FEDERAL COURT OF AUSTRALIA
Australian Competition and Consumer Commission v Oakmoore Pty Ltd [2018] FCA 1169
ORDERS
DATE OF ORDER: |
THE COURT DECLARES THAT:
1. In January 2009, the third respondent (“Ampelite”) contravened s 45(2)(a)(ii) of the Trade Practices Act 1974 (Cth) (now the Competition and Consumer Act 2010 (Cth)) (together, the “CCA”) by making an arrangement with the second respondent (“Palram–Ampelite arrangement”):
(a) containing a provision that each of them would agree to enter into a supply arrangement to purchase profiled polycarbonate roof sheeting (“polycarb”) from the first respondent (“EGR”), on the basis that EGR would agree to refrain from supplying polycarb to retail stores, large commercial users and on-sellers (together, “commercial purchasers”),
(b) which provision had the purpose and likely effect of substantially lessening competition in the market for the supply of polycarb to commercial purchasers in Australia (“distribution market”), within the meaning of s 45(2)(a)(ii) of the CCA.
2. In March 2009, Ampelite contravened s 45(2)(b)(ii) of the CCA by giving effect to the Palram–Ampelite arrangement by entering into an arrangement to purchase polycarb from EGR on the basis that EGR would refrain from supplying polycarb to commercial purchasers.
Exclusive dealing contraventions
3. Between March 2009 and December 2011, Ampelite contravened s 47(1) of the CCA by engaging in the practice of exclusive dealing, as defined in s 47(4) of the CCA, by acquiring polycarb from EGR on the condition that EGR would not supply or seek to supply polycarb to commercial purchasers, which conduct had the purpose and likely effect of substantially lessening competition in the distribution market.
4. Between January 2012 to May 2012, Ampelite contravened s 47(1) of the CCA by engaging in the practice of exclusive dealing, as defined in s 47(4) of the CCA, by offering to acquire polycarb from EGR on the condition that EGR would not supply polycarb to commercial purchasers, or to customers of Ampelite, which conduct had the purpose of substantially lessening competition in the distribution market.
5. In June 2013, Ampelite contravened s 47(1) of the CCA by engaging in the practice of exclusive dealing, as defined in s 47(4) of the CCA, by offering to acquire polycarb from EGR on the condition that EGR would not supply polycarb to commercial purchasers, or to customers of Ampelite, which conduct had the purpose of substantially lessening competition in the distribution market.
Mr Verhagen knowingly concerned in Ampelite’s contraventions
6. The seventh respondent (“Mr Verhagen”), being a director of Ampelite having knowledge of the matters set out above and having participated in the conduct on behalf of Ampelite, was knowingly concerned in and party to Ampelite’s contraventions of the CCA described in declarations 1 to 5 above, within the meaning of s 76(1)(e) of the CCA.
THE COURT ORDERS THAT:
Pecuniary penalties
7. Ampelite pay to the Commonwealth of Australia pecuniary penalties in the amount of $2 million within 30 days of the date of this order as follows:
(a) $1 million in respect of the contraventions referred to in paragraph 3 above (insofar as those contraventions concern conduct on or after 23 June 2010);
(b) $400,000 in respect of the contraventions referred to in paragraph 4 above; and
(c) $600,000 in respect of the contraventions referred to in paragraph 5 above.
8. Mr Verhagen pay to the Commonwealth of Australia pecuniary penalties in the amount of $100,000 within 30 days of the date of this order as follows:
(a) $50,000 in respect of being knowingly concerned in the contraventions referred to in paragraph 3 above (insofar as those contraventions concern conduct on or after 23 June 2010);
(b) $20,000 in respect of being knowingly concerned in the contraventions referred to in paragraph 4 above; and
(c) $30,000 in respect of being knowingly concerned in the contraventions referred to in paragraph 5 above.
Competition Law Compliance Training Program
9. Within three months of the date of this order, Ampelite must cause all of its directors and employees whose duties could result in them being concerned with conduct that may contravene Part IV of the CCA to receive training regarding their responsibilities and obligations under Part IV of the CCA administered by an independent and suitably qualified compliance professional or legal practitioner with expertise in competition law.
Costs
10. Ampelite and Mr Verhagen jointly and severally make a contribution to the ACCC’s costs in the amount of $100,000, to be paid within 30 days of the date of this order.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
GLEESON J:
Introduction
1 In this civil penalty proceeding, the applicant (“ACCC”) seeks relief in connection with alleged anticompetitive conduct and exclusive dealing between certain suppliers of profiled polycarbonate roof sheeting (“polycarb”) to retail stores, large commercial users and on-sellers in Australia in the period from approximately December 2008 to June 2013 in contravention of the Competition and Consumer Act 2010 (Cth) (previously the Trade Practices Act 1974 (Cth)) (“CCA”).
2 The third respondent (“Ampelite”) carries on business in trade and commerce in Australia as a supplier of polycarb (among other products). The seventh respondent (“Mr Verhagen”) founded Ampelite with his brother in around 1969. He is one of three directors of Ampelite and owns 50% of the shares in Ampelite.
3 Ampelite has admitted contraventions of each of s 45(2)(a)(ii) and s 45(2)(b)(ii) of the CCA and three contraventions of s 47 of the CCA. Mr Verhagen has admitted that he was directly and knowingly concerned in and party to Ampelite’s contraventions of the CCA, within the meaning of s 76(1)(e) of the CCA.
4 The ACCC, Ampelite and Mr Verhagen (“parties”) have reached agreement as to the terms of relief to be sought from the Court to resolve the proceeding. While recognising that the question of relief remains at the Court’s discretion, those parties asked the Court to make declarations of the admitted contraventions; orders for the payment of pecuniary penalties totalling $2 million in the case of Ampelite and $100,000 in the case of Mr Verhagen; an order that Ampelite and Mr Verhagen make a contribution to the ACCC’s costs in the amount of $100,000; and an order that Ampelite establish a competition law compliance program.
5 The public interest in parties resolving civil penalty matters with regulators such as the ACCC was reaffirmed by the High Court in Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate; Construction, Forestry, Mining and Energy Union v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 258 CLR 482 (“CFMEU case”) at [46] as follows (full citations added):
[T]here is an important public policy involved in promoting predictability of outcome in civil penalty proceedings and that the practice of receiving and, if appropriate, accepting agreed penalty submissions increases the predictability of outcome for regulators and wrongdoers. As was recognised in Allied Mills [[1981] FCA 156; (1981) 37 ALR 256] and authoritatively determined in NW Frozen Foods [[1996] FCA 1134; (1996) 71 FCR 285], such predictability of outcome encourages corporations to acknowledge contraventions, which, in turn, assists in avoiding lengthy and complex litigation and thus tends to free the courts to deal with other matters and to free investigating officers to turn to other areas of investigation that await their attention.
6 For the reasons set out below, I am satisfied that the Court has power to make the proposed orders and that it is appropriate to make the orders sought.
Relevant provisions of the CCA
7 Between January and March 2009, s 45(2) provided:
A corporation shall not:
(a) make a contract or arrangement, or arrive at an understanding, if:
(i) the proposed contract, arrangement or understanding contains an exclusionary provision; 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, whether the contract or arrangement was made, or the understanding was arrived at, before or after the commencement of this section, if that provision:
(i) is an exclusionary provision; or
(ii) has the purpose, or has or is likely to have the effect, of substantially lessening competition.
8 Between March 2009 and June 2013, s 47 provided relevantly:
(1) Subject to this section, a corporation shall not, in trade or commerce, engage in the practice of exclusive dealing.
...
(4) A corporation also engages in the practice of exclusive dealing if the corporation:
(a) acquires, or offers to acquire, goods or services; or
(b) acquires, or offers to acquire, goods or services at a particular price;
on the condition that the person from whom the corporation acquires or offers to acquire the goods or services or, if that person is a body corporate, a body corporate related to that body corporate will not supply goods or services, or goods or services of a particular kind or description, to any person, or will not, or will not except to a limited extent, supply goods or services, or goods or services of a particular kind or description:
(c) to particular persons or classes of persons or to persons other than particular persons or classes of persons; ….
