Trade Practices Commission v CC (New South Wales) Pty Ltd & Ors [1995] FCA 290

CATCHWORDS

TRADE PRACTICES - restrictive trade practices - entering into an arrangement or understanding substantially lessening competition - pecuniary penalty to be imposed on corporation - determination of appropriate amount.

Trade Practices Act 1974 ss 45 and 76.

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

TRADE PRACTICES COMMISSION v CC (NEW SOUTH WALES) PTY LIMITED & ORS

No NG 574 OF 1994

LINDGREN J

SYDNEY

5 MAY 1995

IN THE FEDERAL COURT OF AUSTRALIA)

NEW SOUTH WALES DISTRICT REGISTRY) No NG 574 of 1994

GENERAL DIVISION )

BETWEEN:

TRADE PRACTICES COMMISSION

Applicant

AND:

CC (NEW SOUTH WALES) PTY LIMITED formerly known as

CONCRETE CONSTRUCTIONS (NSW) PTY LIMITED

First Respondent

PETER WOOLLARD

Second Respondent

HOLLAND STOLTE PTY LIMITED

Third Respondent

GRAHAM RONALD DUFF

Fourth Respondent

MULTIPLEX CONSTRUCTIONS PTY LIMITED

Fifth Respondent

GEOFFREY THOMAS PALMER

Sixth Respondent

LEIGHTON CONTRACTORS PTY LIMITED

Seventh Respondent

LEONARD DIXON

Eighth Respondent

THE AUSTRALIAN FEDERATION OF CONSTRUCTION CONTRACTORS

Ninth Respondent

RUSSELL NORMAN RICHMOND

Tenth Respondent

CORAM: LINDGREN J

PLACE: SYDNEY

DATE: 5 MAY 1995

MINUTE OF ORDERS

THE COURT:

1. DECLARES that by making or arriving at the arrangement which is referred to in paragraph 21 of the Amended Statement of Claim, the third respondent, Holland Stolte Pty Limited contravened section 45 (2) (a) (ii) of the Trade Practices Act 1974 (Cth).

2. ORDERS that the third respondent, Holland Stolte Pty Limited, pay to the Commonwealth of Australia a pecuniary penalty of $150,000 in respect of the contravention of s 45 (2) (a) (ii) referred to in para 1 hereof.

3. DECLARES that by making or arriving at the arrangement which is referred to in paragraph 24 of the Amended Statement of Claim, the third respondent, Holland Stolte Pty Limited contravened section 45 (2) (a) (ii) of the Trade Practices Act 1974 (Cth).

4. ORDERS that the third respondent, Holland Stolte Pty Limited, pay to the Commonwealth of Australia a pecuniary penalty of $250,000 in respect of the contravention of s 45 (2) (a) (ii) referred to in paragraph 3 hereof.

5. ORDERS that the third respondent, Holland Stolte Pty Limited, be restrained until 5 May 2000, whether by its directors, servants, agents or otherwise howsoever, from:

(a) making or arriving at;

(b) giving effect to;

(d) inducing or attempting to induce, any person to make or arrive at, or give effect to; or

(e) being in any way, directly or indirectly, knowingly concerned in, or party to, the making or arriving at, or the giving effect to, by any person,

any contract, arrangement or understanding with any other person who is or would otherwise be likely to be in competition with the third respondent which contains a provision to the effect that:

(i) it will agree to pay to such other person which is unsuccessful an unsuccessful tenderer's fee or a fee payable upon the obtaining by it of any contract; or

(ii) it will agree to pay to any industry association any special fee for that project which fee is payable upon or by reason of its having obtained any contract;

and which;

(iii)has the purpose, or has or is likely to have the effect, of fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining of tender prices submitted in Australia by building or construction contractors;

(iv) has the purpose of preventing, restricting or limiting the supply of building or construction services by building or construction contractors in Australia to particular persons or classes of persons either absolutely or in particular circumstances or on particular conditions; or

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

6. ORDERS that the third respondent, Holland Stolte Pty Limited, be restrained until 5 May 2000 whether by its directors, servants, agents or otherwise howsoever, from engaging in or being in any way, directly or indirectly, knowingly concerned in, or party to:

(a) conduct by a person that is misleading or deceptive, or is likely to mislead or deceive, in respect of tenders submitted by building or construction contractors by either;

(i) agreeing if it is tendering for a project
that it will pay to any other tenderer which is unsuccessful an unsuccessful tenderer's fee; or

(ii) agreeing if it is tendering for a project that it will pay to any industry association any special fee if it is the successful tenderer for that project.

