-368 at 42,795.

92    However, the fact-intensive inquiry inherent in the determination of whether conduct contravenes the Act and the fact-intensive inquiry going to each element of the factors informing the exercise of the discretion means that “other things” are “rarely equal” (Burchett and Kiefel JJ in NW Frozen Foods at 295B-C) where contraventions of the Trade Practices Act are concerned.

93    In NW Frozen Foods, Burchett and Kiefel JJ observe at 295B-C:

In the present case, differing circumstances, size, market power and responsibility for the contraventions as well as other factors, complicate any attempt to compare the penalties imposed on the appellant with those imposed on the other corporations.

94    Other considerations concern the application of the “totality principle” and the anterior question of the “one transaction” or “single course of conduct” principle, discussed as follows.

The single course of conduct principle and the totality principle

95    In Pearce v The Queen (1998) 194 CLR 610, the appellant was indicted on 10 counts. Counts 9 and 10 indicted him with maliciously inflicting grievous bodily harm with intent to do the victim grievous bodily harm; and breaking and entering the victim’s dwelling-house and while in the dwelling-house inflicting grievous bodily harm upon him. Section 33 of the Crimes Act 1900 (NSW) was concerned with malicious infliction of grievous bodily harm (count 9) and s 110 was concerned with breaking and entering a dwelling-house and assaulting a person with intent to inflict grievous bodily harm (count 10). On counts 9 and 10 he was sentenced to 12 years’ incarceration (less time served) made up of eight years (less time served) and an additional four years. The sentences on counts 9 and 10 were ordered to be served concurrently with each other, and cumulatively with a sentence in respect of another offence.

96    Plainly enough, each of the offences against ss 33 and 110 contained an element that the other did not. Neither offence was wholly included in the other.

97    As to the challenge on the ground of double prosecution (that is, conviction of different offences in respect of substantially the same set of facts), McHugh, Hayne and Callinan JJ said this at 623 [40]:

To the extent to which two offences of which an offender stands convicted contain common elements, it would be wrong to punish that offender twice for the commission of the elements that are common. No doubt that general principle must yield to any contrary legislative intention, but the punishment to be exacted should reflect what an offender has done; it should not be affected by the way in which the boundaries of particular offenses are drawn. Often those boundaries will be drawn in a way that means that offenses overlap. To punish an offender twice if conduct falls in that area of overlap would be to punish offenders according to the accidents of legislative history, rather than according to their just desserts.

[emphasis added]

98    In Johnson v R (2004) 205 ALR 346, the appellant was convicted of two offences. The first count was that on or about 2 November 2000 he attempted to obtain possession of prohibited imports (ecstasy) to which s 233B of the Customs Act 1901 (Cth) applied. The second count was that on or about 2 November 2000, he attempted to obtain possession of prohibited imports (cocaine) to which s 233B applied. The two offences (to which the appellant pleaded guilty) arose from the one transaction. The primary judge regarded a sentence of 10 years on count 1 as appropriate and five years on count 2 as appropriate with the sentences to be served cumulatively. The primary judge reduced the sentences to take account of the totality principle and other particular statutory factors. The ultimate sentence was one of eight years on count 1 and three and a half years on count 2, to be served cumulatively.

99    At [3] of the High Court’s reasons, Gleeson CJ observed that the ultimate question in the appeal was whether there was adequate consideration of the merits of the appellant’s contention that the sentences imposed paid insufficient regard to the common elements of the two offences. At [4], Gleeson CJ endorses the following observations of Wells J in Attorney-General v Tichy (1982) 30 SASR 84 at 92-93:

… what is fitting is that a convicted prisoner should be sentenced, not simply and indiscriminately for every act that can be singled out and brought within the compass of a technically identifiable conviction, but for what, viewing the circumstances broadly and reasonably, can be characterised as his [or her] criminal conduct. Sometimes, a single act of criminal conduct will comprise two or more technically identified crimes. Sometimes, two or more technically identified crimes will comprise two or more courses of criminal conduct that, reasonably characterised, are really separate invasions of the community’s right to peace and order, notwithstanding that they are historically interdependent; the courses of criminal conduct may coincide with the technical offences or they may not. Sometimes, the process of characterisation rests upon an analysis of fact and degree leading to two possible answers, each of which, in the hands of the trial judge, could be made to work justice. … Where there are truly two or more incursions into criminal conduct, consecutive sentences will generally be appropriate. Where, whatever the number of technically identifiable offences committed, the prisoner was truly engaged upon one multi-faceted course of criminal conduct, the judge is likely to find concurrent sentences just and convenient.

[emphasis added]

100    At [5], Gleeson CJ also said this:

Ultimately, justice requires due consideration of whether, and to what extent, the appellant “was truly engaged upon one multi-faceted course of criminal conduct”, and whether the sentences imposed properly reflected the outcome of that consideration.

101    Thus it follows that “double punishment” of an offender should be avoided for the “commission of multiple offences which contain common elements”: Registrar v Matcham (No 2) at 436 [196], Jacobson J.

102    Gleeson CJ otherwise agreed with Gummow, Callinan and Heydon JJ (see [18]–[35] as to these questions) that the appeal should be allowed. The notion of “one multi-faceted course of conduct” was considered by Stone and Buchanan JJ in Mornington at 397 [41] (see generally [41] to [58]) adopting the observations of Gleeson CJ in Johnson v R, at [3]-[5].

103    In Mornington, the appellant admitted contraventions of s 400(5) (a prohibition upon a person applying duress in connection with a relevant agreement) and s 792 (a prohibition upon an employer threatening a person with particular classes of conduct, put simply, for a prohibited reason) of the Workplace Relations Act 1996 (Cth) based upon an agreed statement of facts. The appellant had breached s 400(5) of that Act in relation to B, H, T and L and had breached s 792 of that Act in relation to those four employees and also D. In the case of T only, six contraventions of each section were alleged. Those contraventions concerned events occurring on a number of occasions (six separate days in the period between 10 July 2006 and 25 July 2006) whereas in the case of B, H and L, the offences were concerned with the conduct of the appellant’s employee, Mr Barry, on one occasion only with respect to each employee. All breaches occurred in July 2006. Thus there were 19 offences charged: one each concerning B, H and L under s 400(5); one each concerning B, H and L under s 792; six concerning T under s 400(5) and six concerning T under s 792; and one concerning D under s 792. In the result, although declarations were made as to 19 offences, penalties were only imposed in respect of the breaches of s 400(5) (B, H and L); six offences concerning T; and a penalty in respect of the s 792 breach concerning D. There were 10 penalties imposed each of $17,000 constituting $170,000 in all. This resulted from agreement between the parties to the proceeding.

104    Although the foundation facts were agreed and ultimately the penalties in respect of the 10 contraventions were agreed, the appellant contended on appeal that the primary judge had fallen into appellable error by failing to treat the admitted offences concerning T as one course of conduct and instead treated the admitted offences as six separate contraventions justifying a separate penalty.

105    In the context reflected at [95] and [99] of these reasons, Stone and Buchanan JJ expressed three important observations.

106    First, as already mentioned, adopting the observations of Gleeson CJ in Johnson v R, where there is one multi-faceted course of conduct (in that case a contended course of applying duress to T to bring about the signing of an AWA) concurrent sentences are likely to be “just and convenient”.

107    Second, the consideration of whether the factual matrix gives rise to a properly characterised multi-faceted course of conduct is a consideration separate from and anterior to the application of the totality principle.

108    Third, even though it was open to the primary judge to have treated the events as involving, in substance, a single course of conduct so far as they involved T, the primary judge was nevertheless not bound to do so as there were other factors that suggested that the contraventions should be treated separately and as equally serious (for all the reasons set out at [58] and following in the reasons of Stone and Buchanan JJ, and particularly [68]).

109    The importance of the distinction between the totality principle and the anterior application of the course of conduct principle is mentioned in these terms by Stone and Buchanan JJ at [46]:

The distinction is an important one to make in the present case because of the possibility that confusion arose concerning whether the six separate offences admitted in relation to [T] should be treated as overlapping offences in the first instance or whether any consequence of the fact that they might be treated as separate contraventions should await the application of the totality principle at the end of the case.

[emphasis added]

110    In Royer v Western Australia (2009) 197 A Crim R 319 (“Royer v WA”), Owen JA said this at [21]:

… there is universal recognition in the authorities on two points. First, the “rule” is not a rule at all. It is one of many sentencing principles the object of which is to guide a judicial offer in the proper exercise of the sentencing discretion. Secondly, even if offences are properly to be characterised as arising from the one transaction, a judge is not obliged to apply concurrent terms if to do so would result in an effective term that fails to reflect the degree of criminality involved.

[emphasis added]

111    At [22], Owen JA also said this:

At its heart, the one transaction principle [one course of conduct principle] recognises that, where there is an interrelationship between the legal and factual elements of two or more offences with which an offender has been charged, care needs to be taken so that the offender is not punished twice (or more often) for what is essentially the same criminality. The interrelationship may be legal, in the sense that it arises from the elements of the crimes. It may also be factual, because of a temporal or geographical link or the presence of other circumstances compelling the conclusion that the crimes arise out of substantially the same act, omission or occurrences.

[emphasis added]

112    Owen JA also observed at [24] that due to the wide variety of circumstances in which the principle can arise, it is not always easy to reconcile the way it has been applied in individual cases although what can be detected in each case is an examination of the closeness of the interrelationship and the danger of double jeopardy in so far as punishment (rather than criminal liability) is concerned.

113    At [28], Owen JA makes the general observation adopted in the observations of McHugh J in AB v The Queen (1999) 198 CLR 111 at [14] and [15] that one objective of sentencing is to impose a sentence on an individual offender that reflects “adequate punishment” for the culpability of the convicted person having regard to the community’s view concerning the need for “retribution, denunciation, deterrence, community protection and sometimes vindication”. As the plurality in Fair Work observe, Old Testament retribution is not one of the purposes inherent in a civil penalty proceeding or civil penalty regimes generally. Rather, the purpose of those regimes is essentially deterrence and therefore protection of the public interest in compliance with the law: Fair Work [55] and [59] (see [29] of these reasons). The observations of the plurality in Fair Work, in particular at [55] adopting the observations of French J in TPC v CSR seem to make clear that at least in the context of the BCII Act (and the Trade Practices Act as a directly relevant analogue of the BCII Act civil penalty regime), there is no purposive role to play in the exercise of the discretion of notions of retribution, rehabilitation or compensation. Nor is specific deterrence, in the exercise of the s 76 discretion, an element or subset of “rehabilitation”. The relevance and consideration of the adoption of compliance programs deployed to infuse a corporation and its decision-makers and staff with a culture of compliance with the law is an entirely separate consideration from rehabilitation. Even though the specific observations of Owen JA at [30], mentioned shortly, are predicated upon the general considerations reflected at [28], there adopting the observations of McHugh J, it seems to me that Owen JA’s observations at [30], set out below, nevertheless hold good for civil penalty regimes:

Against that general background [the observations at [28]] how is the one transaction principle to be understood and applied? Save for the instances in which the interrelationship between multiple offences is so close that injustice can only be avoided by concurrency of terms, the answer will usually emerge from considerations of proportionality to or with the criminality of the offender’s conduct viewed in its entirety. Looked at in this way, the one transaction principle and the totality principle are closely connected. A sentencing judge is obliged to impose an effective term that she or he judges to be appropriate for the overall criminality of the offender’s conduct. Even where, on a strict and literal understanding of the one transaction principle, it might be said that the concurrency of the terms can be justified, the need for proportionality might demand cumulative or partly cumulative terms.

[emphasis added]

114    See also Construction, Forestry, Mining and Energy Union v Williams (2009) 262 ALR 417 (“CFMEU v Williams”), Moore, Middleton and Gordon JJ at [14]-[33] and CFMEU v Cahill, Middleton and Gordon JJ at [28]-[42].

115    In CFMEU v Williams, the primary judge had concluded that “no single course of conduct” arose in respect of two offences under s 43 of the BCII Act in respect of contravening coercive conduct of, first, procuring a stoppage of work by statements made at a worksite meeting, and second, threatening to procure a stoppage of work the following day, by statements made when leaving the meeting. That followed, said the primary judge, because s 43 recognised “separate and qualitatively distinct” conduct of “procuring” a stoppage and “threatening” to procure a stoppage. The Full Court concluded that the primary judge fell into error by treating, as a “disentitling factor”, the circumstance that the conduct had two elements to it which s 43 of the BCII Act recognised as “separate”, when deciding whether the two offences were properly to be characterised as arising from the one transaction or a single course of conduct: Moore, Middleton and Gordon JJ at [24]-[26]; see also CFMEU v Cahill, Middleton and Gordon JJ at [40], expounding upon CFMEU v Williams.

116    That followed for the Full Court because the true principle deriving from Johnson v R and Royer v WA (Owen JA) is that where there is an “interrelationship” (thus recognising that precise symmetry is not required) between the “legal and factual” elements of two or more offences for which “an offender” has been charged, the Court must ensure, by means of a “factually specific enquiry” that the offender is not punished twice for the same conduct, or put another way, punished twice for the “same criminality”: CFMEU v Cahill, Middleton and Gordon JJ at [39] and [41].

117    Once that principle is engaged, the Court “may” have regard to it as “one of the applicable sentencing principles” as a “tool of analysis” although the Court is “not compelled” to utilise it because discretionary judgments require the “weighing of elements” (see [85] of these reasons) and not the “formulation of adjustable rules or benchmarks”: CFMEU v Cahill, Middleton and Gordon JJ at [41] and [42]; Royer v WA, Owen JA at [28].

118    In CFMEU v Williams, the Full Court accepted, adopting at [20] the observations of Buchanan J at [91] in the Full Court in Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith (2008) 165 FCR 560 that the task confronting the Court is to fix a penalty which pays appropriate regard to the circumstances in which the contraventions occurred and the need to sustain public confidence in the statutory regime which imposes the obligations. The Full Court in CFMEU v Williams accepted that the principles identified in Johnson v R and the observations of Owen JA in Attorney-General (SA) v Tichy adopted by Gleeson CJ in Johnson v R are applicable to the imposition of a pecuniary penalty although, of course, the manner in which the principles are applied will vary from case to case with the result that the Court “may lower individual fines or accumulate fines”. However, the “list is not exhaustive”: CFMEU v Williams [29] and [30].

119    In ACCC v Rural Press, Mansfield J observed at [19] that the conduct of the respondents involved two contraventions of s 45 of the Act, namely, the making of an arrangement and separately carrying it into effect. As to those matters, his Honour observed that in a “practical sense” the conduct that constituted the making of the arrangement was “part and parcel” of the conduct that constituted carrying it into effect. The reference to “part and parcel” is a descriptive phrase used by Black CJ, Lee and Goldberg JJ in J McPhee v ACCC at [184]. It is another shorthand way of expressing the nature of the interrelationship which might then engage recourse to the single course of conduct principle in exercising the discretion under s 76. Mansfield J also considered that the conduct which constituted a contravention of s 46 in that case was closely allied to the s 45 conduct but nevertheless remained separate and “could be dealt with separately” although because the various forms of contravening conduct were “closely interconnected and all aimed at having a particular anti-competitive effect in [the relevant market]”, one penalty was imposed upon each respondent for the contraventions of the Act. Mansfield J considered that the level of penalty would not have been altered for that contravention whether the s 45 and s 46 contraventions were treated as part and parcel of the “one set of conduct” or whether they were “capable of being treated as separate contraventions”: [19].