Agreed facts and admissions
9 The facts recorded in this judgment are based on the Statement of Agreed Facts filed by the parties (“agreed facts”). The facts refer extensively to the first respondent (“EGR”) and the fifth respondent (“Mr Horwill”), EGR’s managing director. Those parties are defending the proceeding brought by the ACCC. Similarly, the facts refer to the second respondent (“Palram Australia”), the fourth respondent (“Palram Industries”) and the sixth respondent (“Ms Horesh”) (collectively “Palram parties”). The Palram parties have admitted to different contraventions of the CCA and made a separate application for orders by consent, including orders for the payment of pecuniary penalties: see Australian Competition and Consumer Commission v Oakmoore Pty Ltd (No 2) [2018] FCA 1170.
Market for distribution of polycarb
10 There is a national market in which distributors supply polycarb to commercial purchasers, being retail stores, large commercial users and on-sellers. Based on Mr Verhagen’s estimates, between 2009 and 2013 approximately 4,600 tonnes of polycarb was supplied by distributors to commercial purchasers per annum in the distribution market. Mr Verhagen quantified the size of this distribution market in the financial year ended 30 June 2009 at approximately $45 million.
11 Mr Verhagen estimated that, between 2009 and 2012, the following distributors had the following market shares by volume:
(1) Ampelite (brand “Solasafe”) – 30%;
(2) Burnside Plastics Australia Pty Ltd (“Burnside”) / Palram Australia (brand “Suntuf”) – 30-35%;
(3) Laserlite Australia Pty Ltd (later Bayer MaterialScience Pty Ltd) (“Laserlite”) (brand “Laserlite”) – 30%; and
(4) Galaxy Rooflite Pty Ltd (“Galaxy Rooflite”) – 5%.
12 Additionally, the parties agreed that prior to April 2012, the first respondent (“EGR”) competed in the distribution market to a limited extent as it supplied polycarb to FGW Corporation (“FGW”), a commercial purchaser located in Western Australia.
13 In 2012 and 2013, there were five distributors in the market, with the following estimated market shares by volume:
(1) Ampelite – 27%;
(2) Palram Australia – 43%;
(3) Laserlite – 24%;
(4) Galaxy Rooflite – 4%; and
(5) EGR (brand “Polysun”) – 1-2%.
14 From at least October 2008 to 30 June 2013, Ampelite was, or but for the arrangements described below, was likely to be, in competition with EGR in the distribution market.
Background to contraventions
15 Between 1 July 2008 and 30 June 2013, sales of polycarb formed approximately 30% of Ampelite’s revenue. During that period, Ampelite’s total annual revenue ranged from $38.65 to $52.4 million and its total annual profit ranged from $3.27 million to $8.27 million.
16 At all material times, EGR was a manufacturer and supplier of plastics products, including automotive accessories and building products, based in Brisbane, Queensland.
17 In around late 2007 or early 2008, EGR purchased an extrusion line, which was a machine capable of manufacturing polycarb.
18 In around late 2008, Mr Verhagen was told by a representative of EGR that EGR was seeking to supply distributors with polycarb manufactured using its new extrusion machine, and that EGR wished to enter into a supply agreement with Ampelite by which Ampelite would acquire a minimum guaranteed yearly volume of polycarb from EGR.
19 Between approximately December 2008 and February 2009, during the course of negotiations between concerning the potential supply agreement just described, Mr Horwill said to Mr Verhagen on a number of occasions words to the effect that unless Ampelite agreed to purchase polycarb from EGR, EGR would enter the “retail market”, meaning EGR would supply polycarb to commercial purchasers in the distribution market, in competition with Ampelite and other distributors.
20 Mr Verhagen understood Mr Horwill to mean that if Ampelite purchased a substantial tonnage of polycarb from EGR, then EGR would not supply polycarb directly to commercial purchasers in the distribution market, and would not become an actual (as distinct from potential) competitor of distributors, including Ampelite.
21 At the time, Mr Verhagen considered Mr Horwill’s comments to be a threat to the effect that EGR would commence supplying polycarb directly to commercial purchasers in the distribution market in competition with distributors, including Ampelite, if Ampelite did not agree to enter into a supply agreement with EGR. Mr Verhagen considered Mr Horwill’s threat to be credible.
22 Mr Verhagen was concerned about the potential entry of EGR into the distribution market, as he believed the addition of a new supplier would lead to Ampelite being required to lower its prices for polycarb in order to compete with the new supplier and reduce its margins.
Ampelite–Palram anticompetitive arrangement (s 45 contraventions)
23 In around January 2009, Mr Verhagen became aware, through discussions with the then chief financial officer of EGR, Simon McLellan, that EGR had approached, or intended to approach, Palram Australia and Burnside regarding a potential agreement for EGR to supply polycarb to Palram Australia or Burnside.
24 During January 2009, Mr Verhagen spoke with Ms Horesh, a representative of Burnside, Palram Australia and Palram Industries. They discussed their mutual concern that, if they did not fulfil EGR’s volume requirements, EGR would seek to supply polycarb directly to commercial purchasers and this would lead to a reduction in prices in the distribution market, and lower margins.
25 Mr Verhagen was concerned that Ampelite alone could not purchase enough polycarb to fulfil EGR’s requirements and secure its agreement to refrain from supplying polycarb directly to commercial purchasers in the distribution market.
26 During the discussions, Mr Verhagen told Ms Horesh:
(1) that representatives of EGR had told Mr Verhagen that EGR would commence supplying polycarb to commercial purchasers in the distribution market if it could not secure substantial tonnage from the sale of its polycarb to distributors;
(2) that he was concerned about the potential impact of EGR entering the distribution market; and
(3) that if both Ampelite and Burnside/Palram Australia acquired enough polycarb from EGR, then they would satisfy EGR’s tonnage requirements and EGR would not have to sell polycarb directly to commercial purchasers in the distribution market.
27 During the discussions, Ms Horesh told Mr Verhagen:
(1) she shared his concerns about the potential impact that entry by EGR in the distribution market would have on the price of polycarb;
(2) she agreed that Burnside/Palram Australia and Ampelite should purchase polycarb from EGR in order to try and keep EGR out of the distribution market; and
(3) Burnside/Palram Australia would enter into a supply agreement to purchase polycarb from EGR in order to satisfy EGR’s requirements to prevent it from supplying polycarb to commercial purchasers in the distribution market.
28 As a result of these discussions, in January 2009, Mr Verhagen and Ms Horesh, on behalf of Ampelite and Palram Australia respectively, verbally agreed upon the terms of the Palram–Ampelite arrangement. This agreement contained a provision that each of them would agree to enter into a supply arrangement to purchase polycarb from EGR on the basis that EGR would agree to refrain from supplying polycarb to commercial purchasers.
29 The provision of the Palram–Ampelite Arrangement just described had the purpose and was likely to have the effect of substantially lessening competition in the distribution market within the meaning of s 45(2)(a)(ii) of the CCA.
30 In March 2009, Ampelite gave effect to the Palram–Ampelite arrangement by entering into the Ampelite–EGR arrangement, described below, in contravention of s 45(2)(b)(ii) of the CCA.
Ampelite–EGR exclusive dealing (first s 47 contravention)
31 On 22 December 2008, Mr Verhagen participated in a telephone conversation with Mr Horwill of EGR, during which:
(1) Mr Horwill told Mr Verhagen that unless Ampelite was able to commit to purchasing a substantial amount of polycarb from EGR, EGR would have no choice but to “go to the market” (meaning, supplying polycarb directly to commercial purchasers in the distribution market); and
(2) Mr Verhagen told Mr Horwill that he did not want EGR as a “fourth player” in the distribution market.
32 Mr Verhagen’s reference to EGR becoming a “fourth player” in the distribution market was a reference to the fact that, at the time, he considered the three distributors of polycarb of significance in the distribution market to be Ampelite, Burnside and Laserlite.
33 Mr Verhagen (and therefore Ampelite) did not believe that the existence of another substantial distributor in the distribution market was sustainable beyond the short term. He believed that if EGR competed to supply polycarb to commercial purchasers there was a chance this would have the effect, in the short term, of reducing prices in the distribution market, Ampelite losing sales to EGR and lowering margins made by distributors of polycarb. In the longer term, Mr Verhagen believed that one of what would then be four substantial players would be forced to exit the distribution market, as the market could not sustainably support a substantial fourth supplier in addition to Ampelite, Burnside and Laserlite.