(b) a person falsely representing in connexion with the tender for supply or possible supply of building or construction goods or services that the goods or services are of a particular standard quality value or grade by either;

(i) agreeing if it is tendering for a project that it will pay to any other tenderer which is unsuccessful an unsuccessful tenderer's fee; or

(ii) agreeing if it is tendering for a project that it will pay to any industry association any special fee if it is the successful tenderer for that project.

(c) in connexion with the tender for supply or possible supply of building or construction goods or services making a false or misleading
representation with respect to the price of the goods or services by either;

(i) agreeing if it is tendering for a project that it will pay to any other tenderer which is unsuccessful an unsuccessful tenderer's fee; or

(ii) agreeing if it is tendering for a project that it will pay to any industry association any special fee if it is the successful tenderer for that project.

(d) conduct that is liable to mislead the public as to the nature, characteristics, the suitability for their purpose or the quality of any services in respect of tenders for the supply of building or construction services by either:

(i) agreeing if it is tendering for a project that it will pay to any other tenderer which is unsuccessful an unsuccessful tenderer's fee; or

(ii) agreeing if it is tendering for a project that it will pay to any industry association any special fee if it is the successful tenderer for that project.

7. DECLARES that by engaging in the conduct referred to in paragraphs 42 and 42A of the Amended Statement of Claim the third respondent, Holland Stolte Pty Limited contravened sections 53(aa), 53(e) and 55A of the Trade Practices Act 1974.

8. ORDERS that the third respondent, Holland Stolte Pty Limited, pay to the applicant the sum of $25,000 in respect of the Applicant's costs of this proceeding.

9. ORDERS THAT the third respondent Holland Stolte Pty Limited, pay the penalties referred to in paragraphs 2 and 4 and costs referred to in paragraph 8 in the following manner:

(i) $225,000 within 28 days; and

(ii) $200,000 within 6 months.

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

IN THE FEDERAL COURT OF AUSTRALIA)

NEW SOUTH WALES DISTRICT REGISTRY) No NG 574 of 1994

GENERAL DIVISION )

BETWEEN:

TRADE PRACTICES COMMISSION

Applicant

AND:

CC (NEW SOUTH WALES) PTY LIMITED formerly known as

CONCRETE CONSTRUCTIONS (NSW) PTY LIMITED

First Respondent

PETER WOOLLARD

Second Respondent

HOLLAND STOLTE PTY LIMITED

Third Respondent

GRAHAM RONALD DUFF

Fourth Respondent

MULTIPLEX CONSTRUCTIONS PTY LIMITED

Fifth Respondent

GEOFFREY THOMAS PALMER

Sixth Respondent

LEIGHTON CONTRACTORS PTY LIMITED

Seventh Respondent

LEONARD DIXON

Eighth Respondent

THE AUSTRALIAN FEDERATION OF CONSTRUCTION CONTRACTORS

Ninth Respondent

RUSSELL NORMAN RICHMOND

Tenth Respondent

CORAM: LINDGREN J

PLACE: SYDNEY

DATE: 5 MAY 1995

REASONS FOR JUDGMENT

NATURE OF PROCEEDINGS

These proceedings arise out of the Royal Commission into the Building Industry in New South Wales. In particular, they relate to alleged collusive tendering by major construction companies for a particular project known as the Commonwealth Offices - Haymarket ("the Haymarket Project"). These reasons relate to the proceedings only as between the applicant ("the Commission") and the third respondent ("Hollands").

The Commission commenced the proceedings by application filed on 30 August 1994 seeking one set of remedies against the corporate respondents, that is to say, the first, third, fifth, seventh and ninth respondents, and another set of remedies against the individual respondents, that is to say, the second, fourth, sixth, eighth and tenth respondents. With the application was filed a statement of claim. An amended statement of claim was filed on 17 November 1994. According to the pleading each individual respondent was at all material times employed by the corporate respondent named in the title to the proceedings immediately preceding his name. Accordingly, and so the pleading described them, at all material times Woollard was employed by Concretes, Duff was employed by Hollands, Palmer was employed by Multiplex, Dixon was employed by Leightons and Richmond was employed by the AFCC. As well, it is pleaded that all acts alleged in the amended statement of claim were performed by the individual respondents in their capacities as employees of their respective corporate employers.

FACTS AS PLEADED

The following is an account of the facts alleged by the Commission in the amended statement of claim.

