Australian Competition & Consumer Commission v N W Frozen Foods Pty Ltd & Ors [1996] FCA 670

CATCHWORDS

TRADE PRACTICES - action for civil penalties for contravention of Part IV of Trade Practices Act - price fixing in wholesale frozen food markets in Tasmania - joint submission on penalties by Commission and respondents - whether agreed penalties inadequate - discount for co-operation with Commission - agreement between Commission and respondents that financial information be tendered in confidence - whether binding on Court - whether accepted by Court

Trade Practices Act 1974 (Cth): ss 45, 45A and 76

Australian Competition and Consumer Commission v Ampol Petroleum (Victoria) Pty Ltd (unreported, 12 March 1996)

Trade Practices Commission v Allied Mills Industries Pty Ltd (No.4) (1981) 37 ALR 256

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

Trade Practices Commission v Hymix Industries Pty Limited (1995) ATPR 41-369

Western Australia v Bond Corporation Holdings Ltd (No. 2) (1992) 37 FCR 150

Australian Competition and Consumer Commission v N W Frozen Foods Pty Ltd & Ors

(No. TG 19 of 1996)

Judge: Heerey J

Date: 7 August 1996

Place: Hobart

IN THE FEDERAL COURT OF AUSTRALIA )

TASMANIA DISTRICT REGISTRY ) No. TG 19 of 1996

GENERAL DIVISION )

BETWEEN

AUSTRALIAN COMPETITION AND

CONSUMER COMMISSION

Applicant

N.W. FROZEN FOODS PROPRIETARY LIMITED (ACN 009 482 286)

First Respondent

NORTHERN FOOD SERVICE PTY. LTD.

(ACN 009 572 776)

Second Respondent

BULK FROZEN FOODS PTY. LTD.

(ACN 009 520 512)

Third Respondent

SOUTHERN FOODSERVICE PTY LIMITED

(ACN 009 580 572)

Fourth Respondent

RICHARD JAMES DALLY

Fifth Respondent

KERRY JOHN VINCENT

Sixth Respondent

STEPHEN JAMES RIMMER

Seventh Respondent

COLIN WILLIAM HARRIS

Eighth Respondent

WILLIAM HENRY BURKE DABNER

Ninth Respondent

BRUCE DOUGLAS FRITH

Tenth Respondent

PHILLIP MARTIN GUMLEY

Eleventh Respondent

EMMANUEL KLONARIS

Twelfth Respondent

Judge: Heerey J

Date: 7 August 1996

Place: Hobart

MINUTES OF ORDER

The Court orders that:

1. Against the First Respondent

(1) The first respondent pay a pecuniary penalty of $1,200,000 in respect of its contraventions of the Trade Practices Act 1974, as alleged in the amended statement of claim filed herein, payment of $900,000 to be deferred for 12

months and the balance for 24 months.

(2) The first respondent implement, at its own expense, a program which has the purpose of ensuring compliance by the first respondent, its employees and agents with the Trade Practices Act 1974, the content of such program to be agreed between the first respondent and the applicant or, in the absence of agreement, to be ordered by the Court, for which purpose there shall be liberty to apply.

(3) The first respondent pay the applicant's costs of and incidental to these proceedings against itself and the fifth to eighth respondents.

2. Against the Second Respondent

(1) The second respondent pay a pecuniary penalty of $70,000 payble by two equal annual instalments commencing 30 June 1997, in respect of its contraventions of the Trade Practices Act 1974, as alleged in the amended statement of claim filed herein.

(2) The second respondent implement, at its own expense, a program which has the purpose of ensuring compliance by the second respondent, its employees and agents with the Trade Practices Act 1974, the content of such program to be agreed between the second respondent and the applicant or, in the absence of agreement, to be ordered by the Court, for which purpose there shall be liberty to apply.

(3) The second respondent pay the applicant's costs of and incidental to these proceedings.

3. Against the Third Respondent

(1) The third respondent pay a pecuniary penalty of $60,000 payable by two equal
annual instalments commencing 30 June 1997, in respect of its contraventions of the Trade Practices Act 1974, as alleged in the amended statement of claim filed herein.

(2) The third respondent implement, at its own expense, a program which has the purpose of ensuring compliance by the third respondent, its employees and agents with the Trade Practices Act 1974, the content of such program to be agreed between the third respondent and the applicant or, in the absence of agreement, to be ordered by the Court, for which purpose there shall be liberty to apply.

(3) The third respondent pay the applicant's costs of and incidental to these proceedings.

4. Against the Fourth Respondent

(1) The fourth respondent pay a pecuniary penalty of $30,000 payable by two equal annual instalments commencing 30 June 1997, in respect of its contraventions of the Trade Practices Act 1974, as alleged in the amended statement of claim filed herein.

(2) The fourth respondent implement, at its own expense, a program which has the purpose of ensuring compliance by the fourth respondent, its employees and agents with the Trade Practices Act 1974, the content of such program to be agreed between the fourth respondent and the applicant or, in the absence of agreement, to be ordered by the Court, for which purpose there shall be liberty to apply.

(3) The fourth respondent pay its proportion of the applicant's costs of and incidental to these proceedings.