34 Thereafter, representatives of EGR and representatives of Ampelite negotiated the terms of a potential supply arrangement.
35 On 13 January 2009, Mr Verhagen attended a meeting with Mr Horwill and Mr Iain Whyley of EGR, at EGR’s Brisbane premises. During that meeting:
(1) the attendees discussed the terms of a potential arrangement for Ampelite to purchase polycarb from EGR on the basis that EGR would not supply polycarb directly to commercial purchasers;
(2) Mr Verhagen, on behalf of Ampelite, offered to purchase 400 tonnes of polycarb per annum from EGR;
(3) Mr Horwill stated that EGR required Ampelite to commit to purchasing 1,000 tonnes of polycarb per annum from EGR; and
(4) Mr Horwill said words to the effect that if Ampelite could not provide EGR with the volume commitment it required, EGR would have no choice but to commence supplying polycarb directly to commercial purchasers.
36 Between 13 January 2009 and 27 January 2009, representatives of EGR and representatives of Ampelite exchanged a series of emails further negotiating the terms of the potential supply arrangement just described. These emails included:
(1) an email sent by Mr Jacob Bellaart, Ampelite’s company secretary and chief financial officer, on behalf of Mr Verhagen, to Mr Whyley at 11.13 am on 20 January 2009, entitled “FW: Price Proposal”, in which Ampelite offered to purchase 600 tonnes of polycarb per annum from EGR, and Mr Bellaart stated the “offer [was] subject to certain conditions that we can agree on when we discuss our proposal with you today”;
(2) an email sent by Mr Horwill to Mr Verhagen at 9.21 am on 21 January 2009, entitled “POLYCARBONATE PROFILE SHEET PRICING”, in which Mr Horwill attached a list of prices at which EGR would be prepared to supply polycarb to Ampelite; and
(3) an email sent by Mr Whyley to Mr Bellaart, for the attention of Mr Verhagen, at 1.29 pm on 27 January 2009, entitled “RE: Price Proposal”, attaching a draft sales/purchase agreement entitled “Ampelite Agreement draft 2”.
37 On 30 January 2009, at the instruction of Mr Verhagen, Mr Bellaart sent an email to Mr Whyley entitled “RE: Price Proposal”. Mr Verhagen requested that the following words be added to the draft sale/purchase agreement: “The non-exclusivity means that EGR can supply similar products to other wholesalers but strictly not to retail outlets selling to the public or trade, including roofing contractors and end users”.
38 On the same day, Mr Whyley replied to Mr Verhagen’s request, stating:
The issue here would be if Burnside Palram do not come over, we would require the right to try and obtain subsequent tonnage to make up the 1000T, we could only agree to this without Burnside if you raised your own tonnage from 600 to 1000t. Otherwise can we use wording like “EGR would only approach retailers such as Bunnings after discussions with Ampelite, whereby both parties agreeing [sic].
39 Between 30 January 2009 and February 2009, Ampelite and EGR continued to negotiate regarding the terms of a sale/purchase arrangement for the supply of polycarb by EGR to Ampelite.
(1) Mr Verhagen told Mr Horwill and the general manager of sales and marketing for EGR’s extrusion division, Ian Whyley, that Ampelite would only purchase polycarb from EGR if it agreed not to supply polycarb directly to commercial purchasers in the distribution market; and
(2) Mr Horwill told Mr Verhagen that if Ampelite agreed to purchase polycarb from EGR, EGR would have no reason to supply polycarb to commercial purchasers in the distribution market.
41 In March 2009, Ampelite entered into a written agreement with EGR for the purchase of polycarb.
42 While it was not recorded in the written supply agreement, Ampelite entered into that agreement on the basis that in doing so, EGR would not supply polycarb to commercial purchasers. Agreement on this basis had been reached in the conversations between Mr Verhagen and Mr Horwill referred to at [31], [35] and [40] above. At the time, Mr Verhagen had no particular need for an additional supplier to Ampelite. The price EGR was charging Ampelite for polycarb was not particularly attractive and similar to one of Ampelite’s other suppliers and perhaps even marginally dearer overall. Mr Verhagen believed that there might have been some benefit of having Australian sourced product (EGR’s product being produced in Brisbane), although was nevertheless concerned about this because most of Ampelite’s product was not Australian made and the mix of Australian made with non-Australian made may have been difficult to distinguish in the market. There was also some benefit in the convenience of a quick production time, rather than having to wait for an imported product to be shipped. However, Mr Verhagen’s primary motivation was that it made sense from a business point of view for Ampelite to support EGR, rather than create one more competitor in the distribution market.
43 Mr Verhagen’s purpose in agreeing, on behalf of Ampelite, to enter into the supply agreement with EGR was to prevent EGR from supplying polycarb directly to commercial purchasers as a distributor in the distribution market.
44 By negotiating and entering into the supply agreement in March 2009, EGR and Ampelite made the Ampelite–EGR arrangement. This provided that:
(1) Ampelite would purchase 600 tonnes of polycarb per annum from EGR for a period of one year with automatic renewals thereafter for periods of one year; and
(2) on that basis, EGR would not supply or seek to supply polycarb to commercial purchasers.
45 The engaging by Ampelite in the conduct referred to at [44(1)] and [44(2)] above and [46] below had the purpose and likely effect of substantially lessening competition in the distribution market (within the meaning of s 47 of the CCA).
46 Between March 2009 and December 2011, Ampelite purchased polycarb from EGR on 331 occasions in accordance with the Ampelite–EGR arrangement.
47 However, Ampelite’s purchases of polycarb from EGR fell short of the 600 tonnes per annum required by the supply agreement. There were several reasons why Ampelite’s orders from EGR fell short of that volume. First, the 600 tonnes per annum was too ambitious from Ampelite’s perspective. Second, it was Ampelite policy to have at least three suppliers at all times in order to ensure continuity of supply and to obtain lower prices. Third, continuity of existing suppliers was important for providing precise colour-matching of polycarb, as required by Ampelite’s customers. As between different manufacturers (including EGR) they all have some degree of variation in their polycarb colours such that ‘Opal’ or ‘Bronze’ produced by EGR would not perfectly match ‘Opal’ or ‘Bronze’ produced by an overseas manufacturer. Fourth, while simultaneously being in a contract with Laserlite, Ampelite had greater incentive to buy polycarb from Laserlite than EGR. This was because the contract with Laserlite contained a “take or pay clause” which required certain payments to be made to Laserlite if the stipulated volume of polycarb had not been ordered by Ampelite.
48 The total volume and value of polycarb purchased by Ampelite from EGR pursuant to the Ampelite–EGR Arrangement is set out in the following table:
Period | Total Volume (tonnes – estimated ) | Total value ($) |
March 2009 to June 2009 | 86 | $517,000 |
July 2009 to June 2010 | 570 | $3,292,000 |
July 2010 to June 2011 | 410 | $2,467,000 |
July 2011 to December 2011 | 186 | $1,045,000 |
49 Mr Verhagen was aware of, and authorised, the conduct of Ampelite described above.
50 Ampelite’s failure to purchase 600 tonnes of polycarb per annum from EGR did not result in EGR seeking to bring about a formal termination of the supply agreement. Ampelite continued to place orders monthly for varying quantities of polycarb subject to satisfactory prices.
51 While Ampelite’s contravening conduct spanned the period from March 2009 to December 2011, acquisitions of polycarb occurring prior to 22 June 2010 are out of time for penalty: s 77(2) CCA.
52 Between July 2010 and December 2011, Ampelite acquired approximately 596 tonnes of polycarb from EGR at a total cost of approximately $3,512,000. Those acquisitions were subject to the condition described in [44] above and in time for penalty, the ACCC having commenced the present proceedings within six years of their occurrence.
Ampelite’s 2012 offer to acquire on exclusive terms (second s 47 contravention)
53 In or about January 2012, Mr Verhagen became aware that EGR was taking more expansive steps to supply polycarb directly to commercial purchasers. The further steps taken by EGR around this time included:
(1) employing a retail sales manager for the sale of polycarb; and
(2) expanding its direct supply of polycarb to commercial purchasers under EGR's brand “Polysun”.