120    In J McPhee v ACCC, the Full Court observes at [181] that the “case presented to [the primary judge]” did not distinguish the conduct of McPhee involving the formation of the proscribed arrangement or understanding from the conduct of McPhee said to constitute giving effect to the arrangement or understanding. The ACCC presented that case on the footing that the delivery of particular rates was an integral part of the conduct that constituted the contravention of s 45 in making, or arriving at, an understanding or arrangement. The ACCC contended that the same act was relied upon as the act constituting the further contravention of giving effect to the arrangement or understanding. The Full Court thus explained its conclusions in this way at [182] and [183]:

[182]    If the disclosure by McPhee to DFE of the rates charged by McPhee to ACI Florapak could be said to be an act giving effect to an arrangement or understanding already made or arrived at, it was not conduct distinguishable from the conduct of McPhee which constituted the making of such an arrangement or understanding. Pursuant to s 76(3) of the Act, if conduct constitutes a contravention of two or more provisions of Pt IV, a proceeding may be instituted in respect of each contravention but a person is not liable to more than one pecuniary penalty in respect of the same conduct. This was not a case involving repeated conduct concerning discrete events occurring at different times and involving disparate parties …

[183]    We therefore accept the submission that [the primary judge] erred in imposing separate penalties in respect of the ACI Florapak conduct. The conduct which constituted the second contravention was part and parcel of the conduct which constituted the first contravention and s 76(3) prescribed that only one penalty could be imposed.

[emphasis added]

121    Although it will be necessary to mention later in these reasons some aspects of the application of the totality principle, Wilson, Deane, Dawson, Toohey and Gaudron JJ described the principle in these terms in Mill v The Queen (1988) 166 CLR 59 at 62-63:

The totality principle is a recognised principle of sentencing formulated to assist a court when sentencing an offender for a number of offences. It is described succinctly in Thomas, Principles of Sentencing, 2nd Ed. (1979), pp. 56-57, as follows (omitting references):

“The effect of the totality principle is to require a sentencer who has passed a series of sentences, each properly calculated in relation to the offence for which it is imposed and each properly made consecutive in accordance with the principles governing consecutive sentences, to review the aggregate sentence and consider whether the aggregate is ‘just and appropriate’. The principle has been stated many times in various forms: ‘when a number of offences are being dealt with and specific punishments in respect of them are being tottered up to make a total, it is always necessary for the court to take a last look at the total just to see whether it looks wrong[’]; ‘when … cases of multiplicity of offences come before the court, the court must not content itself by doing the arithmetic and passing the sentence which the arithmetic produces. It must look at the totality of the criminal behaviour and ask itself what is the appropriate sentence for all the offences.’”

See also Ruby, Sentencing, 3rd Ed. (1987), pp. 38-41. Where the principle falls to be applied in relation to sentences of imprisonment imposed by a single sentencing court, an appropriate result may be achieved either by making sentences wholly or partially concurrent or by lowering the individual sentences below what would otherwise be appropriate in order to reflect the fact that a number of sentences are being imposed. Where practicable, the former is to be preferred.

[emphasis added]

PART 3: CONTEXTUAL BACKGROUND MATTERS RELATING TO THE CONTRAVENTIONS

122    The conduct events giving rise to the contraventions occurred in two separate periods. In the period prior to 31 May 2003, the ownership structure of the entities in the QCL chain of companies was this, put simply. QCL was an entity owned and controlled by a Swiss multinational corporation called “Holcim”. QCL held 100% of the issued shares in “Cementco” which in turn held 100% of the issued shares in Pozzolanic Holdings which held 100% of the issued shares in PIPL which, in turn, held 100% of the issued shares in Pozzolanic.

123    In the period prior to 31 May 2003, Australian Cement Holdings Pty Ltd (“ACH”) carried on business as a supplier of cement and related cementitious products to the concrete industry in Australia. The issued shares in ACH were held 50% by CSR and 50% by Hanson, commonly known in Australia as “Pioneer”. On 31 March 2003, CSR undertook a de-merger resulting in a transfer of CSR’s concrete and aggregate business together with its 50% interest in ACH to an entity called “Rinker”. ACH was, in effect, a joint venture between CSR and Hanson and then Rinker and Hanson. In the year ending 31 March 2003, ACH supplied 78.2% of its cementitious products to those two shareholders.

124    ACH held a 50% interest in a joint venture entity called “FAA”. The other 50% shareholder was “Boral”. FAA carried on the business of purchasing flyash from NSW coal-fired electricity generating plants which it sold to Boral and ACH, roughly equally, at cost plus a margin. FAA operated what Mr Maycock called a “pass-through” model which he described as a model based simply on payment of an “ex-bin” cost for the ash plus a handling margin. ACH produced cement and, through FAA, secured a supply of flyash, both substitutes in the manufacture of concrete.

125    QCL was not an integrated cement and concrete company enjoying guaranteed access to shareholder buyers of cement or flyash or both. Nevertheless, the majority of its sales were made to Boral, Hanson and Rinker. Negotiating price, discounts and other terms of trade with these buyers was akin to an “arm-wrestle” according to Mr Maycock.

126    On 31 May 2003, Hanson and Rinker merged their ACH interests with Holcim. ACH acquired the issued shares in QCL thus creating the new Cement Australia “Corporate Group”. ACH was re-named Cement Australia Holdings Pty Ltd (“CA Holdings”) which became the holding company for the group of companies formerly controlled by QCL and ultimately Holcim. The post-merger structure consisted of a chain of wholly owned companies as follows, starting at the base:

Pozzolanic → PIPL → Pozzolanic Holdings → Cementco → CAQ/QCL → CA Holdings →

(Holcim (50%); Hanson (25%); Rinker (25%))

127    FAA became 50% owned by CA Holdings, in effect, (Holcim, Hanson and Rinker) and 50% owned by Boral (through “BCSC”) from 31 May 2003. As to the nature and scope of FAA’s activities and the role played by Mr Shaun Clarke in it, see [835] to [881] of the principal liability judgment.

128    The new Corporate Group retained ownership of QCL’s and ACH’s manufacturing assets and assumed responsibility for manufacturing cementitious products. A partnership was also established in the same ownership ratio between Holcim, Hanson and Rinker to conduct the business of logistics, distribution, sales and marketing. A new company, Cement Australia Pty Ltd (“Cement Australia”), was incorporated with the shares held in the same ownership ratio by Holcim, Rinker and Hanson. The partnership was responsible for distribution, marketing and sale of cementitious products and Cement Australia was appointed as the agent of the partnership and the manager of the new corporate group of companies.

129    On 31 May 2003, CA Holdings and Cement Australia as agent for the partnership entered into a cementitious products acquisition agreement by which CA Holdings for the Corporate Group acted as seller (the “seller group”) and Cement Australia acted as the agent of the partnership as buyer of all cementitious products produced by the seller group including cement, flyash and slag.

130    As to decision-making within the QCL Group up to 31 May 2003, the findings were these.

131    Between 22 February 2002 and 19 April 2003, Mr Philippe Arto was a Director of QCL, Pozzolanic and PIPL. Between February 2002 and March 2003, Mr Arto was the Managing Director of QCL and thus the bridge between the Board and the Executive Management Group of QCL. Prior to his appointment, Mr Arto had discharged a number of senior roles within the Holcim group of companies. Mr Arto reported to Mr Jerry Maycock, the Chairman of the QCL Board. Mr Maycock also held the position at that time of Area Manager for Australia and New Zealand for the Holcim group. During Mr Arto’s period as Managing Director of QCL, Mr Ridoutt was the General Manager of Sales and Distribution for QCL. Mr Wilson was the Manager of Pozzolanic and he reported to Mr Ridoutt.

132    As to decision-making, Mr Arto gave evidence that because Pozzolanic was 100% owned by QCL, Mr Maycock and Mr Arto as Directors, and Mr Schodel as Secretary, sat on the Boards of QCL and Pozzolanic. The directors held the Pozzolanic Board meeting first in time so as to address aspects of the flyash business and then report to the QCL Board on the main component of the strategy to be adopted or, for example, in making requests of the QCL Board for approval of capital expenditure. The QCL Board had to approve capital expenditure items. Mr Arto also gave evidence that, for his part, Pozzolanic was a 100% owned subsidiary and was “fully managed in an integrated way with QCL, so I did not make any significant difference between the two legal entities as far as I was concerned”: see [307] to [312] of the principal liability judgment.

133    In 1998, Mr Maycock ceased acting as CEO of QCL and became Area Manager and Senior Vice-President of Holcim. He was appointed Non-Executive Chairman of QCL and continued in that role until the merger with ACH on 31 May 2003 when he became the Non-Executive Chairman of the Cement Australia Group. Mr Townsend became the CEO of QCL when Mr Maycock left that position. In February 2002, Mr Arto replaced Mr Townsend. On 1 June 2003, Mr Leon was appointed CEO of Cement Australia.

134    At [320] of the principal liability judgment, I note Mr Maycock’s evidence that to the extent that QCL conducted activities through separate legal entities like Pozzolanic for various reasons, the Board meetings for the relevant subsidiaries would be conducted at the same time as the QCL Board meeting. Mr Maycock said that the directors “just actually ran one meeting, and then we worked our way through the agenda and through the board report”. He said that “then the company secretary, at the end of the meeting, would write separate minutes for the legal entities, you know, as required, on a sort of – well, he would just … notionally allocate the time that we had spent overall and he would allocate it to the various meetings”: see [320]. Mr Maycock also said that a similar practice was adopted after the merger although things may have changed a little as companies like Pozzolanic may have just become, in effect, an organ of management: see [321]. At [322], I accepted the evidence of Mr Arto and Mr Maycock concerning the decision-making processes they had described both before and after the merger, respectively.

135    Prior to the merger, the treasury company for the QCL group of companies was QCL. The particular mechanism by which that was done is described at [296]. It is not necessary to describe that mechanism here. However, after the merger, the treasury company continued to be CAQ (QCL re-named).

136    At [301] to [304], I describe the decision-making and governance practices concerning the merged group. Just as QCL had operated, in terms of Board meetings for QCL group entities with simultaneous Board meetings, Mr Blackford gave evidence that Board meetings for the new Corporate Group were held “simultaneously” (Cement Australia Group entities and the partnership Management Committee). Mr Blackford gave evidence that while there was no requirement for the directors on each Board of the entities within the Corporate Group, Cement Australia and the Management Committee of the partnership to be common directors, “in practice they always have been”. At [302], I found, accepting the evidence of Mr Blackford, that: “The attendees at these simultaneous meetings of the Boards of the Corporate Group, Cement Australia and the Management Committee of the partnership include the directors of Cement Australia, all alternate directors of Cement Australia, the Chief Executive Officer, the Chief Financial Officer, the company Secretary and other members of the Executive as and when required”: see [302] and [303].

PART 4: THE CONTRAVENTIONS

The Original Millmerran Contract

137    At [2998] to [3016] of the principal liability judgment, the organising principles in relation to s 45 of the Act are set out. At [3020], the relevant provisions of the “Ash Purchase Agreement” of 30 September 2002 between Pozzolanic as buyer, PIPL as guarantor and eight entities comprising Millmerran Power Partners (“MPP”) as seller (otherwise called the “Original Millmerran Contract” or the “OMC”) are set out: see also [930].

138    For the purposes of these reasons, it is not necessary to set out each of the identified provisions recited at [3020].

139    In the principal proceedings, apart from the contentions concerning s 46 of the Act, the ACCC contended (apart from, put simply, the “effects” and “likely effects” cases) that the provisions of the OMC at [3020] were included for the substantial purpose of [3017]:

… first, preventing any other person from acquiring unprocessed flyash from the Millmerran Power Station, second, hindering or preventing any other person from supplying concrete grade flyash in the SEQ concrete grade flyash market, third, lessening, hindering or preventing competition in the SEQ unprocessed flyash market, and fourth, lessening, hindering or preventing competition in the SEQ concrete grade flyash market.

140    At [3021] to [3069] (and Pt 43), I examined how the provisions came to be included in the OMC; whether a substantial purpose of the provisions was to substantially lessen competition in the relevant markets; whose purpose it was if such a purpose subsisted; and when did the relevant provisions reach their final form.

141    As those paragraphs reveal, the non-conforming tender of September 2001 to MPP was signed by Mr Maycock as director and Mr Schodel as secretary. QCL, Pozzolanic and PIPL put Mr Wilson forward as the manager of the tender process and the contractor’s representative. Mr Ridoutt was an important person for QCL, Pozzolanic and PIPL in the process. Mr Hunt and Ms Knox were the important actors on the Millmerran side through the MPP operating entity “MOC”. Mr Cameron represented MPA Energy. I mention here the role of these individuals having regard to [3070] to [3078] of the principal liability judgment, mentioned below.

142    As to the conclusions on the question of the purpose of the identified Millmerran provisions, I made these observations and findings from [3070] to [3078] which, for ease of reference, are set out below:

3070    The objective or end QCL sought to achieve in its bid, through Pozzolanic, for the Millmerran Ash Purchase Contract at the outset of the non-conforming tender in September 2001 was to secure an exclusive supply agreement for the “sale of ash into the cementitious market” in SEQ. The commercial strategy of QCL and Pozzolanic’s approach to both the Millmerran and Tarong contracts (and Tarong North) was framed and executed by Mr Ridoutt and Mr Wilson, and put to the Directors. The strategy was discussed with Mr Arto as Director and CEO of QCL. Mr Ridoutt presented the strategy to the QCL Board Meetings. Mr Arto spoke of his dependency upon Mr Ridoutt and Mr Wilson.

3071    A substantial purpose of the framing of the final commercial bid to Millmerran was to prevent a rival from securing access to Millmerran unprocessed ash and to prevent threatened entry into the SEQ concrete grade flyash market for the supply of concrete grade flyash. These purposes, serving the end sought to be achieved by QCL and Pozzolanic through Mr Ridoutt, Mr Wilson and Mr Arto, were each a substantial subjective purpose of these individuals. These purposes were not the only purposes for the reasons already mentioned but they were each a substantial purpose. Mr Ridoutt and Mr Wilson persevered in their attempts to try and secure an exclusive arrangement in the lengthy negotiations with Millmerran over the contract terms, ultimately leading to cl 26.4 (not before giving rise to Ms Knox’s frustrations set out in her note of 20 June 2002). Pozzolanic and QCL were including entities and their authorised negotiators, Mr Ridoutt and Mr Wilson (with the authority and thus approval of Mr Arto) subjectively held each of the substantial purposes of preventing entry of a person into a supply relationship with MPP and thus entry into the unprocessed flyash market, and preventing entry of a person into the SEQ concrete grade flyash market, using processed Millmerran flyash.

3072    These specific purposes are the expression of a substantial subjective purpose of substantially lessening competition in each market as Mr Ridoutt, Mr Wilson and Mr Arto plainly believed that the face of future competition in each market, and particularly the SEQ concrete grade flyash market in which QCL was the seller supplier, would show contestability and rivalry in volume and price (and other aspects of the service offerings) should a competitor enter at Millmerran and enter the SEQ concrete grade flyash ash market through processed Millmerran ash. This entry would exhibit rivalrous responses and counter-responses that would likely see a volume, revenue and EBIT loss for Pozzolanic and QCL in the flyash business. The future face of competition in each market without entry of a rival at Millmerran would show diminished future (nascent) rivalry and thus impact upon the competitive process. Mr Maycock accepted that whatever shape rivalry might take, Pozzolanic and QCL would be unlikely to maintain their EBIT earnings in the flyash business once a rival entered the market for the sale of concrete grade flyash in the SEQ concrete grade flyash market having secured access to Millmerran ash for processing and supply.

3073    These ends or objectives were achieved through the vehicle of the purposes earlier described in respect of the provisions for which Pozzolanic and QCL were “including” parties. MOC accepted the provisions, no doubt because those provisions met the objectives and ends Millmerran sought to achieve of removing certain thresholds of waste ash from the site and securing an acceptable minimum revenue stream from the sale of ash. Whatever the ends, objectives or purposes of MOC may have been, the ends and objectives of Mr Ridoutt, Mr Wilson and Mr Arto were to secure the contract by adopting the final commercial minimum quantity take or pay term for at least a substantial subjective purpose (among the other purposes and reasons) of substantially lessening the competition QCL would face in the SEQ concrete grade flyash market and, in aid of that purpose, a purpose of preventing a potential rival from securing access to a source of likely contestable ash processed from Millmerran ash.