5. Against the Fifth Respondent

The fifth respondent pay a pecuniary penalty of $60,000, payable by three equal annual instalments commencing 30 June 1997, in respect of the instances in which he has been in any way, directly or indirectly, knowingly concerned in or a party to the contravention by a person of a provision of the Trade Practices Act 1974, as alleged in the amended statement of claim filed herein.

6. Against the Sixth Respondent

The sixth respondent pay a pecuniary penalty of $10,000, payable by five equal annual instalments commencing 30 June 1997, in respect of the instances in which he has been in any way, directly or indirectly, knowingly concerned in or a party to the contravention by a person of a provision of the Trade Practices Act 1974, as alleged in the amended statement of claim filed herein.

7. Against the Seventh Respondent

The seventh respondent pay a pecuniary penalty of $20,000, payable by five equal annual instalments commencing 30 June 1997, in respect of the instances in which he has been in any way, directly or indirectly, knowingly concerned in or a party to the contravention by a person of a provision of the Trade Practices Act 1974, as alleged in the amended statement of claim filed herein.

8. Against the Eighth Respondent

The eighth respondent pay a pecuniary penalty of $10,000, payable by five equal annual instalments commencing 30 June 1997, in respect of the instances in which he has been in any way, directly or indirectly, knowingly concerned in or a party to the contravention
by a person of a provision of the Trade Practices Act 1974, as alleged in the amended statement of claim filed herein.

9. Against the Ninth Respondent

(1) The ninth respondent pay a pecuniary penalty of $30,000, payable by two equal annual instalments commencing 30 June 1997, in respect of the instances in which he has been in any way, directly or indirectly, knowingly concerned in or a party to the contravention by a person of a provision of the Trade Practices Act 1974, as alleged in the amended statement of claim filed herein.

(2) The ninth respondent pay the applicant's costs of and incidental to these proceedings.

10. Against the Tenth Respondent

(1) The tenth respondent pay a pecuniary penalty of $30,000, payable by two equal annual instalments commencing 30 June 1997, in respect of the instances in which he has been in any way, directly or indirectly, knowingly concerned in or a party to the contravention by a person of a provision of the Trade Practices Act 1974, as alleged in the amended statement of claim filed herein.

(2) The tenth responent pay the applicant's costs of and incidental to these proceedings.

11. Against the Eleventh Respondent

(1) The eleventh respondent pay a pecuniary penalty of $15,000, payable by two equal annual instalments commencing 30 June 1997, in respect of the instances in which he has been in any way, directly or indirectly, knowingly concerned in
or a party to the contravention by a person of a provision of the Trade Practices Act 1974, as alleged in the amended statement of claim filed herein.

(2) The eleventh responent pay the applicant's costs of and incidental to these proceedings.

12. Against the Twelfth Respondent

(1) The twelfth respondent pay a pecuniary penalty of $10,000, payable by three equal six monthly instalments, the first such instalment to be made on or before 31 December 1996, in respect of the instances in which he has attempted to induce a person to contravene, or has been in any way, directly or indirectly, knowingly concerned in or a party to the contravention by a person of, a provision of the Trade Practices Act 1974, as alleged in the amended statement of claim filed herein.

(2) The twelfth respondent implement, at his own expense, a program which has the purpose of ensuring compliance by the twelfth respondent, his employees and agents, with the Trade Practices Act 1974, the content of such program to be agreed between the twelfth respondent and the applicant or, in the absence of agreement, to be ordered by the Court, for which purpose there shall be liberty to apply.

(3) The twelfth respondent pay the applicant's costs of and incidental to these proceedings.

13. Against each of the First, Second, Third and Fourth Respondents

Each of the first, second, third and fourth respondents be restrained for a period of five years, whether by its directors, servants or agents or otherwise howsoever, from:

(a) the making or arriving at;

(b) the giving effect to; or

any contract, arrangement or understanding, with one or more of its competitors in any market in Tasmania, or part thereof, for frozen food service lines, which contains a provision that:

(i) has the purpose, or has or is likely to have the effect, of fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining of, the prices offered or charged for frozen food service lines or dry goods food service lines by any such competitor in any market in Tasmania, or part thereof, for frozen food service lines, or

(ii) has the purpose, or has or is likely to have the effect, of substantially preventing, hindering or lessening competition in any market in Tasmania, or part thereof, for frozen food service lines.

14. Against each of the Fifth, Sixth, Seventh, Eighth, Ninth, Tenth, Eleventh and Twelfth Respondents

Each of the fifth, sixth, seventh, eighth. ninth, tenth, eleventh and twelfth respondents be restrained for a period of five years from being in any way, directly or indirectly, knowingly concerned in, or a party to:

(a) the making or arriving at; or

(b) the giving effect to:

by any person of any contract, arrangement or understanding, between two or more competitors in any market in Tasmania, or part thereof, for frozen food service lines, which contain a provision that:

(i) has the purpose, or has or is likely to have the effect, of fixing, controlling or
maintaining, or providing for the fixing, controlling or maintaining of, the prices offered or charged for frozen food service lines or dry goods food service lines by any such competitor in any market in Tasmania, or part thereof, for frozen food service lines, or

(ii) has the purpose, or has or is likely to have the effect, of substantially preventing, hindering or lessening competition in any market in Tasmania, or part thereof, or frozen food service lines.

