FEDERAL COURT OF AUSTRALIA

TRADE PRACTICES - contravention of Part IV Trade Practices Act 1974 (Cth) - penalty - price-fixing arrangement - attempt - relevant factors - moral considerations - relevance of criminal law sentencing principles - whether punishment - whether injunction appropriate

Trade Practices Act 1974 (Cth) s 76(1)

Trade Practices Commission v Stihl Chain Saws (Aust) Pty Ltd (1978) 2 ATPR 40-091 at 17,896 applied

Trade Practices Commission v Mobil Oil Australia (1985) 4 FCR 296 at 298 mentioned

Trade Practices Commission v Carlton & United Breweries Ltd (1990) 24 FCR 532 at 542 discussed

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

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

Trade Practices Commission v Prestige Motors Pty Ltd (1994) ATPR 41-359 mentioned

Queensland Wine Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177 mentioned

Keeble v Hickeringill (1809) 11 East 574, 103 ER 1127 mentioned

Pye Industries Sales Pty Ltd v Trade Practices Commission (1979) ATPR 40-124 mentioned

Trade Practices Commission v ICI Australia Operations Pty Ltd (1991) 105 ALR 115 at 118 followed

Trade Practices Commission v Axive Pty Ltd (1994) ATPR 41-368 followed

R v Shannon (1979) 21 SASR 442 mentioned

Lowe v The Queen (1984) 154 CLR 606 mentioned

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

Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 145 ALR 36 discussed

Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 followed

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION V J MCPHEE & SON (AUSTRALIA) PTY LTD (NO.5)

NO.  VG 948 of 1995

JUDGE:          HEEREY J

DATE:            27 MARCH 1998

PLACE:          MELBOURNE

THE COURT ORDERS THAT:

1.         The First Respondent pay the following pecuniary penalties:-

            (a)        $3 million in respect of its contravention of the Trade Practices Act 1974 (Cth) (the Act) as alleged in paragraphs 12, 19 and 20 of the Second Further Amended Statement of Claim (“the Claim”);

            (b)        $500,000 in respect of its contravention of the Act as alleged in paragraphs 15 and 21 of the Claim;

            (c)        $250,000 in respect of its contravention of the Act as alleged in paragraphs 18 and 22 of the Claim.

2.         The Second Respondent pay a pecuniary penalty of $100,000 in respect of its contravention of the Act as alleged in paragraphs 24 and 25 of the Claim.

3.         The Third Respondent pay a pecuniary penalty of $80,000 in respect of his contravention of the Act as alleged in paragraphs 26 and 27 of the Claim.

4.         The Fifth Respondent pay a pecuniary penalty of $60,000 in respect of his contravention of the Act as alleged in paragraphs 30 and 31 of the Claim.

5.         The Sixth Respondent pay a pecuniary penalty of $15,000 in respect of his conduct as alleged in paragraphs 32 and 33 of the Claim, payable by two equal instalments with the first instalment to be paid on or before 31 December 1998 and the second instalment to be paid on or before 31 December 1999, save that if the Sixth Respondent fails to pay the first instalment within 14 days of 31 December 1998 then the second instalment will, at the expiration of such 14 days, become immediately due and payable.

6.         The First, Second, Third, Fifth and Sixth Respondents pay the Applicant’s costs of and incidental to this proceeding as against those Respondents including any reserved costs.

7.         The Applicant pay the Fourth Respondent’s costs of and incidental to this proceeding as against the Fourth Respondent including any reserved costs.

9.         The application is otherwise dismissed.

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

REASONS FOR JUDGMENT

HEEREY J:

On 26 February 1998 I made findings that the contraventions of Pt IV of the Trade Practices Act 1974 (Cth) (TPA) alleged by the Commission had occurred.  Written submissions and some affidavits as to penalty were filed.  A hearing on penalty took place on 16 March. 