54 In or about January 2012, Mr Verhagen telephoned Trevor Bell, who took over Mr Whyley’s role after the latter left EDR in around 2010, to discuss the possibility of Ampelite entering into another arrangement with EGR by which Ampelite would agree to acquire polycarb from EGR on the basis that EGR would agree not to supply polycarb directly to commercial purchasers.
55 On 19 January, 2012, Mr Verhagen participated in a meeting with Mr Bell and Mr McLellan during which Mr Bell or Mr McLellan stated that EGR wished to enter into a supply agreement with Ampelite whereby Ampelite would agree to acquire a minimum of 1,000 tonnes of polycarb per annum from EGR.
56 Mr Verhagen advised that Ampelite was not able to agree to a minimum volume commitment of 1,000 tonnes per annum and instead offered to enter into a month-to-month arrangement with EGR pursuant to which it would acquire a total of approximately 300 tonnes of polycarb per annum from EGR.
57 Between January 2012 and May 2012, representatives of EGR and representatives of Ampelite engaged in a series of oral and written communications during which they continued to negotiate the terms of the potential supply arrangement described at [35] above. These communications included:
(1) a telephone conversation between Mr Verhagen and Mr Horwill in or around April 2012, during which Mr Verhagen offered to purchase 70,000 lineal metres of polycarb from EGR per month in exchange for EGR “staying away” from customers of Ampelite;
(2) an email sent by Mr Bellaart, on behalf of Mr Verhagen, to Mr Horwill on 13 April 2012, entitled “SUPPLY OF PROFILE POLYCARBONATE SHEETING”, in which Mr Verhagen stated that Ampelite would endeavour to commit to monthly orders of 70,000 lineal metres of polycarb from EGR if EGR “[came] back to [Ampelite] with a favourable response to [its] position in the market place – as we have previously discussed”;
(3) a telephone conversation between Mr Verhagen and Mr Bell on or around 23 April 2012, during which Mr Verhagen offered to purchase 1,000 tonnes of polycarb per annum from EGR for a period of 3 years, on the basis that EGR would agree to not being in the market, that is, not supplying polycarb to commercial purchasers;
(4) a meeting between Mr McLellan and Mr Verhagen on or around 24 April 2012, during which Mr McLellan and Mr Verhagen discussed the possibility of entering into an arrangement whereby Ampelite would commit to purchasing 1,000 tonnes of polycarb per annum from EGR for a period of three years, on the basis that EGR would agree to abandon selling directly in the market, that is, not supplying polycarb to commercial purchasers in the distribution market; and
(5) an email sent by Mr McLellan to Mr Bellaart, on behalf of Mr Verhagen, on 3 May 2012, entitled “EGR DISTRIBUTION AGREEMENT”, with a draft sales/purchase agreement (“draft supply agreement”) attached.
58 The draft supply agreement provided relevantly that:
(1) Ampelite agreed to purchase an “Annual Volume Commitment” of 1000 tonnes of Polycarb from EGR during each year of the term of the contract;
(2) EGR agreed not to supply Polycarb directly to any customer of Ampelite (cl 9.1); and
(3) EGR acknowledged that Ampelite’s agreement to acquire polycarb from EGR was conditional on EGR complying with cl 9.1 (cl 9.2).
59 The conduct of Ampelite in seeking to negotiate the further supply arrangement had the purpose of substantially lessening competition in the distribution market.
60 On 7 May 2012, Mr Bellaart, on behalf of Mr Verhagen, sent an email to Mr McLellan which stated that Ampelite had come to the decision that it was unable to enter into a three year distribution agreement with EGR.
61 EGR’s expansion of its direct supply of polycarb to commercial purchasers, and sales efforts to supply polycarb directly to commercial purchasers had continued throughout the period of the correspondence set out above and was maintained until at least June 2013.
Ampelite’s 2013 offer to acquire on exclusive terms (third s 47 contravention)
62 By around June 2013, Mr Verhagen had formed the view that the revenue Ampelite was making from the sale of polycarb had been diminishing as a result of two factors. The first factor was that Ampelite had been required to lower its prices for polycarb to prevent some of its customers from switching to purchasing polycarb from EGR. Mr Verhagen considered this was a significant factor leading to the observed price reductions. The second factor was that Mr Verhagen had perceived that there had been a decrease in the market price of polycarb more generally, which he considered had been driven by Laserlite having reduced its selling prices after it had lost the very substantial business it previously had with Bunnings, a large hardware chain, to Palram.
63 On or around 3 June 2013, Mr Verhagen and Mr McLellan of EGR participated in a telephone conversation during which Mr Verhagen offered to purchase approximately 450 tonnes of polycarb per annum from EGR on the basis that EGR would agree to cease supplying, or seeking to supply, polycarb to commercial purchasers.
64 On 6 June 2013, Mr McLellan sent an email to Mr Bellaart, addressed to Mr Verhagen, which:
(1) attached a copy of a draft supply agreement;
(2) stated that he encouraged Mr Verhagen to review the draft supply agreement and come back to Mr McLellan the following week as that was the document EGR envisaged Ampelite and EGR would need to sign; and
(3) stated that EGR had reduced its minimum volume expectation from 1,000 tonnes of polycarb per annum to 800 tonnes of polycarb per annum.
65 The copy of the draft supply agreement attached to Mr McLellan’s email of 6 June 2013 contained the same clauses as those described in the draft supply agreement at [58] above.
66 Throughout June 2013, representatives of EGR and representatives of Ampelite engaged in oral and written communications during which they continued to negotiate the terms of a potential supply arrangement whereby Ampelite would agree to acquire polycarb from EGR on the basis that EGR would agree to cease supplying, and seeking to supply, polycarb to commercial purchasers.
67 On 19 June 2013, Mr Bellaart sent an email to Mr McLellan, at the instruction of Mr Verhagen, which, inter alia, asked Mr McLellan:
(1) how EGR proposed to notify prospective and current customers that it was vacating retail, trade and roofing outlets; and
(2) to which customers, under the proposed sales/purchase agreement, it was anticipated EGR would be able to sell.
68 The conduct of Ampelite in seeking to negotiate the further supply arrangement had the purpose of substantially lessening competition in the distribution market.
69 On 27 June 2013, the ACCC issued a notice to Ampelite pursuant to s 155 of the CCA seeking information and documents in relation to alleged cartel conduct in the polycarbonate roofing industry.
70 Following this, Ampelite ceased attempting to negotiate the supply agreement described above. Ampelite and EGR did not ultimately reach an agreement in respect of the potential supply arrangement described at [63] to [67] above.
Relief
71 The legal principles relevant to the grant of relief by consent in matters of this kind are well known. The parties’ joint submissions contained an accurate and comprehensive statement of the relevant legal framework, which I have substantially adopted below to explain why I am satisfied both that the Court has power to make the proposed orders and that it is appropriate to do so.
Declarations
72 The Court has a wide discretionary power to make declarations under s 21(1) of the Federal Court of Australia Act 1976 (Cth). Before making a declaration three requirements should be satisfied:
(1) the question must be a real and not a hypothetical or theoretical one;
(2) the applicant must have a real interest in raising it; and
(3) there must be a proper contradictor: Forster v Jododex Australia Pty Ltd [1972] HCA 61; (1972) 127 CLR 421 at 437 per Gibbs J quoting Russian Commercial and Industrial Bank v British Bank for Foreign Trade Ltd [1921] 2 AC 438 at 448 per Dunedin LJ.
73 I accept that these requirements are satisfied in this case:
(1) There is a significant legal controversy in this case which is being resolved. The proposed declarations relate to conduct that contravenes the CCA and the matters in issue have been identified and particularised by the parties with precision.
(2) It is in the public interest for the ACCC to seek to have the proposed declarations made and for the proposed declarations to be made. The ACCC as the public regulator under the CCA has a genuine interest in seeking the declaratory relief.
(3) Ampelite and Mr Verhagen are proper contradictors because both are respondents and are the subject of the proposed declarations. They therefore have an interest in opposing the making of the proposed declarations.