15. General

Each document read on the hearing of these proceedings to and including this day be filed and every person who is not a party to the proceedings have leave to search in the Registry for, and inspect, each such document and any other document filed in the proceedings on or before the day on which the orders are pronounced.

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

IN THE FEDERAL COURT OF AUSTRALIA )

TASMANIA DISTRICT REGISTRY ) No. TG 19 of 1996

GENERAL DIVISION )

BETWEEN

AUSTRALIAN COMPETITION AND

CONSUMER COMMISSION

Applicant

N.W. FROZEN FOODS PROPRIETARY LIMITED (ACN 009 482 286)

First Respondent

NORTHERN FOOD SERVICE PTY. LTD.

(ACN 009 572 776)

Second Respondent

BULK FROZEN FOODS PTY. LTD.

(ACN 009 520 512)

Third Respondent

SOUTHERN FOODSERVICE PTY LIMITED

(ACN 009 580 572)

Fourth Respondent

RICHARD JAMES DALLY

Fifth Respondent

KERRY JOHN VINCENT

Sixth Respondent

STEPHEN JAMES RIMMER

Seventh Respondent

COLIN WILLIAM HARRIS

Eighth Respondent

WILLIAM HENRY BURKE DABNER

Ninth Respondent

BRUCE DOUGLAS FRITH

Tenth Respondent

PHILLIP MARTIN GUMLEY

Eleventh Respondent

EMMANUEL KLONARIS

Twelfth Respondent

Judge: Heerey J

Date: 7 August 1996

Place: Hobart

REASONS FOR JUDGMENT

This application is brought by the Australian Competition and Consumer Commission (hereafter "the Commission", a term which, where the context indicates, comprehends the applicant's predecessor the Trade Practices Commission). The Commission seeks penalties, injunctions and other relief for contravention of the price-fixing provisions of Part IV of the Trade Practices Act 1974 (Cth) (the Act).

The Commission and the respondents have come to an agreement and have asked the Court to make orders, including the imposition of penalties, in accordance with that agreement. The propriety of such a course has been accepted by this Court in numerous cases, the leading authority being Trade Practices Commission v Allied Mills Industries Pty Ltd (No.4) (1981) 37 ALR 256 at 259 per Sheppard J. However, it is equally well established that the Court is not bound by such agreements and remains free to take a different view of the contraventions. In the present case I have come to the conclusion that the penalty proposed in respect of the first respondent is inadequate. The possibility of such a finding was indicated to counsel in the course of the hearing and I have had the benefit of their submissions.

The Markets

There exist in Tasmania markets for the supply of food service lines to retailers such as restaurants, hotels and take-away outlets. The present case is only concerned with goods sold in frozen form, particularly potato chips, but also poultry, deserts, seafood and take-away lines such as dim sims.

Specialized low temperature plant and equipment is required to store and deliver these products. Because of the need for such equipment and the distribution and size of population centres, there are three separate geographic markets, namely Southern, Northern and North Western. These markets generally coincide with the 002, 003 and 004 telephone districts. The populations are approximately 212,000 (Southern), 124,000 (Northern) and 111,000 (North Western).

The Respondents

The first respondent NW Frozen Foods Pty Ltd, which trades as Allfood Distribution and to which I shall refer by that name, is a wholly owned subsidiary of the public listed company
Clements Marshall Consolidated Limited (Clements Marshall). It operates in all three markets and has by far the greatest market share. The second respondent Northern Food Service Pty Ltd operates in the Northern market. The third respondent Bulk Frozen Foods Pty Ltd is in the North Western market and the fourth respondent Southern Foodservice Pty Ltd is in the Southern market.

The fifth respondent, Mr Richard Dally, is the General Manager of Allfood Distribution. The sixth respondent, Mr Kerry Vincent, is the Northern Manager of Allfood Distribution. The seventh respondent, Mr Stephen Rimmer, is the North Western Manager of Allfood Distribution and the eighth respondent, Mr Colin Harris, is the Southern Manager of Allfood Distribution. The ninth respondent, Mr William Dabner, is the Managing Director of Northern Food Service. The tenth respondent, Mr Bruce Frith, is the Managing Director of Bulk Frozen Foods and the eleventh respondent, Mr Phillip Gumley, is the Managing Director of Southern Foodservice. The twelfth respondent, Mr Emmanuel Klonaris, carries on a partnership business with his wife in the Southern market under the name Cut Price Frozen Foods.

Contraventions

From not later than October 1991 and regularly thereafter until March 1995, when the Commission's investigation commenced, representatives of the trading respondents (Allfood Distribution, Northern Food Service, Bulk Frozen Foods, Southern Foodservice and Cut Price Frozen Foods) held a number of meetings and participated in a number of telephone conversations during which discussion about prices took place and arrangements and understandings were reached. These arrangements covered a number of lines and were usually, although not always, implemented.

When the respondents discovered or were suspicious that the arrangements and understandings were not being fully maintained, telephone conversations would take place or meetings would be arranged, the purposes of which were to attempt to verify whether a lower price had been charged, to reinforce the arrangement and to maintain the agreed price. Often the respondents fully or partially put into effect the arrangements that were made or the understandings that were arrived at in the expectation that the other respondents would similarly put them into effect.