Section 76(1), (1A) and (1B) of the TPA provide:

“76. (1) If the Court is satisfied that a person -

      (a)     has contravened a provision of Part IV;

      (b)     has attempted to contravene such a provision;

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

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

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

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

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

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

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

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

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

Section 76(1) makes it clear that “all relevant matters” are not limited to the four criteria specified in the subsection.  In my opinion, s 76 does not limit the Court in fixing a penalty to considering the contravenor as an economic actor whose conduct is to be assessed in purely cost benefit terms. A thoughtful discussion of the principles involved in the equivalent United States jurisdiction will be found in Deterrence and Justice: Setting Civil Penalties in the Federal Trade Commission by Bilmes and Woodbury (1991) 14 Research in Law and Economics 191. 

If a penalty were simply fixed at a level sufficient to cost the contravenor more than the benefit to be derived from the anti-competitive conduct, it would not matter that the contravenor had repeatedly violated Pt IV:  Bilmes and Woodbury, op cit, at 204.  But Parliament has expressly made prior contraventions relevant.  Similarly, on a strict economic analysis of cost and benefit it would not matter that conduct was systematic, deliberate or covert.  But these matters have often been taken into account in fixing penalty.  Thus in Trade Practices Commission v Stihl Chain Saws (Aust) Pty Ltd (1978) ATPR 40-091 at 17,896 Smithers J said:

“The penalty should constitute a real punishment proportionate to the deliberation with which the defendant contravened the provisions of the Act.”

See also Trade Practices Commission v Mobil Oil Australia (1985) 4 FCR 296 at 298; Trade Practices Commission v Carlton & United Breweries Ltd (1991) 24 FCR 532 at 542, Trade Practices Commission v TNT Australia Pty Ltd (1995) ATPR 41-375 at 41,666 (hereafter TNT Australia).  Accordingly, I would not with respect necessarily agree with the comments of French J in Trade Practices Commission v CSR Limited (1991) ATPR 41-076 at 52,152 that “(t)he principal, and ... probably the only, object of the penalties imposed by s 76 is to attempt to put a price on contravention that is sufficiently high to deter repetition by the contravenor” or that “the moral and amoral components of a contravenor’s behaviour” have no part to play in the fixing of pecuniary penalties under the Act.   (See also Trade Practices Commission v Prestige Motors Pty Ltd (1994) ATPR 41-359 at 42,699.)

French J was dealing with a case of abuse of market power under s 46.  No doubt in that specific context, competition is considered to be, as Mason CJ and Wilson J said in Queensland Wine Industries Pty Ltd v Broken Hill Proprietary Co Ltd (1989) 167 CLR 177 at 191:

“... by its very nature ... deliberate and ruthless”

Competitors who try to “injure” each other by taking away sales are not acting unlawfully:  Keeble v Hickeringill (1809) 11 East 574, 103 ER 1127.  But I would not with respect agree with French J’s conclusion (at 52,152) that such considerations extend to the provisions of Pt IV generally. 

From the early days of the TPA this Court has taken into account matters not confined to competition policy and which might fairly be called moral considerations. In Pye Industries Sales Pty Ltd v Trade Practices Commission (1979) ATPR 40-124 the Full Court said at (18,326):

“In this case the organisation exhibited total disregard of the public interest and an attitude quite callous in relation to one of its old customers. 

...

The whole exercise constituted what may be fairly described as one of quite brutal force by a large and powerful organisation against a weak and vulnerable firm ...”

The Full Court cited with approval the passage from the judgment of Smithers J in Stihl Chain Saws referred to above. 

In Trade Practices Commission v ICI Australia Operations Pty Ltd (1991) 105 ALR 115 at 118 Olney J took into account the facts that:

“... ICI is a large corporation with extensive interests and resources.  It has a high profile in the community and is of such standing that it ought to be a leading exponent of ethical and lawful business practices.”

It has been held relevant that contravention takes a subtle and covert form which makes proof difficult to obtain.  Northrop J said in Trade Practices Commission v Carlton & United Breweries Ltd (1990) 24FCR 532 at 541:

“Further, it must be accepted that discovering and obtaining evidence to support an application for a penalty for contravention of s 46 is very difficult and expensive.  The contravention may take many forms and in many cases a wink, a look or a nod may be more effective than the written or expressed word.  Proof of those aspects may be difficult to obtain.  This is relevant in considering the pecuniary penalty and its deterrent effect on other corporations which may engage in conduct in contravention of s 46.”