3074    Section 45 asks whether the identified particular provisions had the substantial purpose of substantially lessening competition and therefore the question is whether those substantial purposes were substantial purposes of the identified particular provisions upon which the Commission relies.

3075    Central to the contract are the commercial provisions concerning the minimum quantity of concrete grade flyash the seller must make available and allow Pozzolanic to take each Operating Year for seven years at 135,000 tonnes extracted, retrieved or processed from the volume of raw ash produced by the power station operations, at a price of $10.10 per tonne, according to the lump sum calculations and escalation provisions, of cls 5.1, 6.1, 6.2, 6.3, 7 and 10. These provisions were incorporated into the contract, at the adoption of Millmerran, by accepting the terms as put by Pozzolanic, but they were provisions initiated by Pozzolanic as the foundation commercial terms of the contract. Pozzolanic and QCL were including parties for these terms as was MOC for reasons entirely different to those actuating Pozzolanic and QCL. By these terms, Pozzolanic would have access to the necessary volume of raw ash at Millmerran to enable it to take either consistently each day, or each week, over each operating year, 135,000 tonnes of concrete grade flyash processed out of whatever volume of raw feedstock ash was required to obtain that volume, or take concrete grade flyash from the raw ash episodically throughout each operating year. In either case, the concrete grade flyash would be extracted from the required volume of raw ash through the buyer’s installed facilities.

3076    I am satisfied that a substantial purpose of the inclusion of these commercial terms as framed, in substance, by Pozzolanic and QCL was to substantially lessen competition in the markets as earlier described for the reasons earlier described, by seeking to exercise a substantial degree of control over a sufficient volume of raw unprocessed Millmerran flyash necessary to extract, over time, 135,000 tonnes of concrete grade flyash and foreclose or discourage sustainable new entrant participation at Millmerran.

3077    Plainly enough, however, Mr Ridoutt and Mr Wilson thought that it would also be necessary to secure an exclusive supply arrangement with MPP so as to prevent MOC and MPP from supplying any ash to anyone else for sale into the cementitious market. This conduct brought the integrity of the Pozzolanic negotiators into serious question according to the views expressed by Ms Knox. Pozzolanic’s position on this question led to all of the steps earlier described culminating in cl 26.4 in the way explained by Clayton Utz. Having regard to those exchanges, I am satisfied that at least a substantial purpose of the termination provision on 60 days notice to Millmerran after 31 December 2006 with the reduction in the annual minimum payment was to discourage Millmerran from entering into another supply contract for concrete grade flyash extracted or processed out of raw Millmerran ash during the currency of the Ash Purchase Agreement with Pozzolanic so as to constrain rivalry in the sale and supply of concrete grade flyash in the SEQ concrete grade flyash market. Clause 26.4 was included in the contract either by Mr Ridoutt and Mr Wilson, or as a consensual inclusion as a result of a mediation between both parties to the contract of what was then an impasse. Nevertheless, Mr Ridoutt and Mr Wilson were including decision-makers for Pozzolanic and their subjective purposes for the provision was at least a substantial purpose as described and thus a substantial purpose of substantially lessening competition in the way earlier described.

3078    Neither Mr Ridoutt nor Mr Wilson were called by Pozzolanic or QCL to give evidence, and to the extent that there is any ambiguity about their subjective purposes, I am willing a draw a Jones v Dunkel inference, in light of the exchanges I have described, that their evidence on purpose would not have been helpful to Pozzolanic or QCL.

143    The observations at [3070] to [3078] on this topic are important in the exercise of the discretion under s 76 of the Act. However, without distracting from the precise content of those paragraphs, I note for present purposes, the following matters.

144    First, from the very outset of the evolution of the relationship with MPP (the tender of September 2001), the objective QCL sought to achieve in striking a supply agreement with MPP was an exclusive supply agreement for the sale of ash into the cementitious market in SEQ. The commercial strategy of QCL and Pozzolanic (as the buyer and ash processing entity within the QCL group of companies (as to which see [26] of the principal liability judgment concerning the QCL group up to 30 May 2003), was framed and executed by Mr Ridoutt and Mr Wilson. It was put to Mr Arto as CEO and a director of QCL, and through him, the directors. Mr Ridoutt presented the strategy to the QCL Board meetings. It was discussed with Mr Arto and he lent his support, authority and gravitas to the proposals of Mr Ridoutt and Mr Wilson: as to some aspects of Mr Arto’s position and his engagement on these issues, see [1087] to [1097].

145    Mr Ridoutt and Mr Wilson were also influential in the formulation of the commercial strategy concerning the tender (and ultimate contract) for the ash supply arrangements with Tarong and Tarong North.

146    Although the question considered at [3070] to [3078] of the principal liability judgment concerning the OMC is whether the particular provisions (either individually or taken together) were included for any one or more of the contended substantial purposes thus giving rise to a contravention of s 45(2)(a)(ii), it remains contextually relevant to recognise, at least, by way of background, that to the extent that the relevant provisions were adopted for the purpose of substantially lessening competition in a relevant market, the provisions ultimately emerged out of an initial contextual commercial objective on the part of QCL and Pozzolanic to secure, if they could, a supply agreement under which MPP, through MOC, would exclusively supply Pozzolanic with ash and, in turn, QCL would not be confronted with a rival in the market for concrete grade flyash (“cgf”) produced from Millmerran unprocessed ash.

147    Second, although there were other broader commercial purposes, the subjective purposes of preventing entry of a person (a rival or putative rival) into a supply relationship with MPP and thus entry into the unprocessed flyash market; and preventing entry of a person (a rival or putative rival) into the SEQ cgf market, using Millmerran processed ash, were substantial purposes.

148    Nevertheless, it is, of course, important to remember that in exercising the discretion under s 76(1) of the Act, an appropriate pecuniary penalty is to be imposed in respect of the contravening conduct, not a commercial strategy that reached or might have reached beyond the limits of the contravening conduct, as found. As in all things, however, context matters.

149    Third, Mr Ridoutt, Mr Wilson and Mr Arto believed (that is, they held the opinion) that, looking to the future, should a person secure access to unprocessed ash at Millmerran and should such a person enter the SEQ cgf market in which QCL was a seller/supplier (and a company that enjoyed a very substantial share of that market - a virtual monopolist; or a company enjoying a state of “dominance” as Mr Arto described it), the future face of competition in both the market for unprocessed ash and the SEQ cgf market would exhibit contestability and rivalry in the volumes sold, the price of cgf and supply-side service offerings; and that such entry would produce rivalrous responses and counter-responses that would likely see a loss of volume, revenue and EBIT earnings (and thus a decline in the preferred earnings margin of 30%-33% Mr Arto regarded as key as to which see [2266]), for Pozzolanic, and therefore QCL.

150    Moreover, Mr Maycock, the non-executive Chairman of QCL from 1998 and, from that date, a Senior Vice-President of QCL’s ultimate owner, Holcim, accepted that whatever shape new entrant rivalry might take, Pozzolanic and QCL would be unlikely to maintain their EBIT earnings. See also [2408] to [2413].

151    In the principal liability judgment I found that the identified provisions had as their purpose, securing an objective of preventing third party putative new entrant access to each market.

152    At [3073], I found that Mr Wilson, Mr Ridoutt and Mr Arto adopted the final commercial minimum quantity take or pay term for at least a substantial subjective purpose (among other purposes) of substantially lessening the competition QCL would face in the SEQ cgf market and, in aid of that purpose, a purpose of preventing a potential rival from securing access to a source of likely contestable ash processed from Millmerran ash.

153    At [3076], I found that the identified provisions discussed at [3075] were included by Pozzolanic and QCL in the OMC for a substantial purpose of substantially lessening competition in the market for unprocessed ash and the SEQ cgf market, by adopting provisions that enabled Pozzolanic and QCL (by reason of the group company structures and decision-making processes within QCL) to exercise a substantial degree of control over a sufficient volume of raw unprocessed Millmerran flyash necessary to extract, over time, 135,000 tonnes of concrete grade ash and foreclose or discourage sustainable new entrant participation at Millmerran.

154    At [3077], I found that cl 26.4 was included in the OMC for the substantial purposes held by Mr Ridoutt and Mr Wilson as described in that paragraph.

155    I also noted at [3078] that neither Mr Ridoutt nor Mr Wilson was called by the respondents to give evidence and I found that their evidence, on this topic, would not have been helpful to Pozzolanic or QCL.

156    As to the effect or likely effect of the identified provisions at the time of making the OMC on 30 September 2002, see [3079] to [3088].

157    For ease of reference, those paragraphs are set out below:

3079    As to the effect or likely effect of the provisions substantially lessening competition at the date of making the contract containing the provisions, a question arises about the role in such an assessment of the factor that the Millmerran ash had not been produced at that date and was unknown as to its future quality. Would inclusion of the provisions have the effect of substantially lessening competition in a product when the market participants could not know the characteristics, features and qualities of the new ash until it entered the market, contested for supply and acceptance, and its substitutability became apparent? Would, viewed at the date of inclusion, the provisions be likely to substantially lessen competition in either market in a forward looking way by diminishing the future shape of the competitive process by constraining competitor entry of Millmerran ash when the future contestability of the ash could not be known until entry, contestability and substitutability were later determined?

3080    These questions were answered, in substance, for the assistance of the Court by the expert evidence of Professor Hay.

3081    Professor Hay accepted, as a matter of economics, that if a competitor won the contract at Millmerran, and Pozzolanic thought that at some time in the future the competitor would start supplying Millmerran concrete grade flyash into the concrete grade flyash market, that circumstance, “might produce a quite prompt price response on the part of Pozzolanic” (T, p 2559, lns 21-25) and that would particularly be “likely to be the case” if Pozzolanic’s prices, at the time the competitor wins the Millmerran contract, were “supra-competitive prices” (prices above prices which would prevail in a workably competitive market) (T, p 2559, lns 27, 28). Professor Hay also unsurprisingly accepted that if the source of a price constraint upon QCL or Pozzolanic was loss of the Millmerran contract to a competitor, that source of constraint would not operate if Pozzolanic won both the Tarong and Millmerran contracts (T, p 2559, lns 39-41). Professor Hay also observed that if a competitor won the contract at Millmerran, that circumstance would reduce the degree of Pozzolanic’s market share and therefore tend to reduce its degree of market power and would “likely” lead to the quite prompt price responses on the part of Pozzolanic earlier mentioned in Professor Hay’s evidence (T, p 2559, lns 43-47; p 2560, lns 1-7).

3082    This exchange then occurred in cross-examination with Professor Hay at T, p 2561:

Q    I had understood you to say that if a competitor won the Millmerran contract, that would have an effect on competition as soon as the contract was won. Is that right or not?

A    It might, yes, and that also depends upon the assumption that there was substantial market power at the time.

Q    I understand what you say. And it is not only a question of “might”, is it? … It is better put that it would be likely that as soon as a competitor won the Millmerran contract, there would have been an effect on competition, correct?

A    It is possible. It may depend upon the assumption about the quality of the ash, but yes, it is certainly possible.

Q    Well, if we leave hindsight to one side for a moment, when the Millmerran contract is won, nobody knows that there is going to be a problem with the colour of the ash, correct?

A    Well, I don’t know for sure, but I will assume that to be the case.

Q    Assume that to be the case. Then what Pozzolanic knows is that there is a competitor who now has a source of supply of fly ash which can be used to sell fly ash into the south-east Queensland concrete-grade fly ash market, correct?

A    Correct.

Q    And that knowledge is what is likely to cause Pozzolanic to regard its prices as being constrained, correct?

A    It could have that effect, yes.

Q    And it would have that effect if Pozzolanic had been charging supra-competitive prices prior to the competitor winning the Millmerran contract?

A    It could have had that effect, yes.

Q    You say it could have that effect. It is likely to have had that effect, isn’t it?

A    I will say it could have had that effect. I’m not sure how likely it is, but it may be likely. It is certainly possible.

Q    Well there was at least a real chance it would have had that effect, correct?

A    I think there was a chance, yes.

Q    A real chance?

A    Well, I take a chance to be a real chance.

Q    You agree, then, that the effect on competition is not dependent on taking a hindsight view of how long it might have taken a competitor to bring that fly ash to market?

A    Well, I think that’s right. … if someone else had achieved the contract, then there could have been an effect and the question then is how long – would that effect last long, what would happen with the colour and how quickly would it dissipate. That’s right.

[emphasis added]

3083    Professor Hay’s observations on this topic and the related comments in his report are made in the context of the colour variability problem which ultimately emerged throughout 2003 and resulted in the scientific investigations in the latter part of 2003 and 2004, and beyond. Professor Hay in these quoted passages accepted that there was a real chance of a likelihood of an effect upon competition once a competitor won the Millmerran contract but the constraining effect might dissipate over time as a quality, colour problem, emerged.

3084    The relativity in the degree of dissipation of the immediate constraining effect was examined in these passages (T, p 2562, lns 26-45):

Q    Someone else wins the Millmerran contract. At that stage, no-one knows there is a colour variability problem and we have discussed what the consequences might be. Do you accept the proposition that unless it is found that the Millmerran ash can never be sold as concrete-grade fly ash in the south-east Queensland market, there will remain a degree of constraint on Pozzolanic’s prices from the existence of that competitor’s alternative source of [concrete-grade fly ash]?

A    I think that may overstate it. It seems to me the question would be the extent to which it is anticipated that the Millmerran ash would be an alternative source of ash, or people would otherwise buy Pozzolanic ash. Whether it can be sold, the concrete-grade ash may not be the same – saying it can or cannot be sold as concrete-grade fly ash may not be the same assumption.

Q    So what one is looking at is whether it turns out to be a substitute for those who would otherwise have bought Pozzolanic’s ash?

A    If it’s clear that it’s not a substitute, then I would expect it to have no significant constraining effect upon Pozzolanic.

Q    And if it remains a substitute to some extent, then it has a constraining effect. Is that right?

A    I would expect there to be some degree of proportion between the degree of substitution and the degree of constraint.

[emphasis added]

3085    In concluding this discussion, Professor Hay accepted that if there is an assumption that the Millmerran ash is an alternative source of supply, then there is a possibility, looking forward, that a competitor winning the Millmerran contract is going to bring about “some impact” on competition in the SEQ concrete grade flyash market (T, p 2563, lns 1-6).

3086    Professor Hay accepts that the event of entry itself into the Millmerran contract by a competitor would “likely” produce “a quite prompt price response” from Pozzolanic in the SEQ concrete grade flyash market assuming, in a forward looking way, that the ash would be usable in the concrete grade flyash market. Professor Hay also accepts that Pozzolanic’s “knowledge” of a competitor at Millmerran with a source of flyash that Pozzolanic would assume could be sold into the SEQ concrete grade flyash market (since no hindsight view of an emergent colour problem would be relevant at that moment in time) would give rise to at least a “real chance” of causing Pozzolanic to regard its prices as being constrained and there would be at least “some impact” on competition in the SEQ concrete grade flyash market.

3087    It follows that, at the date of entry into the contract, with the clauses I have mentioned (cls 5.1, 6.1, 6.2, 6.3, 7, 10 and 26.4), those clauses would have the immediate effect and would be likely to have, in a forward looking way, a real chance of substantially lessening competition in the SEQ concrete grade flyash market because the future field of rivalry or the future state of the competitive process with the provisions is substantially diminished, on all of the evidence as nascent competition in a Pozzolanic/QCL dominated market was hindered and prevented. However, the constraining effect would have begun to dissipate once it became clear to the market that a problem was emerging in the quality of the Millmerran flyash and that problem was unlikely to be resolved either at all, or within a period of time which would make Millmerran ash a real substitute for Pozzolanic ash, assuming a rival in Millmerran. The extent of the constraint and its potential to dissipate is ultimately a question of degree. However, I am satisfied that upon entry into the Millmerran contract by a rival, participants would have proceeded on the assumption that the Millmerran ash was, in all probability, likely usable in the SEQ concrete grade flyash market and that once a competitor had access to a source of ash at Millmerran (notwithstanding that the concrete grade flyash would not be available for some little time), there would likely be quite prompt price responses from Pozzolanic in a market which had been characterised, otherwise, by a virtual monopoly with delivered pricing, and pricing above a competitive level characterising a workably competitive market.