The conduct so described constituted price fixing by the major participants in each of the three geographic markets in Tasmania for the wholesale supply of frozen food service lines. For the trading respondents, the conduct consisted of making arrangements or arriving at understandings in relation to price, giving effect to those arrangements or understandings, and attempts to make or induce arrangements or arrive at understandings. The number of occasions on which this conduct was engaged in is as follows:

Making an arrangement

Allfood Distribution 33

Northern Food Service 13

Bulk Frozen Foods 7

Southern Foodservice 9

Cut Price Frozen Foods 6

Putting an arrangement in effect

Allfood Distribution 32

Northern Food Service 11

Bulk Frozen Foods 5

Southern Foodservice 5

Cut Price Frozen Foods 1

Attempts to make or induce an

arrangement

Allfood Distribution 8

Cut Price Frozen Foods 1

Products Subject to Price Fixing

All trading respondents had an agreement on potato chips. The chip agreements were maintained longer and more consistently than any other product agreement. Chips are the most important line sold by the respondents. Of all products, they make the highest contribution to turnover. Customers are won and lost on chips. Customers have a predilection to bargain on their chip buying price and therefore, in the absence of a price fixing agreement, chips are more likely to be discounted. Chips are an expensive line for the respondents to stock as they are bulky and difficult to transport.

As to poultry, chicken agreements came and went on an ad hoc basis as supplies of chickens vary throughout the year and thus wholesalers' buying prices varied accordingly. Chickens were prone to discounting or being given away as free stock. Whole turkeys are not big sellers except around Christmas time. As wholesalers did not wish to be left with substantial stock after Christmas, attempts to arrange Christmas prices for whole turkeys failed. Arrangements about the prices of turkey further processed products were more successful as these products also sell throughout the year.

Seafood agreements tended to break down easily due to seasonal variations in availability and buying prices and thus tended to be made on an ad hoc basis.

There were agreements covering the entire range of Sara Lee products (cakes, ice cream, croissants and the like). These were expressed in terms of a minimum sell margin, ie, not less than a 25 per cent mark up. This was possible as each respondent knew (or assumed) that they were all on a similar buying price for Sara Lee products. An exception was Sara Lee 11 Litre vanilla ice cream where the agreed price was expressed as an absolute amount of $15.50.

There were agreements about the price of take‑away lines such as Chiko Rolls and dim sims but these were not an important component of the price fixing.

Statutory Provisions

Section 45(2)(a)(ii) of the Act prohibits a corporation from making a contract or arrangement or arriving at an understanding if 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. By s 45A, if such a provision has or had the purpose or has or is likely to have the effect of fixing, controlling or maintaining prices it is deemed to have the purpose or effect of substantially lessening competition. The arrangements and understandings made between the respondents involved contraventions of s 45(2)(a)(ii) by way of the deeming provisions of s 45A of the Act. The giving effect to those arrangements and understandings constituted contraventions of s 45(2)(b)(ii), also by virtue of s 45A.

Admissions of Guilt

The respondents did not file any defences to the statement of claim. They admitted the allegations made against each of them and submitted that the Court should proceed to fix penalty on the basis that all of those allegations against them were made out. I was informed by counsel
for the respondents that the admission of guilt was unqualified. I therefore proceed on the assumption that there will not be, as there has been on some occasions in similar cases, public protestations by respondents after the imposition of penalties that they are really innocent but only agreed to penalties to avoid the cost of further litigation.

Matters Relevant to Penalty

The parties accept that there should be one penalty in relation to each of the respondents, embracing all the contraventions alleged against each respondent in the statement of claim. This practice has been adopted in a number of cases, e.g. Trade Practices Commission v Hymix Industries Pty Limited (1995) ATPR 41-369, and seems preferable to the somewhat artificial exercise of allocating a specific penalty to each contravention.

The maximum penalty for each act or omission in contravention of Part IV is, in the case of a corporation, $10 million (s 76(1A)(b)) and, in the case of an individual, $500,000 (s 76(1B)). These penalties apply to acts or omissions occurring after 21 January 1993. For acts or omissions that occurred prior to that date, the maximum penalty per contravention is $250,000 in the case of a corporation and $50,000 in the case of an individual. The contraventions in this case occurred both before and after 21 January 1993.

Respondent Attempt Make Implement

Contraventions Pre 21 January 1993

Allfood Distribution 1 15 15

Northern Food Service 0 6 6

Bulk Frozen Foods 0 6 4

Southern Foodservice 0 2 2

Cut Price Frozen Foods 1 1 0

Indeterminate

Allfood Distribution 0 4 4

Northern Food Service 0 3 1

Bulk Frozen Foods 0 0 0

Southern Foodservice 0 1 0

Cut Price Frozen Foods 0 1 0

Contraventions Post 21 January 1993

Allfood Distribution 7 14 13

Northern Food Service 0 4 4

Bulk Frozen Foods 0 1 1

Southern Foodservice 0 6 3

Cut Price Frozen Foods 0 4 1

Factors Relevant to Penalty

As the parties submitted, it will be convenient to deal with the matter by considering the factors identified by French J in Trade Practices Commission v CSR Limited (1991) ATPR 41-076 at 52,152. Some additional factors ((x) to (xii) hereafter) will also be considered.