The fact that s 76 provides for penalties for individuals also suggests that penalty considerations extend beyond an assessment of the cost and benefit of the contravention.  In the case of an individual there would not ordinarily be a personal benefit accruing in the way that there usually is for a corporate contravenor.  There is no basis in s 76 for concluding that Parliament intended different regimes to apply to corporate and individual contravenors.  “Person” in s 76(1) includes both bodies corporate and individuals. 

Moreover, if the only consideration was the fixing of a price sufficiently high to outweigh the benefits to be derived from the contravening conduct there would need to be some attempt to quantify those benefits in dollar terms.  This is not usually done and was not done in the present case.  There was no effort to quantify the profit McPhee would have made had the Just Jeans arrangement come into effect - nor need there be.  Penalty is based on an intuitive synthesis.  (As it happens, there was however some quite precise evidence as to the damage which would have been suffered by Just Jeans.)

While there has been a clear policy decision by Parliament that contraventions of the laws against anti-competitive conduct contained in Pt IV are not criminal offences, nevertheless s 76 imports into the penalty fixing process concepts of moral responsibility long known to the criminal law.  In other words, the sources of the substantive provisions of Pt IV are doubtless economic policy and theory, but the penalties for contraventions are to be applied in a moral universe.  Sheppard J said in Trade Practices Commission v Axive Pty Ltd (1994) ATPR 41-368 at 42,794 that

“... ordinary sentencing principles ... apply notwithstanding that this is not a criminal prosecution.”

His Honour followed R v Shannon (1979) 21 SASR 442 as to the circumstances in which a plea of guilty may be taken into account in mitigation of penalty and Lowe v The Queen (1984) 154 CLR 606 as to consistency of penalty between co-defendants.  His Honour also considered (at 42,794) that remorse was relevant, that the contravenors’ conduct revealed a “high degree of ignorance, naivety and stupidity” and that their participation had “more of the hallmarks of the pathetic than of wickedness” (at 42,796).  There was “nothing secretive” about their conduct.  The ill health of one of the contravenors was taken into account (at 42,798).  None of this would be relevant to a cost benefit analysis. 

By moral considerations I do not mean some kind of saccharine piety.  The marketplace is, and is meant to be, a tough place.  But the norms imposed by Pt IV, and in particular the prohibition of price-fixing, by now are to be seen as part of fair, honest and ethical business behaviour.  Price-fixing, and in particular the kind of collusive bidding which was attempted in the present case, is a form of cheating.  There is no reason why this aspect of the contravening conduct does not form part of the nature and extent of the act within the meaning of s 76(1).  Also relevant is the conduct of those involved insofar as it involves factors like deliberation, knowledge of wrongdoing and concealment.  Most if not all of these factors would fall within a consideration of the nature and extent of the act or the circumstances in which the act took place.   

It hardly needs to be added that deterrence remains a primary objective of the imposition of penalty (even though not expressly mentioned in s 76).  In 1992 Parliament increased the penalties for corporate contravenors of Pt IV from a maximum of $250,000 to $10 million.  Such an increase was far more than would be necessary to adjust for a decline in value of the currency since the introduction of the TPA in 1974.  By setting penalties at such a level Parliament clearly intended that the Court should deter conduct which is considered (perhaps more so than previously) to be very damaging to the Australian community.  At the same time, as was noted in the Minister’s speech, it was obvious that the previous level of penalties had proved an ineffective deterrent. 

Deterrence is especially significant in relation to price-fixing.  This form of contravention commonly occurs in secret and between parties who seek a mutual benefit.  The risk of detection is often low and the potential gain to the contravenors, and damage to the community, large.  Therefore the penalty needs to be correspondingly high.  Moreover, where the contravention takes the form of an attempt at the making of a price-fixing arrangement, it needs to be remembered that most price-fixing must start with some form of contact, however discreet, with a competitor.  Those minded to engage in price-fixing might be tempted to think that if an informal and subtle approach is made, the worst that can happen is a rebuff.  A penalty should reflect the fact that an attempt at price-fixing is seriously unlawful conduct in itself. 