3088    In a market exhibiting the characteristics of the SEQ concrete grade flyash market throughout 2001 and 2002, competitive entry by a rival at Millmerran was very important to the future competitive process, in a forward-looking way, and thus the likely effect upon what would have been emerging competition based on Millmerran ash was large or significant and truly meaningful. Had the frustrations exhibited by Ms Knox in her memorandum of 20 June 2002 resulted in no further negotiations with Pozzolanic, with Millmerran contracting with FAA as the next best option, the likely price responses and counter-responses would likely have been very vigorous. Mr Maycock said that confronted with some of the scenarios postulated by Management arising out of the loss of one or more of the contracts, QCL and Pozzolanic would have found a way to compete and would have responded to the challenges presented to it. Had FAA won the contract at Millmerran, with its tied shareholder concrete producers, Pozzolanic would very likely have vigorously responded in its supply and service offerings to those major shareholders to try and hold some proportion of QCL’s sales to those particular buyers, apart from contesting for all marginal sales as Mr Clarke said of FAA. The provisions described at [1347] were the expressions of these substantial purposes.

158    In those paragraphs I also note some aspects of the evidence of Professor Hay.

159    In the course of his evidence, Professor Hay considered a postulate of a “real chance” of a constraint upon QCL’s prices for cgf in the SEQ cgf market, in a future world in which either a rival would have won the OMC (and Pozzolanic/QCL would not have won it) or a future world in which, alternatively, a rival would have at least secured “access” to a “source of supply of ash” from Millmerran. A rival agitating for access to Millmerran ash might secure a source of supply from Millmerran in a future world where Pozzolanic/QCL had won the contract with MPP but on terms that did not contain the identified provisions: a future “but for” world.

160    Professor Hay accepted that had a rival gained access to Millmerran ash by winning the ash supply contract at Millmerran, there was a “real chance” of a constraining effect upon QCL’s prices for cgf and at least some effect upon competition. This would have been especially so, he agreed, if QCL had been charging supra-competitive prices in the absence of any competition.

161    At [3087], I found that, at the date of entry, the identified provisions had the immediate effect, and in a forward-looking way, would be likely to have the effect of substantially lessening competition in the SEQ cgf market: see particularly [3087] and [3088].

162    Fourth, including provisions in the OMC at 30 September 2002 which had a substantial purpose of substantially lessening competition in the cgf market and had as their effect and likely effect a substantial lessening of competition in that market, was very important for the future state of rivalry and the future competitive process in a cgf market characterised, at 30 September 2002, as one in which QCL was a virtual monopolist. New entrant rivalry, depending upon the scale of entrant and the scale of entry, would have produced a greater or lesser degree of contestability and counter-responses. Competition is critical to the public interest because it is the process which causes rivals to alter supply-side offerings in response to contestable offerings and adjust prices which, in turn, creates incentives for rivals to eliminate inefficient costs. Competition, as a process, “competes away” inefficient costs. That is how the process serves the public interest. That is why most regulatory pricing models attempt to replicate “efficient cost” analogical models of “perfect competition” where only efficient costs remain and risk weighted rates of return are calculated on the efficient cost base (which has many components).

163    Provisions which have, as their purpose, effect or likely effect, a substantial lessening of competition in a relevant market are susceptible of at least a substantial statutory maximum penalty under the Act because they damage the very process of rivalry itself and the dynamic elimination of inefficient costs through contestability.

164    Thus, such provisions damage the public interest.

165    I found that had FAA won the Millmerran ash supply contract or had it secured access to Millmerran ash under a set of circumstances in which Pozzolanic/QCL had won the OMC on terms that nevertheless enabled FAA (or Transpacific) to source a supply of Millmerran ash for processing with some commercial degree of regularity (that is, absent the identified provisions of the OMC), the likely rivalry as between FAA and QCL would have been vigorous: see [3088]. Transpacific would likely have stimulated reasonably vigorous rivalry. Had the entrant not been FAA but a less resourced entrant without the benefit of shareholder buyers such as Boral, Hanson and Rinker, the rivalry would have been less vigorous. Nevertheless, I found that new entrant rivalry in a future world without the provisions would have been real, meaningful and important, for the reasons already mentioned: see [3088].

166    Fifth, although the relevant provisions of the OMC at 30 September 2002 had the effect and would be likely to have the effect, in a forward-looking way, of substantially lessening competition as described, the effect and likely effect would have dissipated as information flows emerged into an informed market which made it plain to market participants that a problem had emerged in the quality of the Millmerran ash (as extensively outlined in the principal liability judgment). I concluded at [3236] that the provisions of the OMC had the effect or likely effect of substantially lessening competition from 30 September 2002 until 31 December 2003.

167    At Pt 50 of the principal liability judgment, I set out at [3232] to [3236] other conclusions concerning the OMC, which for ease of convenience are set out below:

PART 50

The ultimate conclusions

3232    I am satisfied that a substantial purpose of entry into the Original Millmerran Contract on 30 September 2002 was to prevent a rival entering into a contract with MPP for access to unprocessed flyash and to prevent a rival from entering the SEQ concrete grade flyash market with the supply and sale of Millmerran processed ash. I am satisfied that although Pozzolanic sought to risk manage its exposure to a loss of a contract with TEC in the tender process, and thus a loss of its historical source of supply of flyash, nevertheless a substantial purpose of entry into the Millmerran Contract was each of the two purposes I have described. More importantly, however, those purposes were purposes of the identified provisions of the Millmerran Contract as discussed in these reasons and particularly the provisions by which Pozzolanic was entitled to a substantial volume of concrete grade flyash from the Millmerran Power Station processed out of raw ash produced at that station, each year.

3233    I am satisfied that upon entry into the Original Millmerran Contract containing the identified provisions, the effect and likely future effect of the provisions would be to substantially lessen competition in the SEQ concrete grade flyash market as that contract, with those provisions, would have the immediate effect of discouraging third party regular and consistent access to Millmerran unprocessed ash for processing.

3234    However, the effect and likely effect of the provisions would, like the effect of entry itself into a contract per se, dissipate as information flows emerged in the market which made it plain to market participants that a problem had emerged in the quality of the Millmerran ash of the kind extensively discussed in these reasons. At that point, the provisions, prima facie, did not operate to have the effect or likely effect of substantially lessening competition, in the with and without sense already discussed. The effect or likely effect upon competition in connection with the utility and possible use of the Millmerran flyash was an effect or likely effect of the compromised quality of the Millmerran ash itself. As I have found, the quality problems with the ash in terms of its colour and variability were not a confected or manufactured problem. They were real and enduring problems. They were the subject of extensive work and analysis by both MOC and Pozzolanic and professional third party analysts. The Millmerran ash was not substitutable for the Tarong ash, in the sense that it could not be applied as a substitute for the diversity of applications to which the Tarong ash could be applied. Mr White thought that the Millmerran ash was capable of being used in “niche” applications, in the context of his strategy paper. Others within Cement Australia thought that the Millmerran ash would be capable of use in applications which were not sensitive to colour. Others thought that the question was not so much simply one of use in non-colour prominent applications but a concern more generally that concrete producers would simply not want to be supplied with (and would not accept) dark ash one week, and light ash the next, as a general supply proposition. Consistency in the quality of the ash was seen as a critical matter.

3235    It is true that ultimately the Millmerran flyash was able to be used and a supply arrangement was ultimately struck which provided for substantial volumes of Millmerran ash to be supplied and used. However, I am satisfied that viewed in the period 2003 to 2005, that once the colour problem emerged by the end of 2003 with the problem reflecting the features described in the various reports, the effect or likely effect of a substantial lessening of competition by reason of the provisions of the Millmerran Contract had dissipated and had become displaced by an effect or likely effect upon potential contestability through the use of Millmerran ash, by reason of the colour variability of the ash itself.

3236    I am satisfied that Pozzolanic entered into the Original Millmerran Contract and adopted the identified provisions for at least a substantial purpose of preventing rival entry as earlier described, and I am satisfied that the provisions had the effect or likely effect of substantially lessening competition from 30 September 2002 until about the end of 2003.

168    In the result:

(1)    Pozzolanic contravened s 45(2)(a)(ii) of the Act by making the OMC containing provisions that had the purpose and likely effect of, and until 31 December 2003 the effect of, preventing a rival from securing access to Millmerran ash (in the unprocessed ash market) and preventing a rival of QCL from entering the SEQ cgf market and substantially lessening competition in those markets: see Declaration 6; [5] of these reasons.

(2)    QCL, by funding Pozzolanic with knowledge of the purpose, likely effect and effect until 31 December 2003, was knowingly concerned in all elements of that conduct: see Declarations 6 and 7; [5] of these reasons.

(3)    Pozzolanic gave effect to the provisions having the purpose, likely effect of, and until 31 December 2003 the effect of, substantially lessening competition: see Declarations 6 and 8; [5] of these reasons.

(4)    QCL gave effect to the provisions by funding Pozzolanic’s day-to-day performance of the contract, relevantly in the period 30 September 2002 to 31 December 2003: see Declarations 6 and 9; [5] of these reasons.

(5)    PIPL, by electing to give, and by entering into the guarantee of Pozzolanic’s obligations to MPP under the OMC containing provisions which it knew that the purpose, likely effect and until 31 December 2003, the effect of, substantially lessening competition, was knowingly concerned in Pozzolanic’s contravention of s 45(2)(a)(ii): see Declarations 6 and 10; [5] of these reasons.

(6)    The relevant provisions of the OMC ceased to have the effect and likely effect, as found, of substantially lessening competition, by 31 December 2003.

The Amended Millmerran Contract

169    On 28 July 2004, Pozzolanic and Cement Australia took the step of amending the OMC by extending the cl 2.2 deadlines (see [3020] – particularly cl 2.2(b) requiring Pozzolanic to “notify [MPP] not later than 9 months after the Substantial Completion of Unit 1 whether or not the [Millmerran flyash] falls within the Acceptable Range for [cgf], and can be practically and economically converted into [cgf]”); by extending the OMC by another year; by deleting the termination provision and adopting a new termination protocol that would operate on the footing of an assessment of the quality of the ash once tested after processing, after the construction and operation of the classifier. As to the detail of the amendments to the OMC see [2563] to [2568] of the principal liability judgment.

170    The ACCC contended that Cement Australia by causing Pozzolanic to enter into the “Amended Millmerran Contract” (sometimes called the “amended OMC”) and waive its rights to bring the OMC to an end, contravened s 46(1)(b) and (c) of the Act having regard to factors summarised at [2418] and [2419] of the principal liability judgment.

171    The ACCC failed to make that case good.

172    The ACCC also contended that Pozzolanic had contravened s 45(2)(a)(ii) by entering into the Amended Millmerran Contract as provisions were adopted which had the purpose and effect, or likely effect, of substantially lessening competition in the SEQ unprocessed ash market and the SEQ cgf market. Pozzolanic was said to have contravened s 45(2)(b)(ii) by giving effect to those provisions. Cement Australia was said to have contravened s 45(2)(b)(ii) by giving effect to the provisions by funding Pozzolanic’s entry into the Amended Millmerran Contract. CA Holdings, Cement Australia, PIPL and Mr Leon were said to have been knowingly concerned in Pozzolanic’s contraventions of s 45(2) of the Act.

173    As to all of these matters, I examined the extensive factual controversies at [2425] to [2662]. The examination of the evidence on those questions involved (among many other things) examining the evidence of Mr Clarke and Ms Collins (and documents produced by Mr Adams, Mr Klose and Mr Chalmers, among others).

174    I made findings at [2663] to [2694].

175    Although Mr Clarke and Ms Collins gave evidence that the purpose of entering into the Amended Millmerran Contract with its amended terms and the continuing operation of the unamended terms, was to meet growing demand for flyash in northern NSW, I found that that economic case was “overstated” and “over-emphasised” as a rationale for entering into (making) the amended agreement: [2669]. I found that the judgments made by Mr Clarke and Ms Collins were not based on any informed analysis. Although I found at [2670] that Mr Clarke and Ms Collins believed that at “some point in the life of the contract” the Millmerran ash might be needed, I found that, as to the true “burden of the imperatives actually forming the basis for their decision” (and particularly Mr Clarke’s operative decision) to affirm the contract as amended, their evidence could not be accepted because they were “simply confused” about the reasons for deciding to make the Amended Millmerran Contract. I was satisfied, of course, that neither Ms Collins nor, especially, Mr Clarke, would consciously give evidence before Australia’s national superior trial court that was not a correct explanation of the actual and substantial purposes informing the adoption of the provisions of the Amended Millmerran Contract. Thus, they must have been simply “confused” about it.

176    At [2671] to [2674], I said this:

2671    Notwithstanding Mr Clarke’s reasoning based on his largely intuitive view of a need for the Millmerran ash at some point during the contract term (or as it might be extended), it is nevertheless plain that a substantial purpose of Mr Clarke in deciding that Pozzolanic enter into the amended contract (although not the only purpose) was a purpose of preventing a competitor from securing a commercial relationship with Millmerran Power Station and obtaining access to Millmerran ash and then entering the market for the sale of concrete grade flyash in the SEQ concrete grade flyash market in competition with Cement Australia. Ms Collins was sounding the same warning bell for the Directors. Mr Clarke gave evidence about his high regard for Mr Chalmers’s views about market developments and supply/demand matters related to sales. Mr Chalmers had warned of the effect upon sales and margins should Callide C fall to a competitor. Global Cement was in mind at the time. Mr Chalmers had also warned about the steps Neilsens were taking. Ms Collins had warned of the effect on price and margins should a competitor enter the market through an arrangement with Millmerran in the event that Pozzolanic/Cement Australia walked away from Millmerran.

2672    I do not propose to repeat all of the chronological and factual examples of these concerns otherwise set out in this Part. I have had regard to all of them. It is enough to say that based on the documents and those matters accepted by Mr Clarke and Ms Collins, that the consequences for Cement Australia of not amending and extending the Millmerran Contract, in terms of competitor entry and the spectre of rivalry based on Millmerran ash was a matter Ms Collins was particularly concerned about and felt ought to be agitated with Mr Clarke and built into the Board paper for the Directors. Ms Collins had the carriage of the development of the Board Briefing paper in the period up to the making of the decision in July 2004, until Mr Adams was retained to assume the role of re-writing the paper and looking at financial data and re-casting the paper on the preferred “justification” basis.

2673    I do not accept that the remarks of Ms Collins about a $10 price reduction for flyash and the consequences for Cement Australia’s EBIT margin in the flyash business in SEQ were simply a constructed “sensitivity” calculation of the effect upon Cement Australia’s EBIT margin if one assumed a price reduction of $10 per tonne for one of a hundred possible reasons. Ms Collins was saying in plain and unmistakeable terms to Mr Clarke that should a competitor enter (upon Pozzolanic walking away from Millmerran) the price would likely drop by $10 per tonne and the effect upon the EBIT margin in the flyash business would be significant. Ms Collins had asked Mr Chalmers for his view on the likely volumes lost at Millmerran should a competitor secure access to the ash.

2674    Mr Clarke was also astute to Boral’s potential entry at Millmerran. Mr Clarke found Global Cement’s agitations and its success at Callide “worrying”. Mr Clarke and Ms Collins expressly deny that competitor entry and the possible consequences for price and margins formed a consideration in the reasoning for deciding to amend and extend the Millmerran Contract. I do not accept their evidence on this issue as it cannot stand in the face of the documents but I do accept that each of them looking back to the events believed that to be so. However, it cannot be so when all of the evidence is considered, and in this sense Mr Clarke and Ms Collins although seeking to assist the Court’s analysis of the events, are simply confused.