(i) Nature and Extent of Conduct

The earliest contravention was in October 1991. The arrangements did not continue beyond about March 1995 when the Commission advised three of the trading respondents in writing of its intention to investigate allegations of price fixing. Allfood Distribution adhered to the agreements to a greater extent than the other respondents, who would often "cheat" on the
agreements by, for example, providing free stock or off‑invoice rebates. During the period of the contraventions there were attempts to better organize and extend the agreements. Many of these attempts originated with Allfood Distribution.

The price fixing was principally concerned with chips, though during the period other price fixing arrangements occurred between Allfood Distribution and various other respondents with the addition of a number of other common lines, in particular the entire Sara Lee range of dessert lines, various take‑away lines, seafood, chicken and turkey products. Of all the agreements the chip agreements were the most organized and enforced.

The respondents accounted for the overwhelming majority of market share in each of their respective areas. As already noted, the three geographic markets covered all of Tasmania. In general the only other avenues customers had to obtain supplies were the Cash and Carry outlets operated in part by Woolworths, which did not make deliveries, or niche marketers.

(ii) Amount of Loss or Damage Caused

The amount of loss or damage cannot be determined without all parties incurring significant additional expense. Also, there were a lot of instances among the respondents other than Allfood Distribution where one or more of the participants were "cheating" on the agreements in the ways already mentioned.

In view of the period of the conduct in question it is not possible to determine what the price would have been were it not for the price fixing agreements. However invoices show that when discounting occurred chips were sold for around $7.00 to $7.80, and in one identified instance as low as $6.75. The prices fixed by the unlawful agreements and arrangements were $8.60 and
$8.10.

(iii) Circumstances in which the Conduct Took Place

The first price fixing originated in the Northern market after the collapse of a food service wholesaling company. A price war at the time in that market may have been a factor which contributed to its demise. The collapse produced a desire and, by reducing the number of competitors, an opportunity to end the price war. Shortly thereafter the then Northern branch manager of Allfood Distribution, Mr Michael Oakley, agreed with its main competitor in the Northern market, Northern Food Service, on minimum prices for chips. Mr Dally, General Manager of Allfood Distribution, ratified the agreement and instructed his branch managers in the North Western and Southern markets to enter into similar agreements with their respective competitors.

At the time Northern Food Service, which had only commenced business in 1989, took the view that if it did not enter the agreement it was likely that it would not survive a sustained period of discounting. However there is no evidence that a price war had been occurring in the other markets. Both Bulk Frozen Foods and Southern Foodservice were in a better financial situation than Northern Food Service. Cut Price Frozen Foods, however, had suffered losses between 1987 and 1990 and its customers may have been explicitly targeted by Allfood Distribution during 1992.

(iv) Size of Contraveners - Confidentiality

The joint submissions put to the Court included financial information about the various respondents which the Commission and the respondents agreed should be kept confidential, not only from the public but as between respondents. As to Allfood Distribution, some of that
information could have been obtained from the published accounts of its parent Clements Marshall. But in any event the Court is not bound by such an agreement and the claim to confidentiality has to be assessed on its merits.

The financial information in question was relevant in a number of ways to the question of penalty, and not least to the size of the contravenors. Smallness is a matter going to mitigation. That being so, I do not see how the respondents can ask for this information to be taken into account and at the same time have it kept confidential. It is important for the deterrent efficacy of penalties that the reasons of the Court are published so that the penalties imposed can be assessed and understood in the light of the particular circumstances with which the Court had to deal. This is particularly important for those charged with the enforcement of Part IV, for would-be contravenors, and for the Court itself in considering other cases in the future. In criminal proceedings a defendant, perhaps a failed entrepreneur, seeking mitigation on the ground of straitened circumstances but asking that financial information be kept confidential would receive short shrift. Proceedings under Part IV are essentially no different in this regard.

It was argued that the revelation of such information could lead to the disclosure of trading margins, costs and the like and thus enable a stronger competitor to lower prices sufficiently to drive smaller competitors out of the market. Thus, so the argument went, anti-competitive conduct would be encouraged, contrary to the whole purpose of the Act. However, I do not see this consequence as necessarily flowing. In the present case, the respondents make up virtually the whole of the markets in question and thus to the extent there is disadvantage, all will suffer it. In any case, public interest considerations outweigh concern for the alleged adverse effect, which must be seen as one of the hazards which can arise for those who engage in price-fixing.

I was referred to Western Australia v Bond Corporation Holdings Ltd (No. 2) (1992) 37 FCR 150 at 175, but the case is not in point. French J was there dealing with the regulation, by stay or otherwise, of civil litigation which was said to risk prejudice to pending criminal proceedings. The risk of prejudice could, his Honour found, be avoided by the application of confidentiality orders to pleadings and the like on a case by case basis. In the present case there are no other proceedings which might be prejudiced.