In N W Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 at 296 a majority of the Full Court said:

“But the penalties imposed by s 76 are, as we have said, not criminal sanctions, and their purpose, established now by a long line of cases, is not punishment.”

The other member of the Court (Carr J) expressed the “slight reservation” that the cases decided to date “have not ruled out or excluded punishment as one of the purposes of s 76” (at 299).  In Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 145 ALR 36 at 44-46 after referring to what was said in N W Frozen Foods Goldberg J commented:

“None of the cases which have emphasised the deterrent nature of penalties makes deterrence an exclusive consideration and excludes punishment as a relevant consideration save for Trade Practices Commission v CSR Ltd.”

As Goldberg J pointed out, the ordinary dictionary meaning of “penalty” is “a punishment for contravention of law, rule or contract”.  And in the passage already quoted from Stihl Chain Saws, referred to with apparent approval in N W Frozen Foods and in many other cases, Smithers J spoke of a penalty needing to constitute “a real punishment”. 

But in any event, I do not read N W Frozen Foods as making irrelevant any of the factors to which I have referred to in fixing the penalties in this case. 

Just Jeans Contravention - McPhee

It was put in McPhee’s written submissions that it “has learnt its lesson from these proceedings and the Court should be satisfied that (it) is highly unlikely to offend again”. 

The evidence does not warrant this conclusion.  Through its most senior management in Victoria, including a member of its Board, McPhee engaged in a carefully planned, covert and sophisticated attempt to bring about a price-fixing arrangement which would cause substantial damage to a long-standing customer, and profit to itself. McPhee and its executives have indicated that they intend to appeal, as of course is their right.  Likewise they are not to be penalised for defending the case against them:  Shannon (1979) 21 SASR at 442 and 443, TNT Australia (1995) ATPR at 40,170.  But I have to fix a penalty which is appropriate to the facts as found.  Those facts indicate a refusal by those executives to obey the law against price fixing and an awareness that what they were doing was seriously unlawful.  There is a real possibility that they would do the same thing again if they thought they could get away with it. 

This element was considered by Burchett J in TNT Australia (1995) ATPR 40-168 at 40,168 where his Honour said:

“It is a most important factor in mitigation of the amount of a penalty that, in a particular case, there may be acceptable evidence of a corporate culture of compliance, and of concern to ensure that the contravention which has occurred will not be repeated.  The importance of this factor may perhaps be compared with reference to the criminal law to the effect of remorse.  But no exact parallel can be drawn.  Remorse is often hard to assess and, in any case, cannot be felt by a corporate abstraction.  In the present case the admissions made, belated though they were, do provide reason to expect compliance in the future with the requirements of the Act, particularly, but not only, in the case of the two companies which first conceded their liability and accepted the imposition of penalties.”

Thus a frank admission of unlawful conduct is the starting point for any realistic confidence in future compliance and therefore a factor that goes to mitigation and reduces the need for deterrence.  However the present case is the reverse. 

One of the many remarkable features of this case is that on 10 August 1994, only nine months before the Just Jeans incident, TNT Australia Pty Limited (TNT Australia) withdrew its defence to a proceeding by the Trade Practices Commission alleging serious price-fixing, including, be it noted, “cover quoting”.  TNT Australia agreed to the imposition of a negotiated penalty of $4.1 million. 

TNT Australia is a fellow subsidiary with McPhee of TNT Limited, the holding company of the TNT Group.  I do not treat this as a previous finding of engagement in similar conduct by McPhee for the purposes of the fourth of the express criteria in s 76(1).  Nevertheless some of the circumstances of this episode are relevant to the corporate culture that existed at a high level within McPhee in relation to compliance with the TPA. 