74 Where declarations are sought by consent, the Court’s discretion is not supplanted; however, the Court will not usually refuse to give effect to terms of settlement by declining to make orders where they are within jurisdiction and are otherwise unobjectionable: Australian Competition and Consumer Commission v Acquire Learning & Careers Pty Ltd [2017] FCA 602 at [96] per Murphy J referring to Australian Competition and Consumer Commission v Econovite Pty Ltd [2003] FCA 964 at [11] per French J (as his Honour then was).
75 The proposed declarations contain sufficient indication of how and why the relevant conduct contravened the CCA. I am satisfied that the factual basis for each of the proposed declarations is contained in the agreed facts, as recorded above.
76 Further, having regard to Nicholson J’s reasoning in Australian Competition and Consumer Commission v Construction, Forestry, Mining and Energy Union [2006] FCA 1730; (2007) ATPR 42-140 at [6], I accept that the declarations sought are appropriate because they serve to:
(1) record the Court’s disapproval of the contravening conduct;
(2) vindicate the ACCC’s claims that Ampelite contravened the CCA, and that Mr Verhagen was knowingly concerned in those contraventions;
(3) assist the ACCC to carry out the duties conferred upon it by the CCA;
(4) inform the public of the harm arising from Ampelite and Mr Verhagen’s conduct; and
(5) deter other corporations from contravening the CCA.
Pecuniary penalties
77 The central consideration in determining pecuniary penalties is deterrence, both general and specific. Penalties must be set at a level which will not be seen as “an acceptable cost of doing business”: Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20; (2012) 287 ALR 249 at [68] (“Optus v ACCC”).
78 In determining a penalty of appropriate deterrent value, s 76(1) of the CCA requires the Court to have 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” Pt VI of the CCA, relevantly, to have engaged in any similar conduct.
79 Achieving a penalty of appropriate deterrent value is the purpose of having regard to all relevant factors and recourse to the tools of analysis used when exercising the penalty fixing discretion, including the “course of conduct” (or “one transaction” principle) and the “totality” principle, both of which are referred to in more detail below.
80 The assessment of pecuniary penalties under s 76 of the CCA involves a similar process to that of criminal sentencing as described in Markarian v The Queen [2005] HCA 25; (2005) 228 CLR 357 (“Markarian”): see Director of Consumer Affairs Victoria v Alpha Flight Services Pty Ltd [2015] FCAFC 118 at [43]. It involves assessing the relevant factors and synthesising a conclusion as to the appropriate penalty. The following propositions are derived from the reasons of Gleeson CJ, Gummow, Hayne and Callinan JJ in Markarian at [27] to [39]:
(1) assessment of the appropriate penalty is a discretionary judgment based on all relevant factors but careful attention to maximum penalties will almost always be required, first because the legislature has legislated for them; and 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;
(2) it will rarely be appropriate for a Court to start with the maximum penalty and proceed by making a proportional deduction from that maximum; the Court should not adopt a mathematical approach of increments or decrements from a predetermined range, or assign specific numerical or proportionate value to the various relevant factors; and
(3) since the law strongly favours transparency, accessible reasoning is necessary in the interests of all, and, while there may be occasions where some indulgence in an arithmetical process will better serve the end, it does not apply where there are numerous and complex considerations that must be weighed.
81 Matters relevant to the assessment of a pecuniary penalty were addressed in Trade Practices Commission v CSR Ltd [1990] FCA 762 at [42]; (1991) ATPR 41-076 at 52,152-52,153 per French J. They are:
(1) the nature and extent of the contravening conduct;
(2) the amount of loss or damage caused;
(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 CCA as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention; and
(9) whether the company has shown a disposition to cooperate with the authorities responsible for the enforcement of the CCA in relation to the contravention.
82 Those considerations were approved and expanded upon with the following additional considerations in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission [1996] FCA 1134; (1996) 71 FCR 285 (“NW Frozen Foods”) and J McPhee & Son (Aust) Pty Ltd v Australian Competition and Consumer Commission [2000] FCA 365; (2000) 172 ALR 532:
(1) whether similar conduct has occurred in the past;
(2) the effect of the conduct on the functioning of the market and other economic effects of the conduct;
(3) the financial position of the contravening company; and
(4) whether the conduct was systematic, deliberate or covert.
83 In the CFMEU case, the plurality explained the desirability of the Court accepting an agreed proposed penalty, provided the court is persuaded that what is proposed is appropriate, at [57] and [58] as follows:
[57] … [I]n civil proceedings there is generally very considerable scope for the parties to agree on the facts and upon consequences. There is also very considerable scope for them to agree upon the appropriate remedy and for the court to be persuaded that it is an appropriate remedy. Accordingly, settlements of civil proceedings are commonplace and orders by consent for the payment of damages and other relief are unremarkable. So are court-approved compromises of proceedings on behalf of infants and persons otherwise lacking capacity, court-approved custody and property settlements, court-approved compromises in group proceedings and court-approved schemes of arrangement. More generally, it is entirely consistent with the nature of civil proceedings for a court to make orders by consent and to approve a compromise of proceedings on terms proposed by the parties, provided the court is persuaded that what is proposed is appropriate.
[58] Possibly, there are exceptions to the general rule. There is, however, no reason in principle or practice why civil penalty proceedings should be treated as an exception. Subject to the court being sufficiently persuaded of the accuracy of the parties’ agreement as to facts and consequences, and that the penalty which the parties propose is an appropriate remedy in the circumstances thus revealed, it is consistent with principle and, for the reasons identified in Allied Mills, highly desirable in practice for the court to accept the parties’ proposal and therefore impose the proposed penalty. To do so is no different in principle or practice from approving an infant’s compromise, a custody or property compromise, a group proceeding settlement or a scheme of arrangement.
84 At [64], their Honours adverted to the relevance of submissions made on behalf of the regulator as follows:
[I]t is consistent with the purposes of civil penalty regimes … 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 that the regulator’s submissions as to the terms and quantum of a civil penalty be treated as a relevant consideration.
Proposed penalties
85 The parties jointly submitted that, after synthesising all relevant factors and applying the “course of conduct” principle and taking into account the cooperation discount (both referred to below), the following pecuniary penalties totalling $2 million should be imposed for Ampelite’s contraventions of s 47(1) (excluding those out of time for penalty):
(1) first s 47 contravention: $1 million;
(2) second s 47 contravention: $400,000; and
(3) third s 47 contravention: $600,000.
86 On the same basis, the parties jointly submitted that pecuniary penalties totalling $100,000 should be imposed on Mr Verhagen, for being knowingly concerned in Ampelite’s contraventions of s 47 (excluding those out of time for penalty):
(1) first s 47 contravention: $50,000;
(2) second s 47 contravention: $20,000; and
(3) third s 47 contravention: $30,000.
87 The parties submitted that the proposed penalties make it clear to Ampelite and Mr Verhagen, and to other businesses and individuals, that exclusive dealing of a serious nature as occurred in this matter will attract substantial penalties.
88 Ampelite’s contraventions of s 45(2) of the CCA (and Mr Verhagen’s involvement in those contraventions) in relation to the Palram–Ampelite arrangement do not give rise to penalties because the conduct occurred over six years prior to the ACCC’s commencement of these proceedings: s 77(2) CCA.
Maximum penalties
89 Section 76(1A) of the CCA provides that the maximum penalty payable by a corporation for each act or omission to which the section applies, is the greatest of:
(1) $10 million (s 76(1A)(b)(i));
(2) 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 (s 76(1A)(b)(ii)); or
(3) if the Court cannot determine the value of that benefit – 10% of the annual turnover of the body corporate during the period of 12 months ending at the end of the month in which the act or omission occurred (s 76(1A)(b)(iii)).
First s 47 contravention
90 The maximum penalty for each act or omission comprising the first s 47 contravention is $10 million, on the following basis:
(1) Ampelite obtained benefits that were reasonably attributable to the first s 47 contravention (s 6(1A)(b)(ii) CCA), in that:
(a) the Ampelite–EGR arrangement prevented EGR from supplying polycarb to commercial purchasers from March 2009 to December 2011; and
(b) during this period, Ampelite obtained the benefit of not having to compete with EGR in the distribution market, which enabled it to maintain its margins.
(2) It is not possible to determine the value of the benefits obtained by Ampelite that were reasonably attributable to the first s 47 contravention (s 76(1A)(b)(ii) CCA).