Allfood Distribution is the dominant participant in each market, and the only one participating in all three markets. It has approximately five times the turnover of the next largest respondent. Across all its lines, it had annual sales averaging some $36.5 million during the period of the contraventions. Last financial year (its accounting period ends on 29 September) turnover was $42.6 million. Its parent, Clements Marshall Consolidated, had a turnover of $96.9 million in the same year. To a consolidated operating profit after tax of $1.544 million, Allfood Distribution contributed $1.016 million.

The other trading respondents each trade in only one market. Over the period of the contraventions the annual average turnover was:

Northern Food Service $6.4 million

Bulk Frozen Foods $4.85 million

Southern Foodservice $7.4 million

Cut Price Frozen Foods $2.3 million.

(v) Degree of market power

Allfood Distribution has in excess of a 50 per cent share of each market, with the majority of the remainder distributed between the other trading respondents in each of the three areas of the
State. Determining actual market share is quite difficult. However, taken as a group, the trading respondents probably account for an 80-90 per cent share in each market, the actual share varying from market to market. In each market most of the remaining market share is accounted for by the Cash and Carry operations, which do not deliver frozen food service lines. There are also a number of smaller companies, generally niche marketers specializing in smallgoods and the like, which supply small amounts of some frozen food service lines.

(vi) Deliberateness and Period of Conduct

As noted, the contraventions ran from October 1991 to March 1995. It is clear that the conduct was engaged in deliberately by Allfood Distribution. Mr Dally, during a formal interview with the Commission, made a frank admission that at the time of the contraventions he knew that price fixing was illegal. The other parties are either silent on the issue or claim that they thought that the agreements amounted to a recommendation that each party would charge the particular price, analogous to a manufacturer’s recommended retail price.

There were a number of meetings during which price fixing was discussed. With the possible exception of one meeting in the Northern market, about which recollections differ but which may have been held at the premises of Northern Food Service, all of these meetings were held at the premises of Allfood Distribution.

Allfood Distribution took the greatest role in organizing and formalizing the arrangements and was the most active in policing them. Evidence also shows that it adhered to the agreements more rigorously than any of the other respondents.

(vii) Conduct of Senior Management

In the case of all of the trading respondents, the most senior managers were directly involved in the contraventions. In respect of each of Northern Food Service, Bulk Frozen Foods and Southern Foodservice the contraventions involved the Managing Director. In respect of Cut Price Frozen Foods they involved the senior partner.

As regards Allfood Distribution, it has two tiers of management beneath board level, being the General Manager (Mr Dally) at the top and three Branch Managers (one in each market) reporting to him. The evidence shows that Mr Dally was directly involved in the organization of the initial arrangements. The detail was sometimes delegated to the three Branch Managers. Mr Dally also had an on‑going role in the enforcement of the arrangements.

(viii) Corporate Compliance Culture

The seniority of the levels of management involved in the contraventions indicate that for each of the trading respondents there was no corporate compliance culture at all. Furthermore, there is no evidence that, prior to the investigation, Trade Practices Act training was conducted by any respondent. Since the investigation, most of the respondents have conducted some form of Trade Practices Act compliance training and all have agreed to consent to an order requiring a formal compliance program to be instituted.

(ix) Co-operation with Commission

The contraventions came to light accidentally in the course of the Commission's investigation into another matter. Staff of the Commission first wrote to Allfood Distribution, Bulk Frozen Foods and Northern Food Service in March 1995. The letters referred to general allegations of price fixing and invited each respondent to assist the Commission with its inquiries. In response, Allfood Distribution and Northern Food Service specifically denied engaging in any price fixing
conduct. Bulk Frozen Foods provided no substantive response. In August 1995 staff of the Commission interviewed Mr Klonaris, the twelfth respondent. He denied knowing of or being involved in any price fixing.

In September 1995 the Commission issued a series of notices under s 155(1)(a) and (b) of the Act. There was apparently full and prompt compliance with these notices. Immediately following receipt of its s 155(1)(a) and (b) notices, Southern Foodservice approached the Commission and attended a formal interview.

In November 1995 the Commission issued a series of s 155(1)(c) notices. Upon receipt of these the other respondents, except Mr Klonaris, separately approached the Commission and offered to co-operate with the Commission’s enquiries. After that all respondents, including Mr Klonaris, co-operated with the Commission and relevant staff attended one or more formal interviews. In view of the co‑operation exhibited during the formal interviews the Commission withdrew the s 155(1)(c) notices.

(x) Similar Conduct in Past

None of the parties have been subject to previous proceedings under the Act.

(xi) Financial Position

Net profit before tax for 1995 and the average for the five years to 1995 was as follows:

Established 1995 Average

1991-95

Clements Marshall 1901 1.5 (1.76)

Allfood Distribution not known 1.5 1.6*

Northern Food Service 1989 .363 .334

Bulk Frozen Foods 1976 .25 .273

Southern Foodservice 1989 .14 .148

Cut Price Frozen Foods 1985 .079 .0469

*Excludes a capital profit of $0.5 million.

(xii) Deterrent Effect

The respondents form the bulk of the food service wholesaling industry in Tasmania. Assuming that injunctions are granted and observed, the scope for effective price fixing agreements within each market will be significantly lessened.