McPhee served on the Commission (although it did not tender at the trial) a statement of Mr John Dudley McPhee dated 3 October 1997.  Mr McPhee was the Managing Director and Principal Executive Officer of McPhee at all relevant times. After referring to the allegations of the Commission as “contrary to the clear instructions to employees of the First Respondent prior to the dates of the relevant incidents” Mr McPhee stated: 

“At all the relevant times the First Respondent was a subsidiary of TNT Limited and annexed hereto and marked “B” is a copy of the Trade Practices compliance manual in circulation in the First Respondent in the period commencing prior to such dates [sc of the alleged contraventions] up until about July 1996 (when a new Trade Practices compliance manual was introduced).”

On the first page it is stated that the manual has been “prepared by the TNT Legal Counsels [sic] for Australia for the benefit and use of all companies within the TNT Group in Australia and the Ansett Transport Industries (Operations) Pty Limited freight divisions”.  The manual appears on its face to be issued by TNT Australia and bears a claim to copyright by that company.  Thus, in respect of compliance with the TPA, McPhee holds itself out as being part of the TNT Group and associated with TNT Australia and claims the benefit of that association.  It wraps itself in the TNT flag. 

On 31 January 1995 Burchett J handed down a judgment which gives detailed reasons why the penalties agreed by the Commission and the parties (including TNT Australia) were considered appropriate:  (1995) ATPR 41-375.  At the outset his Honour said (at 40,164):

“By the withdrawal of their defences, the parties doing so made it clear that they intended, for the purposes of the proceedings, to admit the allegations in the amended statement of claim, so as to permit the Court to proceed to impose suitable penalties.”

His Honour (at 40,169) considered it

“... appropriate to give weight to the fact that the respondents had saved the community the burden of litigating a lengthy and expensive case by withdrawing their defences and admitting the allegations.”

His Honour regarded this as a matter for

“substantial allowance for the admissions, both as indicative of a true resolve to comply with the law in future and as involving a benefit to the community.”

But included in McPhee’s discovered documents in the present case was a record of an interview on radio station 2BL on 10 August 1994 with Mr Fred Millar, Chairman of TNT Limited.  This was the day the agreed penalties were imposed.

The following exchange took place between the interviewer, Ms Katie Cronin, and Mr Millar:

“KATIE CRONIN:      Do you feel that you’ve got off lightly?

FRED MILLAR:          Oh it’s not a question of getting off lightly, we made it perfectly clear from the moment we commenced negotiations with the Trade Practices Commission that we did not acknowledge that we were guilty of the things which they alleged.

KATIE CRONIN:        So why did you elect not to pursue defence of the matter?

FRED MILLAR:          We also made it clear to the Court that we were only doing it for the purpose of getting rid of the proceedings.  We elected to continue with the negotiations because we are very tired of paying out huge legal costs.

KATIE CRONIN:        So you’re cutting your losses basically?

FRED MILLAR:          Cutting our losses, yes, the legal expenses are horrendous.

KATIE CRONIN:        Professor Fels [Chairman of the Trade Practices Commission] says to me that by the action that has been taken by the companies and their agreement to pay fines, it’s equivalent of admitting guilt for collusive practices in the transport sector. 

FRED MILLAR:          Professor Fels knows, because I told him so right at the beginning and continued to tell him all the way through, that we did this despite the fact that we continued to deny liability for these things.  We have withdrawn our defences in order to give the Court jurisdiction to implement a deal that we made with the Trade Practices Commission.

                                    ...

KATIE CRONIN         Has TNT changed its politics in relation to its air freight businesses and its express freight businesses since this whole proceedings began?

FRED MILLAR:          No, TNT has always, in our view, carried out its operations correctly and properly.  We’ve had a significant compliance program in place for years.  We believe that, as I’ve told you and I’ve told Professor Fels and as it was told to the Court, that we don’t believe these allegations.  We believe if we’d fought we would have had success at least in a very major part of them.

KATIE CRONIN:        There was a list of about 175 names, witness statements, including about 75 former employees of either TNT or Ansett who provided evidence to the court.  That wasn’t sufficient for TNT to recognise that perhaps they couldn’t win this action?

FRED MILLAR:          No, on the contrary, we happen to know many of these witnesses and we would have loved the opportunity to cross-examine them.