177    At [2675], I made findings about how Mr Clarke came to put the Amended Millmerran Contract in place.

178    At [2676], I said this:

2676    A substantial purpose of Mr Clarke in Pozzolanic’s entry into the amended Millmerran Contract was that of preventing competitor entry at Millmerran and especially Boral’s entry at Millmerran. Mr Clarke says that Mr Leon was content to adopt Mr Clarke’s reasoning and his view of it. I am willing to accept that Mr Leon accepted Mr Clarke’s decision-making but I am not satisfied on the evidence up to the end of July 2004 of Mr Leon’s purpose in electing to accept Mr Clarke’s view of the Millmerran position.

179    At [2694], I said this:

2694    However, I am satisfied that a substantial purpose of Mr Clarke in amending the Millmerran Contract was a purpose of hindering or preventing a rival from securing a relationship with MPP/MOC (and thus access to Millmerran unprocessed flyash) for processing for sale into the concrete grade flyash market. Mr Leon did not give evidence. I infer his evidence would not have helped Pozzolanic or Cement Australia. I accept that based on Mr Clarke’s daily interaction with Mr Leon, Mr Clarke had a proper basis for believing that Mr Leon accepted and respected Mr Clarke’s abilities and his assessment of decision-making on questions such as whether the Millmerran Contract ought to be amended or not. I find that Mr Leon gave his authority to Mr Clarke to amend the contract and instructed him to put in place the proposed changes to the particular clauses. The operative purposes on the evidence were those of Mr Clarke. The evidence does not reveal Mr Leon’s own thinking on the purpose for amending the Millmerran Contract but he instructed Mr Clarke to put the amendment in place and a substantial purpose of Mr Clarke was to substantially lessen competition in both the upstream and downstream markets.

180    At Pt 50, I made these further findings:

The ultimate conclusions

…

3237    As to the Amended Millmerran Contract, I am satisfied that a substantial purpose of entry into the variation provisions of 28 July 2004 carrying with it the affirmation of the earlier provisions of that contract was to prevent a rival from obtaining access to unprocessed Millmerran ash for processing and to prevent a rival from entering the SEQ concrete grade flyash market with Millmerran processed flyash. I am satisfied that at the moment in time when the amendment was made Cement Australia’s relevant Senior Managers as earlier described were proceeding on the assumption that the ash problem would ultimately be solved and that the ash would be contestable ash. A substantial purpose, in those circumstances, of the amendment was to preserve a continuing relationship with MPP on the footing of the established provisions of the contract but as varied by the amended terms, and a substantial purpose of doing so was to prevent rival entry at Millmerran having regard to the likely impact upon Pozzolanic’s price, revenue and margins should a rival secure access to Millmerran unprocessed ash and then enter the SEQ concrete grade flyash market with Millmerran cgfa. Another purpose, plainly enough, was to put in place arrangements to enable the parties to the contract to come to grips with solutions to the colour problem. Nevertheless, in the context of the particular provisions, I am satisfied that a substantial purpose of the inclusion of those varied provisions of the new arrangement was each of the purposes just described.

3238    However, I am not satisfied that the provisions of the Amended Millmerran Contract otherwise carrying forward the identified provisions of the Original Millmerran Contract had the effect or likely effect of substantially lessening competition because, at that point, the effect upon competition was a function of the uncertainty surrounding the quality of the ash itself.

181    See also [3259].

182    In the result:

(1)    Pozzolanic contravened s 45(2)(a)(ii) of the Act by making the OMC as amended containing provisions which had the purpose of preventing a rival of Pozzolanic from securing access to Millmerran unprocessed ash and preventing a rival of Cement Australia from entering the SEQ cgf market and thus had the purpose of substantially lessening competition in each market: Declaration 12.

(2)    Cement Australia, by causing Pozzolanic to enter into the Amended Millmerran Contract with knowledge of the purpose of the provisions was knowingly concerned in Pozzolanic’s contravention of s 45(2)(a)(ii): Declaration 13.

(3)    Pozzolanic, by giving effect to the provisions from 28 July 2004 until 30 April 2005, contravened s 45(2)(b)(ii): Declaration 14.

(4)    Cement Australia, by causing Pozzolanic to give effect to the provisions of the Amended Millmerran Contract as described at Declaration 12 for the period from 28 July 2004 to 30 April 2005 contravened s 45(2)(b)(ii): Declaration 15.

The Tarong Contract of 26 February 2003 between Pozzolanic and Tarong Energy Corporation (“TEC”)

183    The relevant terms of the contract are set out at Pt 15 [931] of the principal liability judgment. At [1965] to [2002], I set out some of the events leading up to the making of the Tarong Contract.

184    At [3089] to [3136], I describe the circumstances which led to the adoption of the relevant provisions.

185    Although Pozzolanic and QCL sought to secure exclusivity in the supply of concrete grade flyash (in the propositions put to TEC), they sought to win the contract with TEC because Pozzolanic had been operating exclusively at Tarong since about 1984. The decision-makers within QCL and Pozzolanic regarded winning the contract with TEC (which carried with it Tarong North) as natural and important to business continuity in QCL’s capacity to supply flyash to the three major concrete producers which accounted for 72% of QCL’s sales of flyash at the time of entry into the contract. By the September 2002 Board paper (discussed later in these reasons), the essential commercial terms of the draft of the Tarong Contract were said to be: eight years from 1 December 2003 with possible three year extensions by agreement; a fixed payment of $2.8 million per annum (indexed); a volume guarantee of 200Kt per annum; and plant installed within 12 months of normal operating conditions (of Tarong North). On 1 October 2002, Mr Ridoutt sent an email to Mr Chalmers, Mr Wilson, Mr White and others advising that a revised contract had been received from TEC. Mr Wilson expressed the hope that the negotiations would conclude in October 2002 and approval would go to the TEC Board in November 2002. Mr Wilson observed in that email: “no longer have exclusivity so we will have to be more creative with the contract to cover our risk” [3094]. At [3094], I observe:

… Had Mr Wilson been successful in achieving exclusivity in the proposed arrangements with TEC, as it had sought in its tender, Pozzolanic would not have been exposed to the risk of supply of ash by TEC to third parties, and Pozzolanic and QCL would not have needed to have mitigated the risk of third party access to Tarong ash, in creative ways under Pozzolanic’s contract with TEC.

186    As to the provisions and the ACCC’s contentions in relation to them, I said this at [3096] to [3103]:

3096    The Commission identifies these provisions as having the purpose, effect or likely effect of substantially lessening competition in the relevant market. First, cl 2 creates a term of five years from 1 March 2003. Clause 2 also provides that either party may terminate the agreement by giving the other party 12 months written notice “at this time” which suggests that notice might be given up to 1 March 2008 of 12 months notice of termination. Mr Collingwood in his submission to the Board for approval of the contract regarded the term as a six year term. Clause 15 provides that the agreement may be extended in increments of three years “upon the agreement of both parties” and any such agreement to extend must be reached no later than 12 months prior to the date on which the contract (or any extension) would otherwise expire. Second, during the term TEC agrees to sell and Pozzolanic agrees to buy “any and all Concrete Grade Fly Ash” [Pozzolanic] obtains from the Ash Transfer Points and processes in [Pozzolanic’s] plant [emphasis added]: cl 3.1. The term Concrete Grade Fly Ash is defined to mean Fly Ash extracted by Pozzolanic from the TEC Ash Transfer Points and capable of being processed in Pozzolanic’s plant for use as cementitious materials, for use with Portland and blended cement and as shown in AS 3582.1 (1998): cl 1.1. The term Fly Ash, adopted within the definition of Concrete Grade Fly Ash in cl 1.1, is defined to mean solid fly ash material extracted from the flue gases produced from the coal fired boilers at the Tarong power station and the Tarong North power station. The TEC Ash Transfer Points are defined to mean the points of connection of Pozzolanic’s plant to the precipitator hoppers on Units 1 to 4 at the Tarong power station and any other points of connection approved by TEC at which Pozzolanic takes possession of Fly Ash from the Ash Disposal System. The Ash Disposal System is defined as the infrastructure adopted at Tarong and Tarong North for the disposal of ash from either station.

3097    It follows that, under these provisions, Pozzolanic was entitled to any and all solid fly ash material, extracted from the flue gases at either power station, taken by Pozzolanic at the points of inter-connection between Pozzolanic’s plant and the precipitator hoppers on Units 1 to 4 at the Tarong power station (and any other points of inter-connection approved by TEC at which Pozzolanic would take possession of all or any of Tarong’s solid fly ash material extracted from the flue gases) and capable of being processed in Pozzolanic’s plant for use as cementitious materials conforming to AS 3582.1 (1998). All Reject Ash would remain the property of TEC and TEC would be entitled to supply or sell it to any other person for any use or application.

3098    These are the defining features of the rights granted under cl 3.1 having regard to the definition of the terms contained in cl 1.1.

3099    Third, by cl 12.2 Pozzolanic is to pay TEC, for the right to take Fly Ash, a base amount each quarter in each year of $600,000 (escalated by CPI) subject to the adjustment mechanism in cl 12.3 so that the total amount payable under cl 12.2 would not exceed the following payments.

3100    Fourth, as to Tarong North, cl 4.4 provides that as soon as possible after (either 26 February 2003 or 1 March 2003) Pozzolanic must reasonably determine whether Tarong North Fly Ash is suitable for use with Portland cement (that is, confirms to AS 3582.1–1998), and if so suitable, TEC must “request” Pozzolanic to, “establish” a plant to extract Concrete Grade Fly Ash from the Tarong North Fly Ash, to a capacity of equal to, or greater than, the volume of Fly Ash removed from Precipitator Zone 1 hoppers of a fully operational unit at Tarong; and to, “construct” the plant according to TEC approved drawings and connect that plant to the Ash Disposal System at a TEC approved point of inter-connection.

3101    Fifth, by cl 8.3, if the quality of the six monthly average of Fly Ash available from the Tarong North Ash Transfer Points (under normal commercial operating load conditions), after processing, does not conform to AS 3582.1, or if the quantity of Concrete Grade Fly Ash is not sufficient to support “commercially viable operations”, the parties agree to undertake good faith negotiations to “achieve an adjustment to the contract conditions”. However, if the Tarong North Fly Ash is not suitable for use in Portland cement (and presumably the clause is intended to say “after processing”), or if Pozzolanic does not establish a plant, Pozzolanic is not entitled to any reduction in any of the amounts payable under the agreement. By cl 8.7, Pozzolanic must remove flyash from each of the “Ash Transfer Points” prior to flyash accumulating in the hoppers to the maximum design storage level and Pozzolanic when extracting flyash from the Ash Transfer Points, must ensure that all flyash is completely extracted from the ash storage hoppers every 24 hours.

3102    Sixth, by cl 17.1, Pozzolanic may at any time after 1 September 2004 terminate the agreement by giving TEC 12 months’ written notice of termination with termination effected at the end of the notice period.`

3103    Apart from these provisions, cl 7 deals with the topic of “Run of Station Non Concrete Grade Fly Ash”. Clause 7 provides that at the request of TEC, Pozzolanic will use its best endeavours to provide ROS non-concrete grade flyash (“rosncgfa”) from Pozzolanic’s plant to either TEC or a third party nominated by TEC, and the clause sets out seven functions included within that obligation. They include processing and handling rosncgfa through Pozzolanic’s plant to the full limit of the capacity of Pozzolanic’s plant (cl 7.1(a)); grading rosncgfa into grades requested by TEC (to the extent possible); scheduling arrival, loading and departure of vehicles of TEC and third parties; providing suitable transport if required and available at an agreed price; supplying rosncgfa at temperatures requested by TEC (to the extent possible); loading TEC and third party vehicles presented at Pozzolanic’s plant; and otherwise cooperating with TEC and third parties and using its best endeavours to minimise disruption to the operation of Pozzolanic’s plant, with the intention that Pozzolanic will coordinate, manage and provide all services directly or indirectly required to be provided to facilitate the removal of rosncgfa from the Tarong site. By cl 1.1, the term Run of Station Non-Concrete Grade Fly Ash is defined to mean Fly Ash removed from the Ash Transfer Points by Pozzolanic and identified for supply to TEC or third parties in an unprocessed form or in a form for use in applications other than as Concrete Grade Fly Ash.

187    At [3142] to [3154], I made findings on the issue of purpose concerning the relevant provisions of the agreement. Having regard to the importance of the Tarong Contract, and for ease of reference, I set out below the relevant parts of [3142] to [3154]:

3142    I am satisfied that a substantial purpose which actuated Mr Wilson and Mr Ridoutt in framing the terms of the bid for the Tarong Contract was the purpose of having continuity in the product it knew in order to continue to supply that product to QCL’s concrete customers, and preferably exclusive access to that ash either expressly or in the terms of exclusivity as Mr Maycock understood that notion. I am satisfied that this was a substantial purpose of Mr Wilson and Mr Ridoutt and ultimately Mr Arto in the way in which he relied upon Mr Wilson and Mr Ridoutt, and also a purpose of Mr Maycock.

…

3144    The question, however, is not simply whether there were good business reasons for Pozzolanic wanting to secure a contractual relationship with TEC. I am satisfied that the business objective of Pozzolanic in entering into the contract was to have concrete grade flyash to sell in SEQ. However, the real question is whether the adoption of the identified particular provisions in the contract were included for a substantial purpose of preventing others from entering the SEQ concrete grade flyash market, and in aid of that purpose, a purpose of preventing others from obtaining access to unprocessed Tarong flyash for processing, for entry into the SEQ concrete grade flyash market, and thus a substantial purpose of substantially lessening competition in those markets.

3145    The term of the contract was five years (and on TEC’s view probably six years by operation of the notice provision). Pozzolanic and QCL certainly wanted an exclusive agreement that would deny Tarong concrete grade flyash to others. That proposition was pressed with TEC but not accommodated by TEC. There was no provision for express “exclusivity” although the measure of Pozzolanic’s rights granted under the contract, was a right to “any and all” solid material extracted from Tarong and Tarong North flue gases, capable of being processed through Pozzolanic’s plant for use as supplementary cementitious materials as shown in AS 3582.1, that is, concrete grade flyash recovered through Pozzolanic’s plant from the raw flyash. All of the solid material extracted from the flue gases of each power station, collected in the hoppers, could be processed in Pozzolanic’s plant. Some of it would then be of use as concrete grade flyash falling within AS 3582.1, and some of it would not and would thus be reject ash. Nevertheless, Pozzolanic enjoyed the right to any and all of the Tarong and Tarong North “Fly Ash” extracted from the hoppers for processing in Pozzolanic’s plant for use in conformity with AS 3582.1, from the raw Tarong and Tarong North flyash. Pozzolanic would pay $2.6M (indexed) if it actually took less than 50Kt per annum but that was never going to be the case on any orthodox going concern basis. The likely band would be either 150Kt to less than 350Kt or 350Kt to less than 450Kt attracting payments of $2.5M or $2.4M respectively.

3146    The rights granted under the contract (and related definitions) were framed by TEC and accepted by Pozzolanic during the negotiation process described earlier. TEC formulated the incentive payment schedule to encourage Pozzolanic to extract and sell the highest volume of concrete grade flyash, from Tarong ash, as possible. Although TEC would not grant exclusivity to Pozzolanic, it wanted to see, and agitated for, provisions in the contract that created clear commercial incentives for Pozzolanic to remove as much concrete grade flyash as it possibly could from the Tarong raw ash to meet the perceived demand for concrete grade flyash in South East Queensland, rather than flyash from any other source (and presumably the anticipated entry of Millmerran flyash). These incentives, in turn, encouraged Pozzolanic to assert as much control over the raw unprocessed flyash from each station, as necessary, in order to process out of it “any and all” concrete grade flyash capable of use in conformity with AS 3582.1. Although a substantial volume of unprocessed flyash would continue to be produced each year at Tarong, and a substantial additional volume would begin to be produced from Tarong North, the rights clause, and the incentive schedule, encouraged Pozzolanic to try and extract concrete grade flyash in the aggregate of 450Kt or more to attract the lowest level of payment at $2.1M. Under the rights clause of the contract with Pozzolanic, if any third party was capable of installing plant at Tarong (or later Tarong North), and extracting concrete grade flyash by processing Tarong ROS ash, each tonne of concrete grade flyash so obtained would be a tonne of product that Pozzolanic had the right to extract from the raw ash by processing through its own facilities.