Clements Marshall is well known in Tasmania. Its business is as old as the Australian federation, having been established in 1901 by E T Clements. In 1913 he took his first employee A H Marshall into partnership. The company was incorporated in 1921 and has been listed on Australian Stock Exchanges since 1955. It is sad that a company with a long and proud business record has become involved, and at senior management level, in such seriously unlawful conduct.

Deterrence is a vital element in the imposition of penalties for Part IV contraventions. Price fixing is unlawful conduct of a kind inherently difficult to detect because it takes place between those who stand to gain and out of sight of victims.

Summary of Relevant Factors

Consideration must be given to the following matters:

(a) the conduct amounted to the making of and giving effect to anti‑competitive agreements, specifically the fixing of minimum prices, which are very serious contraventions of Part IV;

(b) the conduct extended over a period of approximately three and a half years;

(d) the victims of the conduct were mainly small businesses who did not have significant market power in their own right;

(e) the conduct involved the active personal participation of senior management;

(f) the conduct involved major competitors in each of the particular markets and was an attempt to control the market to the detriment of food service line retailers and hence of consumers;

(g) The largest competitor (Allfood Distribution) abused its market power by instigating and leading the contraventions.

Against these factors the following points can be made:

(h) Once the Commission's investigation was under way and the s 155 powers had been invoked, the respondents co‑operated by providing statements and other information relevant to the Commission’s investigations and participating in formal interviews to the extent that the Commission was satisfied that it could withdraw pending s 155(1)(c) examinations of the individual respondents. In so doing the respondents have saved the Commission significant expense and time in terms of the cost of a protracted investigation;

(i) Prior to proceedings being issued by the Commission, the respondents offered to provide the Commission with sufficiently comprehensive admissions to achieve a resolution of the matter that would culminate in agreed materials being put before the Court and have reached agreement with the Commission as to the level of penalty to be suggested to the Court as being appropriate in the circumstances. In so doing they have saved both the Commission and the community significant expense and time in terms of the cost of protracted litigation. The Commission accepts, as does the Court, that the respondents are entitled to credit for having admitted the contraventions and assisted the Commission
as set out above. It is in the public interest that respondents who do not contest allegations, even allegations as serious as these, should be entitled to substantial discounts on the penalty which might otherwise have been appropriate;

(j) Each of the trading respondents has agreed to put in place trade practices compliance programs. These have been agreed with the Commission and will include training programs, the distribution of compliance manuals and regular audits of procedures, all at the expense of the respondents.

Allfood Distribution

The penalty proposed by the Commission and this respondent in the joint submissions was $900,000.

Some guidance to the appropriate level of penalties for Part IV contraventions like those in the present case is to be found in Australian Competition and Consumer Commission v Ampol Petroleum (Victoria) Pty Ltd (unreported, 12 March 1996). Jenkinson J there considered penalties proposed by the parties to be appropriate. The case involved two proceedings. In VG 368 of 1993 Ampol admitted attempting to induce a suburban service station proprietor in Melbourne not to sell or advertise petrol at a price less than that specified by Ampol. There were nine such attempts between July 1992 and 21 January 1993 and nine further attempts between the later date and 30 June 1993. For the contraventions before 21 January 1993 a penalty of $100,000 was imposed and for those after that date the penalty was $900,000. In VG 873 of 1995 Ampol admitted entering into and giving effect to an arrangement with two service station proprietors in another Melbourne suburb that Ampol products supplied to one would not be sold at a lower price than equivalent products were sold by the other. Penalties aggregating $2.5 million were imposed. The total penalties imposed in both cases was thus $3.5 million. In both
cases the Ampol officer responsible, a Mr McKay, appears to have been at most at middle management level. He was Ampol's manager of a price support system in the area in which the particular suburbs lay. Jenkinson J noted that none of the contraventions "resulted from direction by Mr McKay's superiors".

I accept of course that each case turns on its own facts, but at least broad consistency is essential if the penalty regime of Part IV is to be seen as operating rationally and fairly. Although the Clements Marshall group is much smaller than Ampol, in all other relevant respects the contraventions in the present case seem markedly more serious than those in the Ampol case. They extended over three and a half years and affected markets throughout the whole of a State. Had they not been discovered by chance, the price fixing arrangements would still be operating. Most significantly, the instigator and driving force was the senior executive officer of Allfood Distribution, which in turn was the largest subsidiary of a long- established public listed company. It is a depressing thought that the introduction of the vastly increased (and widely publicised) penalties in January 1993 had no effect whatsoever on Mr Dally and Allfood Distribution. It was business as usual.

I cannot accept that in culpability terms these contraventions fall within the lowest decile of the range of appropriate penalties. Had this matter to be considered after a full investigation and contested litigation, I think an appropriate penalty would be $1.5 million. Were Clements Marshall a larger group, the penalty would be greater, perhaps a lot greater. An appropriate discount to allow for the saving as a result of the co-operation that has taken place is $300,000. The Clements Marshall Group has also saved its own costs of protracted litigation which would be at least that amount, and possibly two to three times more. Accordingly the penalty will be $1.2 million.

The negotiated agreement provided for deferment of payment of the penalty for 12 months from the date of the order. This aspect of the arrangement can be adopted without disturbing the deterrent effect of the appropriate penalty. There will therefore be an order for the payment of a penalty of $1.2 million, payment of that sum to be deferred as to $900,000 for 12 months and as to the balance for 24 months, in each case from the date of the order.