KATIE CRONIN:        Why?

FRED MILLAR:          Because we believe we could have demonstrated that the things they were saying were not accurate.

KATIE CRONIN:        In what interest would it have been for those employees or former employees to lie?

FRED MILLAR:          I’ve got no idea.  I’ve got no idea.  Many of them, of course, had left us under circumstances which they might not like nowadays, but we don’t accept all these allegations, and we’ve made that clear all the way through.  There’s nothing new in this.

KATIE CRONIN:        So you’re saying there’s nothing that has been alleged in the courts that has prompted TNT to in any way revise its operations in this particular area?

FRED MILLAR:          Well the only thing we’ve revised in our operations is that we now take particular note of things so that in future if these allegations are brought we can demonstrate very clearly how we act.”

It is reasonable to infer that this interview was not brought to the notice of his Honour before the reasons for judgment were delivered in January 1995.  Mr Millar’s public statements are an explicit repudiation of the admission of liability for which TNT Australia received a substantial benefit in the penalty fixing process.

I accept that McPhee has operational independence within the TNT Group.  But for present purposes, the fact that McPhee had a transcript of this interview within its possession gives an insight into its true attitude towards compliance with the Act.  Continue as before and, if caught, admit nothing.  It is significant that the TPA compliance manual which McPhee now puts forward (dated July 1996) gives some “real life examples” of penalties imposed by the Court, but does not mention TNT Australia.

There is also evidence (in the affidavit of Mr Maloney hereafter mentioned) of steps taken since TNT Australia “to inform McPhee employees about the (TPA) and its implications”.  These steps include addresses by Mr Maloney to sales meetings, the engagement of a specialist compliance consultant, and the engagement of legal advisers to prepare training material and conduct seminars.  I accept that these things have happened, and that is all to the good.  But the conduct of the three senior executives in this case, men who must be taken to have full awareness of TNT Australia, indicates that where it really counts in this company there is, to put it mildly, a lack of commitment to the principles of the TPA.  The corporate culture has proved to be seriously deficient in that regard. 

On the penalty hearing McPhee relied on an affidavit sworn on 12 March 1998 by Mr Walter Maloney, currently a director of the company.  He has been with McPhee since 1974 and, apart from an interlude of a few months, a director since 1980.  In substance Mr Maloney says that he first heard of the allegations against McPhee in August 1995, that after speaking to Mr Geoffrey Eva of the Commission he spoke to Messrs Forde, Holland and Morton at some length.  Each of those gentlemen denied they  had attempted to reach any arrangement with the DFE representatives as alleged.  Mr Maloney had further discussions with Mr Eva and told him he would fully assist the Commission. McPhee retained its solicitors Messrs Clayton Utz.  That firm interviewed the individuals concerned, who repeated their denials.  McPhee’s instructions to defend the proceeding were based on the “consistent denials of the individual respondents”.  Mr Maloney deposes: 

“To my knowledge, it is not the policy of McPhee to fix prices or act as otherwise alleged by the Commission in these proceedings.  To my knowledge, no person was or ever has been authorised by McPhee to fix prices or enter into an agreement in contravention of the Trade Practices Act.  I was never personally aware of the conduct which Justice Heerey has found to have occurred and if I had become aware of such conduct I would have taken steps to stop such conduct occurring.”

This attempt to distance McPhee from the individuals who committed the contraventions is not persuasive.  It is not a case of an employer being confronted with allegations against some minor functionary.  Such a view is quite at odds with the reality of this case, both legal and commercial. Messrs Forde, Morton and Holland were in control of the day to day operations of McPhee in Victoria.  They were for present purposes the artificial or fictional entity which the law recognises as J McPhee & Son (Australia) Pty Ltd: see Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500.  In my opinion it is not to the point that other individuals who might also have represented the company in other respects personally reacted in the way they say the did. 