At all material times Concretes, Hollands, Multiplex and Leightons carried on business as building and construction contractors in New South Wales and were members of the AFCC. On or about 11 August 1988, Australian Construction Services ("ACS"), part of the Commonwealth Department of Administrative Services, for and on behalf of the Commonwealth of Australia, invited Concretes, Hollands, Multiplex and Leightons ("the Tenderers") to submit tenders for the Haymarket Project.

In or about September or October 1988, John Cunningham ("Cunningham"), Director of Special Projects with the AFCC, for and on behalf of the AFCC, contacted the Tenderers and notified them of his intention to conduct a meeting of them in relation to the Haymarket Project prior to the closing date for tenders. The Tenderers accepted Cunningham's invitation. The intention of Cunningham and of each of the Tenderers in the setting up of, and agreement to attend the meeting, was that the Tenderers would be enabled to take into account in the preparation of their tenders any matters agreed at the meeting, which they expected would include arrangements or understandings on the subjects of a "special fee" payable by the successful Tenderer to the AFCC, and unsuccessful tenderers' fees payable by the successful Tenderer to the three unsuccessful Tenderers.

Prior to the proposed meeting, Richmond instructed Cunningham to propose that the successful Tenderer should pay to the AFCC a special fee of $1,000,000.

The meeting took place in September or October 1988 and was attended by Woollard of Concretes, Duff of Hollands, Palmer of Multiplex, Dixon of Leightons and Cunningham of the AFCC ("the Meeting") when it was agreed that each Tenderer would, if its tender was accepted, pay a special fee to the AFCC of $1,000,000 ("the Special Fee"), would take its obligation to do so into account in the preparation of its tender, and would not disclose to ACS the terms of the arrangement or understanding or the fact that the Meeting had taken place (para 21 of the amended statement of claim).

After that agreement ("the Special Fee agreement") had been reached, Cunningham was asked to leave the room which he did and the Meeting resumed between the four representatives of the Tenderers who agreed that the successful Tenderer would pay to each of the unsuccessful Tenderers an unsuccessful tenderer's fee of $750,000 ("the UTF"), and that each Tenderer would take this obligation into account in the preparation of its tender, and would not disclose to ACS the terms of the arrangement or understanding or the fact that the Meeting had taken place ("the UTFs agreement") (para 24 of the amended statement of claim).

The Tenderers did take into account the arrangements or understandings reached at the Meeting in the preparation and submission of their tenders; ACS awarded the contract to Hollands; Richmond caused or procured the AFCC by its National Executive Committee to ratify and levy the Special Fee on Hollands; in or about January or February 1989 Hollands paid $200,000 or $300,000 to the AFCC as part of the Special Fee; subsequently over a period from 24 July 1989 to 1 February 1990 the AFCC sent a series of seven invoices of $100,000 each to Hollands which it paid on account of the Special Fee; Concretes, Multiplex and Leightons each sent to Hollands a series of invoices which represented parts of the respective UTFs and totalled, in respect of each of the other three tenderers, $750,000 which Hollands paid. Each of the invoices sent by the AFCC and by Concretes, Multiplex and Leightons to Hollands purported to be claims for "consultancy services" which had not been provided and which were never intended to be provided.

The amended statement of claim further alleges that the conduct pleaded constituted various contraventions of the Trade Practices Act 1974 ("the Act")

COURSE OF PROCEEDINGS AND RELEVANT PROVISIONS OF THE ACT

To date there have been 14 directions hearings in the proceedings. Yesterday counsel for Hollands indicated to the Court that his client had agreed to withdraw its defence. The Commission and Hollands made a joint submission in which I was invited to fix penalties and make declarations and orders on the basis that the allegations in the pleading are made out.

Sub-section 45 (2) of the Act prohibits corporations from making certain contracts or arrangements or arriving at certain understandings and from giving effect to certain provisions of contracts, arrangements or understandings. In substance, sub-section 45 (2) is directed against provisions of contracts, arrangements and understandings which are likely to deprive markets of the benefits of competition. Paragraph 45 (2) (a) (ii), in particular, is as follows:

"(2)A corporation shall not --

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

(i) ................................;

(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;"

At the relevant time, s 76 of the Act provided that if the Court was satisfied that a person had contravened a provision of Part IV (in which s 45 occurs), the Court might order the person to pay to the Commonwealth such pecuniary penalty in respect of each act or omission by the person to which the section applied, as the Court determined

"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 that person ha[d] previously been found by the Court in proceedings under this Part to have engaged in a similar conduct".