3147    Pozzolanic and QCL perceived at this time that it would require about 330Kt of concrete grade flyash in 2003 for the SEQ market. About 40Kt of that would come from Swanbank. Subject to determining the utility of the Millmerran ash, the balance of flyash supplied by QCL would come from Tarong as would any incremental growth in demand, over time, due to the sorts of factors Mr Arto and Mr Maycock spoke about. Also, Pozzolanic and QCL took into account the extent to which some reserve capacity might be needed although the supplemental 20% buffer did not properly emerge, at least in those terms, until 2004. The Tarong Power Station would produce approximately 1.4 million tonnes of unprocessed flyash each year. Pozzolanic by cl 7.1 had assumed a best endeavours obligation of providing ROS ncgfa from its plant to TEC or TEC nominated third parties including the services of processing and handling that ash through its plant to “the full limit of the capacity” of Pozzolanic’s plant. The limits of the “best endeavours” obligation would, no doubt, be determined by the extent to which that ash would be required by Pozzolanic for processing for the production of concrete grade flyash for its own use in supplying its customers.

3148    Pozzolanic’s entitlement to first accommodate its own requirements, at any and all times, would no doubt make it difficult for a third party to secure consistent regular access to run-of-station ash for processing into concrete grade flyash in circumstances where an existing contractor had rights of the kind enjoyed by Pozzolanic. “As available” transactional sales would not enable a supplier to confidently enter the SEQ concrete grade flyash market as concrete producers would want regular supplies of flyash to their batching plants to meet the requirements of servicing concrete pours on projects with great regularity if not each day, every other day.

3149    Clause 17.1 created the mechanism under which Pozzolanic could give written notice to TEC terminating the contract at any time after 1 September 2004 with the contract expiring 12 months later.

3150    If the Tarong Power Station was capable of producing about 1.4 million tonnes of raw flyash and Tarong North was expected to produce about 500Kt of raw flyash when commissioned and operational, it is difficult to see why Mr Ridoutt and Mr Wilson found it necessary, as an aspect of securing the objective of having ash to sell at all, from the beginning of March 2003, to include a rights provision framed on the basis that Pozzolanic would have the right to buy “any and all” flyash meeting AS 3582.1 recovered by Pozzolanic through its processing plant, extracted from the 1.9 million tonnes of raw flyash produced at both power stations over the life of the contract.

…

3152    Nevertheless, I am satisfied that not only did Mr Ridoutt and Mr Wilson pursue the quite natural and rational objective (and thus have the purpose) of winning the Tarong Contract to secure a continuing source of Tarong concrete grade flyash to enable the flyash business to continue to function and supply the company’s customers, but a further substantial subjective purpose in including the terms earlier described was to “creatively” or otherwise (in light of the loss of exclusivity) secure a position where “provisions” would be adopted that gave Pozzolanic (and in effect, QCL) contractual control over access to the total volume of raw flyash produced from both power stations for the life of the contract for priority processing through its own plant for the priority extraction, as it chose, of all concrete grade flyash capable of being extracted from the raw flyash at both stations. That provision was subject only to the “best endeavours” obligation under cl 7.1 concerning non-concrete grade flyash.

3153    Pozzolanic was the incumbent producer and it had its plant and equipment connected to all of the transfer points on all hoppers in Zones 1, 2 and 3 at Tarong and enjoyed the right to connect to all the hoppers at Tarong North. Although the imperative of securing a contract at Tarong, first, to have ash to sell in the immediacy of the post-Tarong tender period (and before Millmerran might come on stream, if useable) and, second, to secure access to the familiar and reliable Tarong ash as the source of proven market ash, was a fundamental objective for entry into the Tarong Contract, I am satisfied that the ubiquity in the scope of the rights provision was included for a substantial purpose of preventing or discouraging a rival from obtaining access to Tarong and Tarong North raw flyash for processing (behind Pozzolanic and QCL), and to prevent a rival entering the SEQ concrete grade flyash market with processed Tarong or Tarong North flyash. Thus, a substantial purpose of the formulation and inclusion of cls 2, 3.1, 12.2, 12.3, 4.4, 8.3 and 17.1, was a substantial purpose of substantially lessening competition in each market. These purposes were the subjective substantial purposes of Mr Ridoutt and Mr Wilson (among other purposes). The material does not reveal the decision-making process about the particular provisions as between Mr Ridoutt and Mr Wilson on the one hand and Mr Arto and Mr Maycock on the other. However, Mr Arto has made plain the degree of inter-dependency between him and Mr Ridoutt and Mr Wilson on these questions, and Mr Maycock fundamentally regarded these questions such as the precise formulation of the particular provisions as very much “matters for management”.

3154    Neither Mr Ridoutt nor Mr Wilson was called to give evidence about the business purposes for including the identified provisions or, more generally, the considerations, objectives or purposes in Pozzolanic entering into the contract with TEC. I draw the inference that the failure to call Mr Ridoutt and Mr Wilson on these topics suggests that their evidence would not have been helpful to the respondents.

188    As to the effect and likely effect cases, I made findings at [3162] to [1383]. Again, having regard to the significance of the Tarong Contract in the unprocessed flyash market and the SEQ cgf market, and for ease of reference, I set out below the conclusions:

Conclusions

3162    I am satisfied that cls 2, 3.1, 12.2, 12.3 and 17.1 (together with the cl 1.1 definitions) of the contract as they relate to the Tarong Power Station had the effect when the contract was made, and would be likely to have the effect of discouraging, hindering or preventing a third party from seeking to establish processing facilities (extraction and collection equipment, pumps, a classifier and related plant and equipment) at the Tarong site (or off-site) so as to collect and take raw unprocessed flyash from Zones 1, 2 or 3 into a processing facility for processing and extracting or winning concrete grade flyash for supply into the SEQ concrete grade flyash market.

3163    The essential elements of that conclusion are these.

3164    First, the provisions conferred a right to any and all “Fly Ash” as defined in the way explained earlier both in relation to Tarong (and Tarong North) for the extraction of concrete grade flyash out of raw ROS flyash using Pozzolanic’s extractive plant and equipment. Pozzolanic enjoyed, by force of the provisions, the right to take all of the raw flyash into its processing facility to extract whatever volume of concrete grade flyash it wanted. It is no answer to a contention that identified provisions of a contract have an effect at the date of making the contract (or a likely future effect), that a good business reason subsisted in Pozzolanic (in making the contract with those provisions) of wanting or securing access to any or all of the concrete grade flyash that might be able to be extracted from any or all of the raw flyash containing particles meeting the description as concrete grade flyash in its own processing facility, and thus the provisions came to be included in the contract in order to serve that business end. Every contracting party that includes provisions in a contract designed to fully satisfy its own perceived need to be able to supply 95% of the relevant market for a product, produced using a particular input, no doubt fully believes that those business objectives are best served by such an arrangement.

3165    The only question (as to this limb, s 45(2)(a)(ii)) is whether the identified provisions had the effect or would be likely to have the effect, viewed at the date of making the contract, of substantially lessening competition in a relevant market.

3166    Second, the provisions had that effect and would, as to the future, be likely to have that effect because the immediate scope, and the likely future scope, of rivalry characterising the competitive process in the SEQ concrete grade flyash market, was and would continue to be diminished by the operation and effect of the provisions because any third party seeking access to Tarong Power Station raw flyash, as a feedstock for processing, for entry into the SEQ concrete grade flyash market, could have no confidence of real, genuine or effective access to any particular volume of that ash; at any particular time; with any degree of certainty; with any real degree of orthodoxy in planning the conduct of a business of processing raw ash to extract concrete grade flyash for supply each day to batching plants operated by concrete producers undertaking concrete pours each day or every other day.

3167    Concrete grade flyash is material extracted from the relevant power station ash for regular supply to buyers who are engaged in the “ready-mix” daily supply of a concrete mix. The evidence in this case makes plain that suppliers of concrete grade flyash as an input feedstock for the production of concrete must be able to obtain access to a regular and consistent (in terms of quality) source of raw flyash for the production or extraction of concrete grade flyash, rather than on an “as available” or “spot purchases” basis if such a person wants to conduct a business (comprising a sequence of regular transactions) of supplying concrete grade flyash to concrete producers. Mr White was of that view. He recognised that continuity, consistency and regularity were critical matters in the conduct of such a business.

3168    Pozzolanic’s contractual command and control position over any and all volumes of raw Tarong ash, by force of the provisions, for first taking any and all Tarong ash into its own processing facilities for the extraction of any or all concrete grade flyash capable of extraction in those facilities from that ash, in priority to any other third party off-taker, either regularly or episodically, meant that the systemic arrangements a third party would need to see in place to “enter” at Tarong could not be put in place because a new third party entrant at Tarong would always be susceptible of being placed second behind Pozzolanic at all times or at any time. Also, the command and control position Pozzolanic enjoyed over any and all of the Tarong “Fly Ash” for first processing in its own facility (to the extent capable of extracting concrete grade flyash from raw Tarong ash through that facility) made it possible for discretionary decision-making by Pozzolanic that would, at all times or at any time, enable Pozzolanic, as it chose, to displace a third party in favour of Pozzolanic’s prior rights.

3169    Pozzolanic’s enjoyment and exercise of its priority rights during all of the period of the contract would become the daily measure of the commercial uncertainty in any third party’s position.

3170    None of the incentives conducive to third party entry were present in the arrangements between Pozzolanic and TEC. The best test of this notion that Pozzolanic’s first rights had, and were likely to have, the effect of discouraging third party entry at Tarong is that Mr White would not have wanted to enter, standing behind Pozzolanic’s prior rights, as a theoretical third party off-taker at the Tarong Power Station in trying to conduct a new concrete grade flyash supply undertaking.

3171    A proposition was put to Mr White in evidence about the operation of the Tarong Contract to the effect that if a second off-taker had examined the question of what non-concrete grade ash such a person might expect to get for processing, day-to-day, at and from Tarong, standing behind Pozzolanic’s rights, the answer would have been “no available ash”. Mr White did not accept that proposition because the volume of ash taken from Zone 1 at Tarong by Pozzolanic might, for example, have been 1,000 tonnes which would have left another 2,500 tonnes of ash available for a second off-taker. Mr White took the view that a second off-taker would have been able to connect its own pumping and transfer equipment into Zone 1, connected to its own classifier. Mr White was asked this question: “Are you suggesting that a second off-taker would have regarded that [connecting its own pumping and transfer equipment into Zone 1] as being economically feasible?” Mr White said: “Well, I think … obviously, there would have to be some form of amended arrangement to provide them some guarantee of volume and probably the best arrangement would have been to [allocate] hoppers within each unit to one party or another in the way that’s now proposed [in terms of the new tender]” [emphasis added]. Mr White said that other than those sorts of arrangements, there was no reason why it would not have been feasible for a second off-taker to participate at Tarong. That notion of the feasibility of a second off-taker participating at Tarong was further examined with Mr White in this way (T, p 2467, lns 12-19):

Q    So just let me understand. Do you agree that unless Pozzolanic’s existing contract was amended so that a third party could be guaranteed volumes of ash, it was not economically feasible for a third party to be a second off-taker at Tarong Power Station?

A    I would say that there would have to – if I was a third party off-taker, I would want some arrangement, but I would also, at July 2006, be reflecting that the agreement only had 18 months to run, and I would probably be negotiating around the renewal or retendering of that agreement in terms of any arrangement that I would make.

                            [emphasis added]

3172    Mr White was asked whether he had formed a view during the life of the Pozzolanic Contract about whether a third party would be interested in being a second off-taker at the Tarong Power Station. Mr White said that the Pozzolanic/Cement Australia “internal ash team” had considered that question. Mr White was asked (T, p 2468, lns 40-46):

Q    Are you saying you [Mr White and the internal ash team] formed the view that it was likely the second off-taker might want to build a classifier and wait behind Pozzolanic at Tarong Power Station?

A    I don’t think we ever viewed or expressed it in those terms because clearly, that wouldn’t be attractive. I think our view was that if someone was to obtain a right of access – and it seemed to be feasible at Tarong North, so I’m not sure why not at Tarong – then we would prefer that right of access to be at Tarong and, therefore, obviously, we viewed it as a feasible option.

                            [emphasis added]

3173    Even though Mr White (and the Cement Australia ash team) viewed it as a “feasible option” for a third party to build a classifier and obtain access to Tarong ash for processing, with Pozzolanic’s contractual rights derived from the provisions in place as described, it seems to me significant that Mr White, as an experienced operator and manager of an undertaking functioning in the concrete grade flyash market, standing hypothetically in the shoes of a third party, would have wanted “some form of amended arrangement” to the terms of the existing Pozzolanic TEC contract to provide such a third party with either a “guaranteed volume” of ash or, as the “best arrangement”, the “allocation” of some hoppers in each unit at Tarong to the incumbent, and others hoppers to a third party. For Mr White, that view of it might not have prevailed by July 2006 because by then the Pozzolanic TEC Agreement would have only had 18 months to run and the focus for Mr White, as a hypothetical third party at that point, would probably have been upon negotiating an access arrangement to Tarong ash as part of TEC’s renewal or re-tendering of the principal agreement. Nevertheless, leaving aside the focus that might have emerged in a third party’s attempts to secure access towards the end of the term of the Pozzolanic TEC Agreement, the desirability of access to a guaranteed volume of ash or access to particular hoppers for a third party, from the outset of the term, remains a step that Mr White thought desirable, from a third party’s perspective.

3174    As to Tarong North, Mr White accepted that once Pozzolanic installed the classifier at Tarong North, it had first right of access to the ash from Tarong North for processing for the extraction of concrete grade flyash, and the result of Pozzolanic installing a classifier at Tarong North, would be that no one else would install a classifier at Tarong North. Mr White put it this way: “I think our view was that if any party, regardless of their rights, installed a classifier first at Tarong North no other party would, including ourselves, and given that we had bought and paid for first rights and an obligation to put a facility in, we felt that was what we should do” [emphasis added].

3175    Mr White gave evidence that having installed a classifier at Tarong North, it was Pozzolanic’s “hope” that no other party would install a classifier. Mr White also accepted that it was more than a hope and that it was “certainly [Pozzolanic’s] expectation it [a third party installation] wouldn’t happen” (T, p 2469, lns 14-23).

3176    Had the provisions of the Tarong Contract included, for example, a power in TEC (and a clear corresponding obligation in Pozzolanic to act in conformity with the exercise of the power by TEC) to allocate or regulate, for the benefit of one or more third parties seeking access to Tarong ROS ash, either access to a guaranteed volume (a sum certain in the mind of a possible new entrant) of raw unprocessed flyash, or access to particular off-take points or “Ash Transfer Points” on particular hoppers, in particular zones, at particular times, perhaps cycled as between Pozzolanic and a third party (or third parties), or permanently allocated hopper points, at which a third party could readily connect its collection equipment and lines (with a corresponding direction to Pozzolanic to temporarily disconnect its collection plant and equipment) to remove raw Tarong ash into third party processing facilities (and then removal of concrete flyash into a temporary storage silo), the contract might well have facilitated new entrant behaviour productive of rivalry, contestability and a new dimension to the competitive process in the SEQ concrete grade flyash market. Alternatively, such provisions would have at least mitigated the collective disincentives in the grant of the rights by the identified provisions, having the effect of discouraging a new entrant from obtaining ash at Tarong for processing it in its third party facilities so as to supply concrete grade flyash into the SEQ concrete grade flyash market in competition with the incumbent supplier of 95% of all concrete grade flyash sold and supplied into the SEQ concrete grade flyash market.