(3) Ampelite’s turnover during the period of 12 months ending at the end of December 2011 for the purposes of s 76(5) was $49,151,000.
(4) The greatest of:
(a) $10 million; or
(b) 10% of the annual turnover of Ampelite during the period of 12 months ending at the end of December 2011, being $4,915,100,
is $10 million (s 76(1A)(b)(i), (iii)) CCA.
91 As already noted, by reason of s 77(2) of the CCA, only acts or omissions which occurred after 22 June 2010 in relation to the first s 47 contravention are in time for penalty.
Second s 47 contravention
92 The maximum penalty for each act or omission comprising the second s 47 contravention is also $10 million.
93 Ampelite did not obtain benefits from engaging in the second s 47 contravention (s 76(1A)(b)(ii) CCA). The second s 47 contravention involved offers to acquire polycarb from EGR, on the condition that EGR would not supply polycarb to commercial purchasers or to customers of Ampelite. This conduct did not prevent EGR from competing in the distribution market for Ampelite’s customers (and EGR in fact took steps to compete with Ampelite for those customers from at least January 2012). It follows that the value of any benefits obtained by Ampelite in relation to these contraventions is able to be determined to be zero, as no benefit was obtained (s 76(1A)(b)(ii) CCA).
94 The greatest of $10 million and zero is $10 million (s 76(1A)(b)(i), (ii) CCA).
Third s 47 contravention
95 The applicable maximum penalty for each act or omission comprising third s 47 contravention is again $10 million.
96 As with the second s 47 contravention, Ampelite did not obtain any benefit from the third s 47 contravention (s 76(1A)(b)(ii) CCA). During the period of this contravention, EGR was actively targeting Ampelite’s customers in the distribution market.
97 The greatest of $10 million and zero is $10 million (s 76(1A)(b)(i), (ii) CCA).
Mr Verhagen
98 The maximum penalty for each act or omission of Mr Verhagen being knowingly concerned in each of Ampelite’s contraventions is $500,000 (s 76(1B) CCA).
99 No penalty is sought against Mr Verhagen in relation to any act or omission by him in being knowingly concerned in the s 45 contraventions or the first s 47 contravention to the extent that those acts or omissions occurred before 22 June 2010.
Relevant factors
100 Below I have recorded (with minor alterations) the parties’ joint submissions concerning the relevant factors, which I accept.
Nature and extent of contravening conduct, circumstances in which it took place and any loss or damage
101 The conduct constituted serious contraventions of the CCA. The parties agreed that the conduct engaged in by Ampelite and Mr Verhagen:
(1) was covert in the sense that it involved dealings between suppliers that were not public or known to their customers;
(2) extended across a period of at least three years;
(3) involved direct participation by the most senior management of Ampelite and EGR and, consequently, was authorised at the highest level of each company – the conduct was engaged in by Mr Verhagen, who is one of the three directors of Ampelite and owns 50% of the shares in Ampelite;
(4) circumvented the natural competitive process associated with new entry into an established market and denied customers the benefits of rigorous competition, including potentially lower prices and improved service; and
(5) was undertaken for financial gain, in the sense of limiting reductions in profit or avoiding losses.
A. The Palram–Ampelite arrangement
102 The genesis of the contraventions can be found in the discussions between Mr Verhagen and Ms Horesh of Palram Australia during January 2009 described at [24] to [29] above. Mr Verhagen and Ms Horesh were concerned about the impact of EGR’s possible entry into the market on their volumes and margins.
103 At the time EGR had invested in a new extrusion machine, and its managing director (Mr Horwill) had made it clear that EGR would “come into the market” if it could not secure sufficient volume from Ampelite.
104 Mr Verhagen’s own view was that a market structure based on four significant suppliers was not sustainable in the long term. In other words, if EGR was successful in establishing itself as a substantial distributor, one of the four “major players” (Ampelite, Burnside/Palram, EGR or Laserlite) would ultimately be forced to exit the distribution market. In addition, Ampelite would be forced to lower its prices to respond to the new competition from EGR.
105 Mr Verhagen and Ms Horesh agreed that Palram and Ampelite would each enter into a supply agreement to purchase polycarb from EGR on the basis that EGR would refrain from supplying polycarb to customers in the distribution market. That agreement was the Palram–Ampelite arrangement.
B. First s 47 contravention
106 Consistent with the agreement reached between Mr Verhagen and Ms Horesh, in March 2009 Ampelite entered into an arrangement with EGR containing provisions that:
(1) Ampelite would purchase 600 tonnes of polycarb per annum from EGR for a period of one year with automatic renewals thereafter for periods of one year; and
(2) on that basis, EGR would not supply or seek to supply polycarb to commercial purchasers.
107 At the time of the first s 47 contravention, Ampelite and Mr Verhagen had no particular need for an additional supplier. Mr Verhagen’s primary motivation for entering into the arrangement was to prevent EGR from supplying polycarb directly to commercial purchasers as a distributor in the distribution market.
108 Ampelite and Mr Verhagen were successful in achieving this objective as EGR did not commence direct distribution to customers until early 2012 (other than pre-existing limited distribution to FGW). As a consequence, customers were denied the value (in terms of lower prices and/or better service offerings) of direct competition between EGR and Ampelite.
109 Ampelite acquired polycarb from EGR under the terms of this agreement (including the condition described at [44] and [106] above) on 331 occasions from March 2009 until December 2011.
110 These acquisitions were commercially significant. Over the entire period for which the agreement was on foot, Ampelite acquired approximately $7,300,000 worth of polycarb from EGR.
111 So far as the conduct which is in time for penalty is concerned (the period from 23 June 2010 to 31 December 2011), Ampelite placed a total of 194 orders with EGR. Those orders were worth about $3,500,000.
112 Each of these acquisitions is a technically distinct contravention of s 47(1). However, for the reasons outlined below, the parties jointly submitted that it is appropriate for the Court to treat them as forming part of the same course of conduct.
113 Ampelite’s conduct referred in [44] and [106] and [46] and [109] had both the purpose and likely effect of substantially lessening competition in the distribution market in contravention of s 47 of the CCA.
114 The first s 47 contravention involved acquisitions of polycarb that prevented EGR from selling direct to commercial purchasers and delayed EGR from expanding the extent of its competition in the distribution market. Ampelite obtained benefits from its contravening conduct, in that the price of polycarb did not decrease as a result of competition with EGR, as EGR was kept from further competing for customers in the distribution market for two and a half years. This allowed Ampelite to maintain its margins. However, as set out above, it is not possible to determine the value of the benefits obtained by Ampelite as a result of its contravening conduct. By reason of the contravening conduct of Ampelite and Mr Verhagen, consumers of polycarb may have suffered loss and damage in that they may have paid more for polycarb than they may have absent the conduct.
C. Second s 47 contravention
115 In around January 2012, EGR began taking steps to supply polycarb directly to commercial purchasers. Mr Verhagen became aware of this and sought to negotiate a further supply agreement with EGR on behalf of Ampelite (with such agreement to be conditional upon EGR’s undertaking not to supply polycarb to commercial purchasers or to customers of Ampelite).
116 While the parties were ultimately unable to come to an agreement, the negotiations represented a genuine attempt by Mr Verhagen and Ampelite to negotiate a further supply agreement with EGR. Those negotiations were undertaken for the purpose of substantially lessening competition in the distribution market.
117 At the time of the second s 47 contravention, the threat of new entry by EGR had not yet been fully realised. The conduct involved Ampelite seeking to head off the risk of head-to-head competition with EGR in the distribution market, as distinct from the removal of an established competitor.
118 Ampelite’s negotiations with EGR involved a series of discrete oral and written communications over a period of five months (January 2012 to May 2012). On at least five occasions during those negotiations, Ampelite offered to acquire polycarb from EGR on the condition that EGR would not supply polycarb to commercial purchasers or to customers of Ampelite. Each of these offers is capable of being viewed as a separate and technically distinct contravention of s 47(1). However, as set out below, the parties jointly submitted that they should be viewed as part of the same course of conduct.
119 The second s 47 contravention involved offers to acquire polycarb (rather than the acquisition of polycarb) which did not prevent EGR from expanding the extent of its competition in the distribution market, and, accordingly, did not cause direct loss or damage to consumers of polycarb. The ACCC accepts that Ampelite did not obtain any financial benefit from this contravention.