At all material times, s 76 further provided that the pecuniary penalty payable by a body corporate was not to exceed $250,000 for each act or omission to which the section applied. In the present case, the acts of Hollands relied on under s 45 (2) (a) (ii) are the making of the Special Fee Agreement and the UTFs agreement. Accordingly, in respect of the contraventions of that particular provision of the Act, s 76 provided for a maximum penalty of $250,000 in respect of the making of each of the two agreements - an aggregate of maximum penalties of $500,000.

REASONS

Agreement between the Commission and Hollands on desirable amount of pecuniary penalty.

The Commission and Hollands submitted that penalties of $150,000 in respect of the Special Fee agreement and $250,000 in respect of the UTFs agreement were appropriate - a total of $400,000.

Of course, the amount of penalty is a matter for the Court. No doubt without the parties' suggestion, I may have arrived at a different amount, more or less than $400,000. But decisions in this area have consistently treated it as proper for the Court to be informed of and treat as relevant, the parties' agreement as to an appropriate amount, and further, if the agreed amount is within the range of amounts which the Court would have had in mind ordering in any event, for the Court to make an order for payment of the agreed amount: see Trade Practices Commission v Allied Mills Industries Pty Ltd (No 5) (1981) 60 FLR 38 (FCA/Sheppard J) at 41; Commerce Commission v New Zealand Milk Corporation Ltd [1994] 2 NZLR 730 (HC of NZ/FC); Trade Practices Commission v Hymix Industries Pty Ltd, unreported, FCA/Lockhart J, 25 August 1994; and see (1995) 69 ALJ 243.

Matters relevant to the quantum of pecuniary penalty

The passage from s 76 quoted earlier requires the Court to have regard "to all relevant matters" including those specified. In Trade Practices Commission v CSR Limited (1991) ATPR 41-076 at 52,152-52,153, French J listed nine matters to which the Court will have regard in its assessment of "a penalty of appropriate deterrent value" of which the first three are mentioned in s 76:

"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 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 co-operate with the authorities responsible for the enforcement of the Act in relation to the contravention."

Although useful as reminders, statements of factors likely to be found relevant cannot be exhaustive.

Joint submissions of the Commission and Hollands

Senior counsel for the Commission submitted as appears below, and counsel for Hollands adopted the submission as his own:

"The contraventions of Part IV alleged in the pleadings and now admitted were serious and occurred in an important industry.

The Commission accepts that a number of important features warrant the imposition of penalties lower than might otherwise have been appropriate.

In the first place, Holland Stolte, by withdrawing
its defences at this early stage in the proceedings has saved the further expenditure of public money and court time. Secondly, Holland Stolte has agreed to make available to assist the Commission in its enquiries, appropriate personnel and all relevant documents and this warrants, in the Commission's submission, some leniency. Thirdly, since the occurrence of the contaraventions [sic], the ownership and management of Holland Stolte has changed. The commission acknowledges that the new management of Holland Stolte has consistently made clear its determination to ensure that there would be no repetition of the contraventions and has shown high levels of cooperation with the Commission.

Fourthly, the Commission accepts that all unsuccessful tenderers fees paid to unsuccessful tendrerers [sic] in respect of the Haymarket project have been reimbursed to the Australian Government by those unsuccessful tenderers. In addition, Holland Stolte paid the Australian Government a substantial amount in respect of other unsuccessful tender fees received by it on Australian Government projects and overall Holland Stolte contends that it financially lost far more than it gained in respect of unsuccessful tender fee practices.

Even allowing for these ameliorating factors, the contraventions clearly justify, as Holland Stolte fully accepts, the imposition of the penalties agreed by the parties. Holland Stolte positively submits that the Court should not impose any lower penalties. It acknowledges that the Commission would have wished to make extensive submissions on penalty and would have sought penalties of a considerably higher order had the proposed penalties not been, as they are, actively supported by Holland Stolte.

The Commission and Holland Stolte jointly submit that the total penalties to which I shall refer fairly reflect the seriousness of the contraventions whilst allowing reasonably for the mitigating factors which I have mentioned. The Commission accepts that it was an essential element in the decision of the company to withdraw its defence that it had received an indication from the Commission that if it did so, the Commission would urge the Court that the penalties should be as submitted and no more. In return, Holland Stolte urges the Court that the agreed penalties, and no lesser amount, should be imposed.