3177    Confronted with the commercial disincentives contained in the provisions I have mentioned, where might a putative new entrant to the SEQ concrete grade flyash market have turned in 2003 for five years, from the date of the making of the TEC Pozzolanic Contract, for feedstock ash for processing, for entry into the SEQ concrete grade flyash market? There would be little point turning to Millmerran as Pozzolanic had a contract giving it the right to take 135,000 tonnes of concrete grade flyash out of Millmerran ROS ash (coupled with a corresponding supply obligation in MPP) and the quality of the ash had to be determined. Swanbank ash was under contract to Pozzolanic. Any new ash out of Tarong North was under contract to Pozzolanic with the same bundle of rights conferred upon Pozzolanic as those in relation to the Tarong Power Station. Buying ash from NSW power stations required a new entrant to confront the significant disincentives in the transport costs of bringing the product into SEQ.

3178    It follows that the provisions of the Tarong Contract of 26 February 2003 as they applied to access to unprocessed flyash from the Tarong Power Station, had the effect, and the continuing likely future effect, of substantially lessening competition in the market for the supply and acquisition of unprocessed flyash and the effect, and continuing likely future effect, of substantially lessening competition in the SEQ concrete grade flyash market because, first, the provisions operated to discourage and thus hinder and prevent third party entry into a supply arrangement at Tarong Power Station with TEC for raw flyash for processing for entry into the SEQ concrete grade flyash market, and discouraged and hindered and prevented third party entry into the SEQ concrete grade flyash market with processed Tarong concrete grade flyash. In addition, other SEQ raw flyash sources were not available to a third party.

3179    Second, an assessment of the future scope of rivalry and the competitive process in each market with the identified Tarong Power Station provisions in place, reveals an immediately diminished future competitive process in each market upon the making of the contract, by operating to discourage, hinder and prevent third party entry at Tarong thus removing any immediate future potential constraint upon Pozzolanic’s discretionary conduct (arising out of effective third party access to Tarong Power Station ash, and the potential entry of third party Tarong concrete grade flyash into the SEQ concrete grade flyash market), as compared with the future scope of the competitive process without the identified provisions and third party entry and contestability.

3180    Third, an assessment of the likely scope of future rivalry and the competitive process in each market over the life of the Agreement with the identified Tarong Power Station provisions in place reveals a real and meaningful likelihood of a diminished future competitive process in each market upon the making of the contract. In the absence of the provisions as framed, the real likelihood was that third parties would have sought access to Tarong ROS flyash (as they attempted to do) and secured an agreement for access to Tarong ROS flyash for processing for the extraction of concrete grade flyash for supply into the SEQ concrete grade flyash market. Had a third party obtained access, processed Tarong ROS flyash and entered the SEQ concrete grade flyash market with Tarong concrete grade flyash, the strong probability is that rivalry and contestability would have operated to constrain the prices of Pozzolanic and QCL (and challenged their market share of volume) and later Pozzolanic and Cement Australia. The likely future effect of the identified provisions was to discourage, hinder and prevent such entry (and the consequential expansion in contestability and rivalry in each market that entry would have brought). The identified provisions operated to make it likely, over the life of the Agreement, that the future scope of rivalry would be meaningfully reduced or diminished as compared with the likely scope of rivalry without the provisions. The measure of the difference is the increased participation in the competitive process by a new entrant and the constraining effect which would likely have arisen, upon Pozzolanic’s volume of sales and the prices for concrete grade flyash in the SEQ concrete grade flyash market.

3181    I am satisfied that having regard to the strong interest which was shown by third parties in seeking to strike a relationship with TEC for access to Tarong Power Station ash, during the tender process leading up to the Pozzolanic/TEC Agreement of 26 February 2003, and the interest which was shown by third parties in seeking to obtain Tarong ROS ash after the commencement of the Agreement (and throughout periods of the term of the Agreement and later Tarong North ROS ash), that third party access to Tarong ROS flyash under supply agreements with TEC, and the processing of that flyash into concrete grade flyash would very likely have occurred, had the identified provisions not been included in the Agreement.

3182    Because Pozzolanic and QCL and later Pozzolanic and Cement Australia enjoyed such a substantial market share and exercised such a substantial degree of influence upon pricing in the SEQ concrete grade flyash market for the product, any new entrant activity at the Tarong Power Station of obtaining access to raw flyash for processing so as to enable new entrant competition in the SEQ concrete grade flyash market, would have been significant, real and meaningful new competition. The expansion in the scope and field of rivalry would very likely have operated to constrain Pozzolanic and QCL and later Pozzolanic and Cement Australia in the way described.

3183    Fourth, the evidence demonstrates that approaches made by third parties to TEC both in relation to access to Tarong Power Station ash and, later, Tarong North Power Station ash, resulted in responses which rendered any arrangement for access subject to the prior rights of Pozzolanic. The notion that TEC would have adopted that position is entirely unsurprising because the power station operator was giving voice to its understanding of the operation of the provisions. Any new entrant could only obtain ash for processing in circumstances where its potential right to ash necessarily stood behind the prior rights of Pozzolanic to any and all “Fly Ash” as defined so as to enable Pozzolanic to extract any and all concrete grade flyash capable of being extracted from the power station “Fly Ash” as defined, in Pozzolanic’s facilities. The letters generated by TEC make it plain that TEC’s view was that any third party would stand, in effect, sublimated to the prior rights of Pozzolanic. Mr White had taken the view that Pozzolanic (as funded by its parent) had paid for and obtained these prior rights. However, that view, and the view reflected in the approach by TEC to its dealings with third parties demonstrates the effect of the provisions upon new entrant behaviour at the power station. As Mr White explained in his evidence, what was actually needed from the perspective of a third party was a change to the Pozzolanic/TEC Agreement to reflect provisions which entitled a third party either to a guaranteed volume of ash (rather than episodic or transactional access to ash as and when not needed by Pozzolanic) or access to dedicated and allocated hoppers. Mr White was entirely correct about this matter. Neither of those mechanisms were incorporated into the contract. Its provisions worked an effect of substantially lessening competition in the upstream and downstream markets as earlier described.

189    See also Pt 50, [3240], [3242] and [3257].

190    Specifically as to Tarong North [3258] is in these terms:

3258    A substantial purpose of the pleaded provisions of the Tarong Contract relating to the Tarong North Power Station was also each of the purposes of the pleaded provisions of the contract relating to the Tarong Power Station. The ash produced or to be produced upon commissioning of the Tarong North Power Station was new ash and it was very likely to be of like quality and standard to the Tarong Power Station ash as each station was burning coal from the same coal source. Entry into the Tarong Contract containing those provisions involved a contravention by Pozzolanic of s 45(2)(a)(ii). Pozzolanic contravened s 45(2)(b)(ii) by giving effect to the pleaded provisions in relation to Tarong North by acquiring flyash on the terms of the contract once the power station was commissioned. Cement Australia was knowingly concerned in Pozzolanic’s contravention of s 45(2)(b)(ii) by giving effect to the identified provisions by funding Pozzolanic’s performance of the contract by the taking of ash by truck to Tarong for processing.

191    One further aspect of the provisions concerning Tarong North should be mentioned. Although Pozzolanic by installing the classifier configured according to the approved drawings gave effect to the relevant provisions concerning that matter, I found that because the plans for the classifier were approved on 29 May 2006 and by then the balance term of the contract was relatively short, Pozzolanic was by then giving effect to provisions which did not have the effect or likely effect, in a forward-looking way, of substantially lessening competition in the identified markets.

192    In the result:

(1)    Pozzolanic contravened s 45(2)(a)(ii) by making the Tarong Contract containing provisions having the purpose, effect and likely effect of substantially lessening competition (of and by) preventing a rival from gaining access to Tarong and Tarong North unprocessed ash and preventing a rival of QCL from entering the SEQ cgf market: Declaration 16.

(2)    QCL, by funding Pozzolanic’s entry into the Tarong Contract with knowledge of the purpose, effect and likely future effect of the relevant provisions was knowingly concerned in Pozzolanic’s contravention of s 45(2)(a)(ii) contemplated by Declaration 16: Declaration 17.

(3)    Pozzolanic, by giving effect to the provisions once made, on and from March 2003, contravened s 45(2)(b)(ii): Declaration 18.

(4)    QCL, by funding Pozzolanic’s performance of the Tarong contract in the period from 26 February 2003 to 1 June 2003 (the commencement of the merger) containing provisions as contemplated by Declaration 16, with the knowledge contemplated by Declaration 17, contravened s 45(2)(b)(ii) and with knowledge of the Declaration 16 matters, was knowingly concerned in Pozzolanic’s contravention of s 45(2)(b)(ii) as contemplated by Declaration 18: Declaration 19.

(5)    Cement Australia, by funding Pozzolanic’s performance of the Tarong Contract (both in relation to the provisions concerning the Tarong Power Station and the Tarong North Power Station) on and from 1 June 2003, gave effect to the relevant provisions in contravention of s 45(2)(b)(ii), and with knowledge of the relevant provisions in terms of Declaration 16, was from 1 June 2003, knowingly concerned in Pozzolanic’s contravention of s 45(2)(b)(ii): Declaration 20.

The Swanbank Contract

193    At Pt 6 [623] to [698], I set out the history of the contractual relationship between the owner of the Swanbank Power Station and Pozzolanic. At [666] to [670], I set out matters relating to the 1998 letters and from [671] to [698], I describe the circumstances of the extension of the contract to 31 December 2004; Mr White’s letter of 11 March 2005 to Mr Christy (for CS Energy (“CSE”) the then owner of Swanbank) concerning Mr White’s proposed new supply arrangements; the extension of the contract from 31 December 2004 to 30 June 2005; the engagement of Mr White in that matter; and the evidence of Mr Christy on the supply issues.

194    I set out below aspects of the Swanbank considerations drawn from the principal liability judgment at [3215] to [3223]:

Swanbank considerations

3215    The position in relation to Pozzolanic’s arrangements with Swanbank can be stated in fairly short terms. As discussed in Part 6, Pozzolanic had enjoyed a longstanding contractual arrangement with Swanbank which conferred, in substance, exclusive access to Swanbank ash subject to certain protocols apparently designed to facilitate third party access but always subject to the prior rights of Pozzolanic. The early contractual arrangements had subsisted since 1993 by force of Contract H0315/93. That contract was amended by the letter of 9 September 1998 (with the amending agreement signed on 30 September 1998) to extend the term for four years commencing 1 January 1999 and ending on 31 December 2002 subject to the option in Pozzolanic to extend the term to 31 December 2004. The event upon which the option was conditioned occurred, and in July 2002 Pozzolanic effected an extension of the amended contract until 31 December 2004. For all practical purposes, the contract was an exclusive supply agreement until 31 December 2004.

…

3219    … from about the second quarter of 2005 the Swanbank ash became particularly problematic in terms of its quality. I have identified the evidence about that matter earlier and I will not repeat it here. It is reflected in the observations of Mr White, the strategic planning assessments of Mr White and the evidence of Mr Zeitlyn and others. It is reflected in Mr Blackburn’s evidence and his quality assessment reports. I accept Mr Blackburn’s evidence on these matters.

3220    … Mr White understood the position to be, from about the middle of 2005 (and perhaps earlier), that CS Energy was operating on the footing that it saw itself as unconstrained in its dealings with third parties. That view was entirely consistent with the evidence of Mr Christy. The content of that evidence is set out at [693] of these reasons and I will not repeat it here except to say that in Mr Christy’s view, Pozzolanic did not exhibit any desire to prevent third party access to unprocessed ash at Swanbank and exhibited no obstructive approach to CS Energy giving third party access at Swanbank, if it felt inclined to do so.

3221    Of course, Mr White had put in place by his letter of 11 March 2005 a request for an extension of the terms of the contract from 31 December 2004 to 30 June 2005 and Mr Christy had agreed to that extension on 15 March 2005. There can be little doubt that the point of the request was to preserve Pozzolanic’s exclusive access to the Swanbank ash at least until 30 June 2005. In Mr White’s earlier strategic analysis reflected in the documents I have extensively described earlier in these reasons, Mr White saw that one of the solutions to competitor threats at Swanbank was to take all the Swanbank ash. Mr White, Mr Leon, Mr Zeitlyn and others, in December 2004, prior to the expiry of the Swanbank Contract, made a visit to Senior Management at Swanbank to talk about the strategy of Pozzolanic taking all of the Swanbank ash.

3222    Nevertheless, in the period from 1 January 2005 to 31 December 2006 Mr Christy did not regard himself as constrained in any dealing with any potential off-taker by reason of the contractual arrangements with Pozzolanic [693]. Whilst that view was inconsistent with the terms of the extended contract up to 30 June 2005, I accept that Mr White proceeded on the same footing about this question as Mr Christy.

3223    To the extent that the contract as varied by the 1998 letter and as extended to 31 December 2004, and then as extended to 30 June 2005, conferred exclusivity of access, in substance and in form, upon Pozzolanic, I accept that that position came to an end by 30 June 2005 but in terms of the dealings, CS Energy was conducting itself as if it was free of that constraint from the early part of 2005, without serious objection from Pozzolanic. …

195    As to the conclusions and findings, I set out below [3225] to [3231] (see also [3261]):

3225    I accept, however, that in the period, in particular for the purposes of this case, from the beginning of 2001 and throughout 2002 and up to and including the end of February 2003 when the Tarong Contract was signed, the contractual arrangements between Pozzolanic and CS Energy at Swanbank, conferred exclusivity of access to Swanbank ash upon Pozzolanic and QCL. That position continued until 31 May 2003 and to 31 December 2004 during the period of the Pozzolanic and Cement Australia arrangements. That position also continued, in substance, until 30 June 2005, although Mr Christy saw himself free to conduct negotiations with third parties from about January 2005.

3226    The volume of ash taken by Pozzolanic from Swanbank was, as compared with the Tarong volumes, small but yet very significant. It was flyash substitutable for, or treated by Pozzolanic as substitutable for, Tarong ash. Third party access to Swanbank ash and sales of processed Swanbank ash by a third party into the SEQ concrete grade flyash market would have had significant competition effects as it would very likely have triggered MFN consequences in Pozzolanic’s supply price to its major customers. In the Pozzolanic and Cement Australia correspondence I have reviewed and described in these reasons, Pozzolanic put buyers of concrete grade flyash on notice that Tarong ash, if not available for any reason, might well be substituted with Swanbank ash.

3227    I am satisfied that the pleaded provisions of the Swanbank Contract had the effect and the continuing likely effect from the beginning of 2001, relevantly, of substantially lessening competition in the SEQ concrete grade flyash market because any new entrant to that market seeking to use Swanbank flyash, could not secure consistent or regular supply of ash for processing from Swanbank due to the provisions of the Swanbank Contract. The provisions had the effect and the continuing likely effect of substantially lessening competition by preventing access by a rival to a source of ash in the upstream unprocessed flyash market at Swanbank. The future state of competition in the SEQ concrete grade flyash market without the pleaded exclusive terms reflected in the Swanbank Contract would likely have seen third parties securing a source of supply of ash at Swanbank, processing that ash and entering the SEQ market for the supply of concrete grade flyash. Having regard to Pozzolanic and Cement Australia’s substantial position in the market, any nascent competition of that kind would have been very significant for the process of competition. Apart from that likely transactional rivalry, rivalrous supply of Swanbank concrete grade flyash would likely have triggered the MFN consequences which would in turn have been productive of price competition on a broader scale.

3228    In that sense, the stand alone provisions of the Swanbank Contract with the provisions had this effect upon future competition.

3229    However, the additional significant matter in relation to the Swanbank arrangements is the combined effect of those arrangements in circumstances where not only could a third party not practically obtain a regular and consistent supply of ash for processing from Swanbank until about 30 June 2005, but such a party could not turn to the other source of supply in SEQ, namely, the Tarong Power Station.