D. Third s 47 contravention
120 By no later than April 2012, EGR was more actively marketing and selling polycarb to commercial purchasers in competition with Ampelite and other distributors.
121 By around June 2013, Mr Verhagen had formed the view that the revenue Ampelite was making from the sale of polycarb had been diminishing as a result of two factors: competition from EGR and discounting by Laserlite (which had reduced its selling prices after it had lost its contract with Bunnings).
122 Between 3 June 2013 and 19 June 2013 Ampelite (by Mr Verhagen) communicated with EGR in an attempt to negotiate a further supply agreement pursuant to which Ampelite would agree to acquire polycarb from EGR on the basis that EGR would agree to cease supplying, and seeking to supply, polycarb to commercial purchasers or to customers of Ampelite. Ampelite and EGR did not ultimately reach an agreement in relation to a further supply arrangement in those terms.
123 Ampelite’s purpose in seeking to negotiate that agreement was to substantially lessen competition in the distribution market.
124 The ACCC issued a s 155 notice to Ampelite seeking information and documents in relation to alleged cartel conduct on 27 June 2013. The negotiations described above ceased after this time.
125 As with the second s 47 contravention, the third s 47 contravention comprised a series of discrete communications (offers to acquire) each of which could be viewed as a technically distinct contravention of s 47(1). However, as set out below, the parties jointly submitted that they should be viewed as part of the same course of conduct.
126 The third s 47 contravention is in many respects similar to the second s 47 contravention. Each was directed towards preventing EGR from further competing in the distribution market for commercial purchasers, or for Ampelite’s customers, and thereby sought to circumvent the competitive process.
127 However the parties submitted, and I accept, that the third s 47 contravention differs from the second s 47 contravention in that the second s 47 contravention can therefore be seen as an attempt by Ampelite to head off the risk of losses of margins and market share through competition with EGR, while the third s 47 contravention occurred after EGR had established itself in the distribution market.
128 As for the second s 47 contravention, the ACCC accepts that Ampelite did not obtain any financial benefit from the third s 47 contravention.
Size of the contravenor and its financial position and degree of market power
129 The parties agreed that the following are the material facts:
(1) Ampelite is a mid-sized company, with warehouses and office facilities in Victoria, New South Wales, Queensland, South Australia, Western Australia, New Zealand and Malaysia. Its annual turnover during the relevant period was approximately $46 to $52 million per annum.
(2) Between 1 July 2008 and 30 June 2013, approximately 30% of Ampelite’s revenue (or $12 million to $15 million per annum) was derived from the sale of polycarb.
(3) During the relevant period, Ampelite had about 120 employees.
(4) Ampelite was one of three substantial suppliers of polycarb and was responsible for nearly one third of sales in the distribution market. It was therefore a significant participant in that market.
(5) EGR was a significant potential supplier (until approximately April 2012, although EGR was also supplying polycarb directly to FGW prior to April 2012) and commenced expanding its operations as a supplier of polycarb after approximately April 2012.
Deliberateness of contravening conduct and the involvement of senior management
130 The conduct was deliberate in that Mr Verhagen consciously undertook it and the motivation of Mr Verhagen and Ampelite was to prevent a new entrant from entering the distribution market in competition with Ampelite and other incumbent distributors, so as to prevent the price of polycarb from decreasing. The conduct was undertaken for financial gain, in the sense of maintaining Ampelite’s margins and thus limiting reductions in profit or avoiding losses.
131 At the time, Mr Verhagen was not aware that the conduct he and Ampelite engaged in contravened the CCA or any other law. The parties agreed that while Mr Verhagen and Ampelite’s lack of awareness of the CCA is relevant to specific deterrence, it does not act as a mitigating factor.
Culture of corporate compliance
132 Neither Ampelite nor Mr Verhagen:
(1) have been previously found by a Court to have contravened any provision of the CCA or to have engaged in similar conduct; and
(2) had in place any compliance training relating to competition laws.
133 Ampelite has subsequently retained Macpherson Kelley Lawyers to provide a program of compliance training to its staff in relation to competition laws and to report to the ACCC on the delivery of that program.
Cooperation with authorities
134 Both Ampelite and Mr Verhagen provided very significant and early assistance to the ACCC throughout the conduct of its investigation and the present proceedings, including by Mr Verhagen voluntarily attending meetings over three days for the purpose of providing a voluntary statement signed in November 2014, attending voluntarily for three further meetings with the ACCC in 2015 and 2016 and making admissions as to his and Ampelite’s role in the alleged conduct (both in their defence filed on 2 March 2017 and in the Agreed Facts). Ampelite has also made Mr Bellaart and Mr Trevor Panozza available to give evidence in the proceeding, both of whom have given affidavits which the ACCC has filed in this proceeding.
135 Both Ampelite and Mr Verhagen have sought to resolve these proceedings at the earliest possible opportunity. Ampelite and Mr Verhagen did not contest the proceedings at any stage. They have fully cooperated with the ACCC consistently throughout the interlocutory stages of these proceedings.
136 Co-operation with authorities in the course of investigations and subsequent proceedings is a mitigating factor that almost certainly will reduce the penalty that would otherwise be imposed. A reduction on this account reflects the fact that such co-operation:
(1) is usually evidence of contrition and an acceptance of responsibility;
(2) increases the likelihood of co-operation in a way that furthers the object of the legislation;
(3) frees up the regulator’s resources, thereby increasing the likelihood that other contravenors will be detected and brought to justice; and
(4) reflects a willingness to facilitate the course of justice.
137 Ampelite and Mr Verhagen’s cooperation has saved the ACCC and the Court the significant cost and burden of litigating, potentially, a very lengthy and expensive case.
138 The parties jointly submitted that Ampelite and Mr Verhagen are entitled to a very substantial cooperation discount in the order of 50% which was reflected in the proposed penalties: cf Australian Competition and Consumer Commission v Qantas Airways Limited [2008] FCA 1976; (2008) 253 ALR 89 at [69].
Comparable decisions
139 The parties submitted, and I accept, that the proposed penalties are of appropriate deterrent value taking into account issues of parity and consistency, the principles of which are outlined below.
140 In The Queen v Pham [2015] HCA 39; (2015) 256 CLR 550 at [28], the plurality considered the use of comparable cases in the context of criminal sentencing proceedings and emphasised that the consistency that is sought is consistency in the application of the relevant legal principles. Prior cases do not set a “tariff” to be applied for particular types of contraventions, nor do they confine the Court’s discretion: Comcare v Transpacific Industries Pty Ltd [2015] FCA 500; (2015) 146 ALD 637 at [269].
141 In NW Frozen Foods at 295:
(1) it was noted that “[a] hallmark of justice is equality before the law, and, other things being equal, corporations guilty of similar contraventions should incur similar penalties”;
(2) but, that in the context of the relevant legislation, “other things are rarely equal”; and
(3) that “[c]ases are authorities for matters of principle; but the penalty found to be appropriate, as a matter of fact, in the circumstances of one case cannot dictate the appropriate penalty in the different circumstances of another case”.
142 The parties have not been able to identify any strictly comparable decisions. In any event, referring to penalties imposed in other cases involving different circumstances can be of limited assistance: Optus v ACCC at [60].
“Course of conduct” principle
143 The parties submitted, and I accept, that each act comprising Ampelite’s contraventions took place in the context of a wider course of conduct. That means that the Court may, if it considers it appropriate in the circumstances of the case, have regard to the “course of conduct” principle. Middleton and Gordon JJ in Construction, Forestry, Mining and Energy Union v Cahill [2010] FCAFC 39; (2010) 269 ALR 1 explained that principle at [39]-[42] as follows:
(1) where there is an interrelationship between the legal and factual elements of two or more offences, care must be taken to ensure that the offender is not punished twice for what is essentially the same criminality;
(2) its application requires careful identification of what is “the same criminality”, which is necessarily a factually specific enquiry;
(3) it is one of the applicable sentencing principles that guide the Court in the exercise of its sentencing discretion; and
(4) it is a tool of analysis which the Court is not compelled to use, as the exercise of its sentencing discretion remains a matter of judgment to be exercised according to the facts of each case and having regard to conflicting sentencing objectives.