On the quantum of penalties:

The Commission and Holland Stolte jointly submit that the following penalties should be imposed:

total penalties of $400,000, consisting of the maximum penalty of $250,000.00 for one of the contraventions identified in the attached draft Orders and $150,000 for the other. An order is sought that the penalties be paid as to $200,000 within 28 days of the order and as to the balance within 6 months of the order.

No additional penalty is sought in relation to the other contraventions made out, but the Court is entitled to take them into account in satisfying itself that the penalties agreed between the parties are appropriate."

REASONING

The facts of the alleged contraventions by Hollands were not proved before me by evidence. Rather, the hearing proceeded on the basis that Hollands no longer traversed, for the purpose only of the fixing of penalty, the allegations made by the Commission in its amended statement of claim: see Order 11 r 13 (1) of the Federal Court Rules. Accordingly, although it is necessary for me in fixing the amount of the pecuniary penalty payable by Hollands to refer to the relevant "facts" of the case, it must be understood that the basis for these "facts" is the Commission's allegations in its pleadings and Hollands' non-traversal of them for the limited purpose of the quantification of pecuniary penalty and granting of other relief.

The arrangements or understandings pleaded are of a serious
nature. They involved the payment by Hollands of a Special Fee of no less than $1,000,000 to the AFCC, and payment of UTFs totalling no less than $2,150,000 to Concretes, Multiplex and Leightons. The inference is that the tenders submitted, including Hollands', were $3,150,000.00 more than what they would have been but for the arrangements or understandings. This was, of course, a gross imposition on the Commonwealth and so upon the people of Australia.

The corruption of market forces to the detriment of the Commonwealth and the public deserves strong condemnation.

Section 45 (2) (a) (ii) prohibits the making of contracts, arrangements and understandings. Other pleaded acts of Hollands said to contravene s 45 are the implementation of the Special Fee agreement and the UTFs agreement. The amended statement of claim also pleads that by its conduct in all the circumstances, Hollands made false representations of various kinds in contravention of ss 53 and 55A of the Act. As well, it is pleaded that Hollands was knowingly involved in the contraventions by the AFCC and the other Tenderers.

The point is that it is possible, on the pleaded facts, to find many more than the two contraventions constituted by the making of the Special Fee agreement and the UTFs agreement. Indeed, the amended statement of claim pleads numerous contraventions by Hollands, counting, for example, each dispatch of an invoice by the AFCC and by each of the other three Tenderers as a separate contravention.

Of course, if the same conduct constitutes two or more contraventions, not more than one penalty may be imposed: sub-s 76 (3) of the Act.

I think that the approach taken in the joint submission quoted earlier is an appropriate one. I also accept the relevance of the factors there mentioned. The suggested penalties totalling $400,000 are within the range that I would have contemplated imposing. The penalties suggested are four fifths of the maximum for two contraventions by a corporation. As well, I am invited to order that Hollands pay $25,000 towards the Commission's costs.

I do not lose sight of the fact that at least some of the other pleaded conduct of Hollands contravened other provisions of the Act and that if these additional contraventions were to be separately taken into account, the sum of $400,000 would be a smaller proportion of the aggregate of the maximum penalties which I could impose. But there are different legitimate ways of viewing Hollands' pleaded conduct. All of it must be taken into account and it must be looked at as a whole. If the overall conduct were to be regarded as constituting, say, four contraventions rather than two, it would, in my opinion, be right to regard something less than four fifths of the maximum penalty for each contravention as appropriate.

There were two focal points of the collusive arrangement here: the Special Fee agreement and the UTFs agreement. In my opinion it is an appropriate approach to identify two contraventions, one related to each agreement, and to impose such a high penalty as four fifths of the aggregate maximum penalties for the two.

CONCLUSION

Subject to minor formal amendments, I propose to make the declarations and orders as suggested by the Commission and Hollands. This will involve a payment by Hollands of pecuniary penalties totalling $400,000 and an amount of $25,000 towards the Commission's costs. As well, there will be declaratory and injunctive relief. I take into account all contraventions pleaded.

I certify that this and the preceding 13 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lindgren.

Associate:

Dated: 5 May 1995

Heard: 4 May 1995

Place: Sydney

Decision: 5 May 1995

Appearances: Mr C A Sweeney QC with Mr P Clay of counsel instructed by Australian Government Solicitor appeared for the applicant.

Mr M R Ellicott of counsel instructed by Addisons, solicitors appeared for the 3rd respondent.

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