Other Trading Respondents

I accept that the following penalties are appropriate:

Northern Food Service $70,000

Bulk Frozen Foods $60,000

Southern Foodservice $30,000

In each case the penalties are to be payable by two equal annual instalments commencing 30 June 1997.

Individual Respondents

In view of the involvement of each of the fifth to twelfth respondents as set out hereunder, I accept that the penalties agreed are appropriate. In each case there will be provision for payment by instalments as set out in the formal orders pronounced today.

Mr Richard Dally (fifth respondent)

As has been noted, Mr Dally was the General Manager of Allfood Distribution. He attended or arranged all of the meetings at which price fixing was discussed. He also encouraged his branch managers to enter into the agreements, organized and attended meetings and enforced compliance
with the agreements even though he knew such conduct to be illegal. The penalty will be $60,000. This, and all penalties by individual respondents, will be paid personally.

Mr Kerry Vincent (sixth respondent)

Mr Vincent was a sales representative with Allfood Distribution from 1989 until May 1993. Since then he has been, and still is, its Northern branch manager. He was an inexperienced manager when he took up that position and inherited many of the agreements and understandings, although he did attempt to organize some of his own or enforce ones that were already in place. The penalty will be $10,000.

Mr Stephen Rimmer (seventh respondent)

Mr Rimmer was, and still is, the North Western branch manager of Allfood Distribution. Of all the branch managers Mr Rimmer was involved in price fixing the longest as he occupied the position of branch manager the longest. The agreements seem to have been most stable in the North Western market. The penalty will be $20,000.

Mr Colin Harris (eighth respondent)

Mr Harris became the Southern branch manager of Allfood Distribution in October 1991 and continued in that position thereafter. He had been with the company only a few weeks when the first major meeting was organized by his supervisor Mr Dally. He was less successful in reaching agreements in the South where there were more competitors. The penalty will be $10,000.

Mr William Dabner (ninth respondent)

Mr Dabner has been at all material times the Managing Director of, and a major shareholder in, Northern Food Service. He had encouraged his employees to leave their other employment and
invest time and money in the company. It had only been operating for two years and was in a vulnerable financial situation when Mr Dabner was approached by Mr Oakley about price fixing agreements. He was in more regular contact with Allfood Distribution and facilitated the initial agreements between Allfood Distribution and Bulk Frozen Foods in the North Western market. He was involved in more agreements than any respondent except Mr Dally and Allfood Distribution. The penalty will be $30,000.

Mr Bruce Frith (tenth respondent)

Mr Frith has been at all material times the Managing Director of Bulk Frozen Foods. He had operated the business since 1976, initially as a partnership and since 1983 in corporate form. He was an experienced manager and his company was under the least competitive pressure when as Managing Director he agreed to price fixing arrangements. However, he was concerned that if he did not agree to the arrangements Allfood Distribution would target him, particularly if it secured agreements in the other markets. The penalty will be $30,000.

Mr Phillip Gumley (eleventh respondent)

Mr Gumley has been at all material times the Managing Director of Southern Foodservice. He had only been managing the business for two years when he entered the agreements. There was more competitive pressure in the South. He was an inexperienced manager when approached by his prime competitor. While all the parties co-operated with the Commission, Mr Gumley co-operated the most and asked for two additional formal interviews as further information came to mind. Mr Gumley, as Managing Director of Southern Foodservice, and Mr Klonaris, do not appear to have implemented the agreements to as great an extent as the other respondents. The penalty will be $15,000.

Mr Emmanuel Klonaris (twelfth respondent)

Mr Klonaris is the senior partner in the business which trades as Cut Price Frozen Foods. It was established in 1985 and at the time the contraventions began had only just begun to return a small profit. At the time Mr Klonaris believed that his business had been subject to targeting of his customers by Allfood Distribution and Southern Foodservice. The penalty will be $10,000.

Injunctions

The short minutes of order agreed between the parties provide for injunctions for a period of five years against all respondents. Orders will be made accordingly.

Costs

The respondents are to pay the Commission's costs.

I certify that this and the preceding twenty-three (23) pages are a true copy of the reasons for judgment of his Honour Justice Heerey.

Dated:

Associate

Appearances

Counsel for the applicant: Mr D Williamson QC with Ms E A Strong

Solicitor for the applicant: Australian Government Solicitor

Counsel for the first, fifth,

sixth, seventh and eighth respondents: Mr N O'Bryan

Solicitor for first, fifth

sixth, seventh and eighth respondents: Dobson, Mitchell & Allport

Counsel for the second and ninth

respondents: Mr A Douglas

Solicitor for the second and ninth

respondents: Archer Bushby

Counsel for the third and tenth

respondents: Mr J K Dewar

Solicitor for the third and tenth

respondents: Crisp, Hudson & Mann

Counsel for the fourth and

eleventh respondents: Mr R Young

Solicitor for the fourth and

eleventh respondents: Jennings Elliott

Counsel for the twelfth respondent: Mr N Readett

Solicitor for the twelfth

respondent: Clark Walker & Stops

Date of hearing: 18 July 1996

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