144 In Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2017] FCAFC 159; (2017) ATPR 42-557 at [424] (“Cement Australia”), the Full Court recently confirmed that identifying whether multiple contraventions constitute a single course of conduct, or separate instances of conduct, is of paramount importance “so as to ensure that an appropriate deterrent effect is achieved by the imposition of the penalty or penalties in respect of [the] particular conduct”. This is because the “deterrent effect in respect of a civil penalty (at both a specific and general level) is measured by reference to the nature of the conduct for which it is imposed”.
145 The Full Court further considered the application of the principle in Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2017] FCAFC 113; (2017) 254 FCR 68. At [148] and [149], the Court stated:
[148] The important point to emphasise is that, contrary to the Commissioner's submissions, neither the course of conduct principle nor the totality principle, properly considered and applied, permit, let alone require, the Court to impose a single penalty in respect of multiple contraventions of a pecuniary penalty provision. There is no doubt that, in an appropriate case involving multiple contraventions, the Court should consider whether the multiple contraventions arose from a course or separate courses of conduct. If the contraventions arose out of a course of conduct, the penalties imposed in relation to the contraventions should generally reflect that fact, otherwise there is a risk that the respondent will be doubly punished in respect of the relevant acts or omissions that make up the multiple contraventions. That is not to say that the Court can impose a single penalty in respect of each course of conduct. Likewise, there is no doubt that in an appropriate case involving multiple contraventions, the Court should, after fixing separate penalties for the contraventions, consider whether the aggregate penalty is excessive. If the aggregate is found to be excessive, the penalties should be adjusted so as to avoid that outcome. That is not to say that the Court can fix a single penalty for the multiple contraventions.
[149] In an appropriate case, however, the Court may impose a single penalty for multiple contraventions where that course is agreed or accepted as being appropriate by the parties. It may be appropriate for the Court to impose a single penalty in such circumstances, for example, where the pleadings and facts reveal that the contraventions arose from a course of conduct and the precise number of contraventions cannot be ascertained, or the number of contraventions is so large that the fixing of separate penalties is not feasible, or there are a large number of relatively minor related contraventions that are most sensibly considered compendiously. As revealed generally by the reasoning in [Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 326 ALR 476], there is considerably greater scope for agreement on facts and orders in civil proceedings than there is in criminal sentence proceedings. As with agreed penalties generally, however, the Court is not compelled to accept such a proposal and should only do so if it is considered appropriate in all the circumstances.
146 In relation to the conduct giving rise to the s 47 contraventions, the parties submitted that the different factual and legal characteristics give rise to three separate and distinct courses of conduct, each of which should be separately penalised. In support of this submission, the parties argued that the s 47 contraventions were temporally and factually distinct, and arose under different circumstances, as follows:
(1) the first s 47 contravention involved the acquisition of polycarb between March 2009 and December 2011 in accordance with the Ampelite–EGR arrangement;
(2) the second s 47 contravention involved the making of offers by Ampelite to EGR between January to May 2012, in circumstances where EGR was planning to and had commenced taking active steps to supply polycarb to customers of Ampelite in the distribution market; and
(3) the third s 47 contravention involved the subsequent making of offers by Ampelite to EGR in June 2013, in circumstances where EGR was then very actively competing with Ampelite and other distributors and supplying polycarb to a number of commercial purchasers in the distribution market.
147 The first s 47 contravention involves a large number of discrete acquisitions of polycarb undertaken in accordance with the provisions of the same agreement. There is a close factual and legal interrelationship between these acquisitions because each acquisition was made pursuant to the same arrangement.
148 The parties jointly submitted that it would be impractical to fix 194 separate penalties for each of the individual acquisitions which occurred on or after 23 June 2010.
149 Similarly, in relation to the second s 47 contravention, the offers made by Ampelite to EGR between January 2012 and May 2012 were all made as part of the same attempt to negotiate a further supply arrangement with EGR. The parties jointly submitted that it would be appropriate to view the offers made by Ampelite to EGR between January 2012 and May 2012 under the second s 47 contravention as being part and parcel of a single continuing episode or the same course of conduct.
150 The third s 47 contravention occurred roughly one year after the second s 47 contravention and occurred in the context of a further attempt by Ampelite to negotiate a supply agreement with EGR. The communications giving rise to this contravention occurred over a confined period of time (approximately one month) and were all directed towards the negotiation of the same agreement.
151 The parties submitted that the identification of Ampelite’s conduct as involving three separate instances of wrongdoing appropriately reflects the nature of Ampelite’s misconduct. Doing so allows the proposed penalties to be measured against Ampelite’s misconduct, recognising the temporal and factual differences between them, and the distinct circumstances under which each episode of wrongdoing arose.
“Totality” principle
152 In determining the appropriate penalty for a multiplicity of offences, the Court must have regard to the “totality” principle: see R v Holder and Johnson [1983] 3 NSWLR 245; Mill v The Queen [1988] HCA 70; (1988) 166 CLR 59; Mornington Inn Pty Ltd v Jordan [2008] FCAFC 70; (2008) 168 FCR 383 at [4] (“Mornington Inn”); and Australian Competition and Consumer Commission v Singapore Airlines Cargo Pte Ltd [2012] FCA 1395 at [32].
153 When appropriate penalties have been identified for each contravention, the Court should conduct a “final check” to ensure that the total penalty is not unjust or disproportionate to the circumstances: Mornington Inn at [42]-[43] applying Mill at 62-63. This “totality” principle is distinct from the “one course of conduct” principle: Mornington Inn at [41]-[46].
154 This approach requires the Court to, as an initial step, impose a penalty appropriate for each course or episode of conduct and then as a check, at the end of the process, consider whether the aggregate is considered excessive: Cement Australia at [629]. If the total of the proposed penalties is considered to be appropriate it is not necessary to impose any further reduction: Mornington Inn at [90]-[92].
155 The parties submitted that no further moderation of the proposed penalties is required under the “totality” principle. In total, the penalties proposed for Ampelite and Mr Verhagen do not exceed what is necessary to achieve a penalty of appropriate deterrent value, having regard to the totality of the contravening conduct involved, the proposed application of the “course of conduct” principle and all relevant factors that the Court is required to, or may, take into account.
Conclusion on pecuniary penalty orders
156 I am satisfied that the matters set out above provide adequate justification for ordering payment of the proposed pecuniary penalties. I accept that the relevant facts have been accurately identified and that the consequences of the contravening conduct have also been appropriately identified. I see no reason to consider the proposed penalties to be either inadequate or excessive in all of the circumstances. In reaching this conclusion, I have had particular regard to the fact that the ACCC considers the proposed penalties to be appropriate.
Competition Law Compliance Training program
157 Section 86C(1) of the CCA permits the Court, on application by the ACCC, to make non-punitive orders, which (per s 86C(2)(b)) include probation orders for a period of no longer than three years. Section 86C(4) non-exhaustively defines probation orders as including an order directing a person to establish a compliance program and an education and training program designed to ensure that employees and other persons involved in the business are aware of the responsibilities and obligations in relation to the contravening or similar or related conduct.
158 The parties submitted that a probation order requiring the establishment of a competition law compliance training program is appropriate in this case as it will deliver a clear benefit (with Ampelite and Mr Verhagen being unaware that the conduct contravened the CCA at the time they engaged in it), is focussed on the rights and obligations under Pt IV of the CCA and is within the Court’s power.
159 I accept this submission and will make an order in the terms proposed.
Costs
160 Ampelite and Mr Verhagen have agreed to pay a contribution of $100,000 to the ACCC’s costs of the proceeding. Having regard to the fact that the proceeding against them has been concluded at an early stage, in my view, this is a substantial and appropriate contribution.
Conclusion
161 For the reasons set out above, I will make orders in accordance with the proposed consent orders.
I certify that the preceding one hundred and sixty-one (161) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gleeson. |
Associate:
QUD 478 of 2016 | |
PALRAM INDUSTRIES (1990) LTD | |
Fifth Respondent: | RODNEY EDWARD HORWILL |
Sixth Respondent: | TALILA HORESH |
Seventh Respondent: | HENDRIKUS ANTONIUS VERHAGEN |