3230    The simple fact is that Pozzolanic was standing at the gate at both places.

3231    By March 2003, Pozzolanic found itself in the position where it had the extension of the Swanbank Contract in place; it had secured the contract for Tarong and Tarong North in the terms already discussed; and it had secured the contract at Millmerran for priority access to a minimum of 135,000 tonnes of concrete grade flyash. From March 2003 to 30 June 2005, the provisions of the Swanbank Contract continued to have the effect or likely effect, in conjunction with the Tarong provisions, of substantially lessening competition in the sense that the future scope of rivalry would be diminished by reason of the provisions as compared with the likely field of rivalry which would have emerged had the provisions not had the effect of hindering and preventing third party access to Swanbank ash either at all or on any regular and consistent basis enabling new entrant competition.

196    In the result:

(1)    Pozzolanic contravened s 45(2)(a)(ii) by reason of the extension of the Swanbank Contract to 31 December 2004 and the extension of the amended contract to 30 June 2005 containing provisions which had the effect and would have the likely effect, when the extensions were made, of substantially lessening competition by preventing a rival from securing access to Swanbank ash up to 30 June 2005 and preventing a rival of QCL from entering the SEQ cgf market up to 31 May 2003 and thereafter preventing a rival of Cement Australia from entering the SEQ cgf market up to 30 June 2005: Declaration 21.

(2)    Pozzolanic contravened s 45(2)(a)(ii) by entering into the extension from 31 December 2004 to 30 June 2005 incorporating provisions for exclusive access to Swanbank ash (until 30 June 2005) where those provisions had the purpose of substantially lessening competition in the unprocessed ash market and the SEQ cgf market by preventing a rival securing access to Swanbank ash until 30 June 2005 and preventing a rival of Cement Australia entering the SEQ cgf market: Declaration 22.

(3)    Pozzolanic contravened s 45(2)(b)(ii) by giving effect to the identified provisions from 1 January 2001 to 30 June 2005 in the circumstances contemplated by Declaration 21: Declaration 23.

(4)    Pozzolanic contravened s 45(2)(b)(ii) by giving effect to the extension from 1 January 2005 to 30 June 2005 in the circumstances of Declarations 21 and 22: Declaration 24.

(5)    QCL, by giving effect to the identified provisions contemplated by Declaration 21 in the period from 1 January 2001 to 31 May 2003, contravened s 45(2)(b)(ii): Declaration 25.

(6)    Cement Australia, by giving effect to the identified provisions contemplated by Declarations 21 and 22 contravened s 45(2)(b)(ii) of the Act: Declaration 26.

Mr White

197    The ACCC in the principal liability proceedings contended that Mr White was knowingly concerned in and aided and abetted particular contraventions. In the principal liability judgment I examined Mr White’s role as the manager of Pozzolanic in the relevant period and his engaged contribution to the Cement Australia strategy. At Pt 50 [3272] to [3274], I made the following findings:

3272    Mr White is said to have been knowingly concerned in or a party to and to have aided and abetted contraventions on the part of Cement Australia and Pozzolanic in relation to the Tarong North installation of the classifier and the extension of the Swanbank Contract, and the performance of that contract. I have found no contravention in respect of Tarong North so far as the conduct of installing a classifier is concerned.

3273    As to the Swanbank extension, the steps taken by Mr White to extend the Swanbank Contract to 30 June 2005 need to be understood in the context of the extensive documented analysis by Mr White of the strategic position of Cement Australia and Pozzolanic; the imperatives in the market confronting those companies and the circumstances confronting Cement Australia specifically in relation to third parties attempting to secure access to Swanbank ash. Although by 2005 the Swanbank ash had become variable and of doubtful quality, it still had some utility.

3274    I am satisfied on all the material that Mr White was entirely astute to the exclusive character of the arrangements between Pozzolanic and CS Energy and sought to enable Pozzolanic and Cement Australia to secure a continuation of the contract from 31 December 2004 to 30 June 2005. I am also satisfied that Mr White was astute to all of the elements of the pre-existing contractual arrangements operating up to 31 December 2004, the events which would be necessary by June 2002 to enable the option to extend to 31 December 2004 to be exercised, and was knowingly concerned in Pozzolanic having given effect to those exclusive provisions of the Swanbank Contract.

198    In the result:

(1)    Mr White was knowingly concerned in Pozzolanic’s contravention of s 45(2)(a)(ii) the subject of Declaration 22: Declaration 27.

(2)    Mr White was knowingly concerned in Pozzolanic’s contravention of s 45(2)(b)(ii) the subject of Declaration 21 in respect of conduct in the period 31 December 2004 to 30 June 2005: Declaration 28.

PART 5: THE CONTENTIONS OF THE ACCC

199    Apart from the contraventions found against CAQ (formerly QCL), Cement Australia, Pozzolanic, PIPL and Mr White, the ACCC seeks findings of ancillary contraventions against CA Holdings and additional findings against Cement Australia.

200    I address those matters separately at Part 17.

201    The ACCC says as a general approach that the exercise of the s 76 discretion should take account of these matters, as it characterises the factual position.

202    First, the contraventions by the corporate respondents (which I will simply call the respondents) were part of a deliberate commercial strategy of monopolising the SEQ unprocessed flyash market and the SEQ cgf market. It was a strategy conceived and implemented at the highest levels of the respondents over many years. It was deployed in full knowledge of the competition law risks and consequences. The strategy was described as the “sole supplier” strategy. It foreclosed competitive entry to each market. It preserved the volume, revenue and EBIT earnings of QCL and Cement Australia (and CA Holdings). The contravening conduct was intended to be highly profitable. The ACCC contends that QCL’s assessment at 9 November 2001 of the risk to its “margins” (a reference to an adverse impact on EBIT of $1 million to $6 million per annum in the QCL Business Plan of 9 November 2001 and later) projected, by the ACCC, over seven years amounts to $42 to $44 million. The ACCC says that ex post analysis shows that the QCL assessment of that measure of loss was “reasonable”. The ACCC says that the “actual benefit” may have been in the order of $50 million.

203    The ACCC says that by entering into the OMC, the amended OMC, the Tarong Contract and the Swanbank extensions, the respondents were able to maintain their “dominant position” in each market until: Sunstate Cement Ltd (“Sunstate”) began purchasing run-of-station ash from Tarong North in April 2007, grinding it to the cgf standard (AS 3582.1) and supplying cgf in the SEQ cgf market; and Independent Flyash Brokers Pty Ltd (“IFB”) entered the cgf market in 2008.

204    The ACCC contends that after Sunstate and IFB entered the markets, the sales volumes and market share of the respondents declined by over 40%. The revenue from the sale of flyash declined by a significant (confidential) amount.

205    Second, the conduct of the respondents is to be regarded as an extraordinary, persistent and very serious manipulation of the relevant market by companies with > $1 billion in assets; > $950 million in annual sales; > $170 million in EBIT earnings and substantial market power.

206    Third, an appropriate penalty must “eliminate any prospect of gain” and substantially exceed “any potential benefit” the corporate respondents could have earned from the conduct, if the penalty is to deter a “cynical calculation” of weighing the risk of penalty against the profitability of engaging in the contraventions.

207    Fourth, the ACCC says that there are nine aggravating factors to be taken into account. They are said to be these:

(1)    The contraventions involved “the deliberate monopolisation of substantial markets” by major companies over a number of years. Thus, the contraventions are in the “worst category” of contraventions of the Trade Practices Act.

(2)    The conduct significantly impeded the functioning of the SEQ unprocessed ash market and the SEQ cgf market resulting in higher prices and reduced consumer choices. Both impacts were felt by customers, suppliers and competitors. A corollary of this market harm is said to be the conferral of a significant financial benefit on the respondents.

(3)    Each contravention occurred in circumstances where the respondents “sought to defend their monopoly in the market” against new entrant competition.

(4)    The conduct constituting the contraventions was a deliberate and systematic implementation of the “sole supplier” flyash strategy in SEQ which was regarded as “essential to the profitability of the respondents SEQ flyash business”.

(5)    The respondents are substantial corporations in terms of assets and revenue.

(6)    Throughout 2002 to 31 December 2006, the corporate respondents dominated the SEQ cgf market with market share in 2004 of 96%. This dominant position is said to be “largely attributable” to the contravening conduct.

(7)    Entry into the Millmerran and Tarong Contracts as part of the flyash strategy of the respondents was approved at the highest level within the corporate structure of the respondents and continued to be implemented by senior officers of the respondents.

(8)    Many of the individuals within the respondents had an “acute appreciation” of the competition law risks of the conduct but were willing to “take the odds”. In addition, the corporate respondents offered indemnities to 16 key executives shortly after the ACCC issued notices under s 155 of the Act identifying potential contraventions. The ACCC contends that the indemnities, on their face, had an objective purpose of impeding the proper enforcement of the Act by discouraging key executives from co-operating with the ACCC. The conduct of granting the indemnities is said to show a clear “lack of a culture of compliance”.

(9)    None of the respondents (including Mr White) co-operated with the ACCC. All factual contentions were contested. Thus, the respondents are not entitled to any discounting of a penalty for co-operation.

208    Fifth, the ACCC says that having regard to all of these factors, the contraventions are in the worst category of contraventions of the Act. The penalties the ACCC considers appropriate and which it recommends to the Court as appropriate, having regard to all relevant circumstances, are these:

209    Thus, the ACCC contends that total penalties of $91 million are “appropriate”.

210    As can be seen from the table, the ACCC also contends that in respect of the ancillary contraventions the subject of the further submissions these penalties are appropriate:

(1)    In making the Swanbank extension from 1 January 2005 to 30 June 2005, Cement Australia, $2.5 million.

(2)    In making the Amended Millmerran Contract operating for the period 28 July 2004 to 30 April 2005, CA Holdings, $5 million.

211    Should the ACCC’s submissions in respect of the ancillary contraventions be upheld together with the submissions on penalty, total penalties would be $97.5 million.

212    The ACCC contends that an appropriate penalty to be imposed concerning Mr White’s knowing involvement in the entry by Pozzolanic into the Swanbank extensions and giving effect to those extensions is $150,000.

The “worst case”

213    Plainly enough, the penalties the ACCC recommends to the Court as appropriate in the exercise of the s 76 discretion are very significant. The ACCC says that these contraventions fall into the category of the “worst case” and thus attract the maximum penalty. I have already identified the considerations going to the exercise of the discretion and particular aspects of the contravening conduct. It is now necessary to examine in some detail the foundations upon which the ACCC recommends penalties of this order of magnitude.

214    The ACCC’s submissions are concerned with each of the following topics.

The roles of the relevant companies and particular individuals within them

215    I have already addressed the essential matters on this topic. However, as to matters of emphasis, the ACCC observes that in the pre-merger period, QCL was the holding company for the QCL group. As Treasury company for the group, QCL operated a single consolidated bank account for all group companies. It paid all third party invoices including royalties paid to the power stations for ash. It was the decision-maker on all capital expenditure. It contracted with customers for sale and delivered supply of flyash. It managed the group companies. I have already noted the evidence of Mr Arto and Mr Maycock concerning the conduct of Board meetings. The ACCC identifies the key decision-makers as Mr Arto, Mr Wilson and Mr Ridoutt. I also regard Mr Maycock as an important decision-maker to the extent that he sought to assert his undoubted authority and experience within the QCL group and Holcim. After the merger, QCL (CAQ) continued to act as the Treasury company for Cement Australia, CA Holdings and group subsidiaries. After the merger, QCL became a subsidiary of CA Holdings (see [126] of these reasons).

216    As to Cement Australia, that entity has never owned any shares in any of the other respondents. Its role was to provide management services from 31 May 2003 to the group of companies which came together as a result of the merger (and associated companies). It was responsible for sales, marketing and distribution of cementitious products. It employed Mr Clarke, Ms Collins and Mr Zeitlyn. The ACCC contends that Cement Australia was the “lead entity” responsible for causing the contraventions in the post-merger period.

217    As to Pozzolanic, it conducted the flyash business. It had the contracts with power stations, deployed plant and equipment on site and provided bulk materials transport of flyash. As to PIPL, it owned 100% of the shares in Pozzolanic and it gave guarantees of Pozzolanic’s performance of the OMC and the amended OMC.

218    As to CA Holdings, it became the holding company for the merged group. CA Holdings and its subsidiary and associated companies own the shares in companies that manufacture cement and source flyash and slag.

219    As to the Cement Australia partnership, it was established as part of the merger between subsidiary entities of Holcim, Readymix and Hanson. Its agent and manager was Cement Australia. The partnership conducted the activities of logistics, distribution, sales and marketing.

Scope of the contravening conduct and issues of benefit

220    The ACCC says that the 22 contraventions of making and giving effect to the relevant provisions of the various contracts are the expression of the respondents intention “to maintain a monopoly in the SEQ flyash market for at least seven years” in accordance with the respondents commercial strategy adopted from at least 2000 of being the “sole supplier” of cgf in SEQ. The ACCC says that before entering into the first contract in 2002, the respondents conducted a number of analyses and concluded that the financial benefit of preventing entry was as much as $42 to $44 million over the seven year term of the Millmerran Contract. Paragraphs [1076], [2271] and [2340] of the principal liability judgment are cited in support of that proposition. At [1076], I note that the QCL Business Plan for the period 2002-05 (formulated on 9 November 2001) comments upon strengths and weaknesses confronting QCL. One strength was that QCL then enjoyed a sole supplier status for ash in Queensland. A weakness was that QCL was confronting difficulty in retaining its “sole supplier status”, looking forward, in an environment of large existing over-supply of flyash. The Business Plan observes that Millmerran Power Station is a new source of ash and that in tendering arrangements competing bids had been received by Millmerran from FAA, Transpacific and Wagner. The Business Plan also notes that the Tarong Contract is to be decided by tender in early 2002 and the outcome will be influenced by whichever tenderer is successful at Millmerran. Interested parties for the Tarong Contract were said to be FAA, Transpacific and Adelaide Brighton Ltd.

221    In that context, the Business Plan postulates the hypothesis that any loss of QCL’s single supplier status will impact upon QCL’s annual EBIT earnings by “$1m to $6m p.a.”. The OMC had a commencement date of 30 September 2002. The first operating year was defined at 1 January 2003 to 31 December 2003. The expiry date was the last day of the seventh operating year: therefore 31 December 2009 subject to earlier termination (see the terms and the Dictionary at [930]). Assuming a full term of seven years and projecting the Business Plan hypothesis (of 9 November 2001 for the 2002-2005 years) of an EBIT loss each year of between $1 million and $6 million, the postulated impact on EBIT would be in the range $7 million to $42 million arising out of any loss of QCL’s single supplier status. At [2271], I observe that by September 2002 the March and September Board papers of 2002 were telling the QCL directors (Mr Arto and Mr Maycock) that both the Millmerran and Tarong Contracts had to be won because a loss of either contract would result in an erosion of the EBIT margin of the order of $6 million. As to this view of the projected EBIT loss, I noted the following matters at [2271] to [2274]:

2271    … The Board papers also make it plain that Pozzolanic’s objective was to secure a contract with both Millmerran and Tarong, and I so find. The reason for that could not be more plain as the Board papers from the briefing team having the carriage of the matter are telling the Board that unless Pozzolanic secures both contracts, a loss of either contract would result in a substantial loss of volume of 250,000 tonnes and an erosion in the EBIT margin of the flyash business in South East Queensland of something of the order of $6M. Mr Arto says that this view was a worst-case scenario but whatever the margin of error or exaggeration that might be thought to be encapsulated in that view from Mr Ridoutt, there is no doubt that the Board was being told, in the plainest way possible, by the principal experienced managers in whom they trusted and to whom they had entrusted the negotiations, that risk-managing QCL/Pozzolanic’s market share (of volume) and profitability measured by the EBIT margin in the flyash business, required QCL/Pozzolanic to enter into both the Millmerran and Tarong contracts.

2272    That was the message that Mr Arto understood from the Board papers, and for him, the merits of the matter were all in the margin numbers, lining up with Holcim’s benchmark expectations.