The Commission submitted that the Just Jeans matter was “approximately in the middle of the range of seriousness” and that a prima facie appropriate penalty was $5 million.  McPhee argued that this penalty was “so harsh as to seriously damage the company”.  Remarkably, McPhee submitted no evidence as to its financial position.  The only evidence as to this comes from a record of an interview (tendered by the Commission) in November 1995 in which McPhee’s turnover for 1994-95 was said by Mr Maloney to be $107 million and from the published results of the TNT Group for the 1995 and 1996 financial years, also tendered by the Commission.  These include figures for “Contribution to Consolidated Operating Profit” for controlled entities.  The figures for McPhee are:

                                                                    $

            1995                                        6,216,000

            1996                                        5,607,000

In its written submissions McPhee argues that the “maximum total penalty” (which includes the ACI Florapak contraventions as well) should be $900,000. There then follows immediately reference to “the total penalty ordered by the Full Federal Court in NW Frozen Foods”.  It is said:

“There [i.e. in N W Frozen Foods], there were many and systematic breaches.  On the principle that there should be equality before the law $900,000 in total should represent the upper limit.”

However NW Frozen Foods itself makes it clear (at 295) that

“The facts of the instant case should not be compared with a particular reported case in order to derive therefrom the amount of the penalty to be fixed.”

Counsel for McPhee also referred to Lowe and Axive as applicable in the circumstances.  However those were cases which dealt with consistency of penalty as between co-offenders in respect of the same offence. 

The only remaining aspect that need be referred to is the potential loss or damage to Just Jeans.  Exhibit J showed that the difference between McPhee’s quote and the successful quote of IPEC in terms of annual cost to Just Jeans was $391,605.  This gives some indication of the damage Just Jeans would have suffered if it had been led, by a cover quote from DFE, into accepting McPhee’s quote.  Given the present low inflationary climate and the long standing relationship between Just Jeans and McPhee, it may be inferred that, had the proposed arrangement worked, Just Jeans would have been paying a similar amount in excess of the market price for some years at least, to the detriment of its shareholders and customers and its capacity to compete effectively in its markets. 

The figure proposed by the Commission might well be appropriate if the arrangement had been concluded and put into effect.  This did not happen.  But all in all this is a serious and exceptional case.  In all the circumstances an appropriate penalty is $3 million. 

Just Jeans Contravention - Individual Respondents

I accept that the penalties will be paid by the individuals concerned and not by McPhee.  Such a payment would be unlawful:  Corporations Law s 241.

The Commission submitted the following penalties as appropriate

            Mr Forde                                 $200,000

            Mr Morton                               $150,000

            Mr Holland                               $150,000

Counsel for Messrs Forde and Morton submitted that they were (as is no doubt the case) salaried officers of the company.  He went on to say:

“Each will have to pay the fine out of after-tax, non-household disposable income.  The Court will know from experience that, for a person in such a position, any fine of $10,000.00 or more would be a very substantial financial penalty and a very powerful deterrent. The same would be true of any other company officer in a similar position.”

But even more remarkably than in the case of the company itself, no evidence whatsoever of the personal financial circumstances of Messrs Forde and Morton (or of Mr Holland) was tendered.  For all I know they could be quite wealthy men.  Certainly they have been in business for a long time.

The seniority of the individuals concerned, their awareness of wrongdoing and the careful planning of the operation calls for substantial penalties.  Mr Forde had the privileges and responsibility of a Board member.  He was Director responsible for the Southern Region, including Western Australia, South Australia and Tasmania.  He played an active personal role in the contravention.  An appropriate penalty is $100,000.  Mr Morton was not a Board member but was the executive directly responsible for the Just Jeans account.  He was a driving force in the operation.  The penalty will be $80,000.

Mr Holland, General Manager for Victoria, played a less conspicuous role, but was fully aware of the nature of the contravention and added his weight to it.  The penalty will be $60,000.

ACI Florapak Contravention - McPhee

As was correctly submitted, the amounts involved were not large.  The total annual turnover for the account was $17,500.  There was not a combination of senior executives acting together, as with the Just Jeans episode, but a rather impulsive act on the part of a single employee at a lower level.  Still, the very instinctiveness with which Mr Webb acted says a lot about the corporate culture within McPhee as to TPA compliance.

The Commission sought penalties of $2 million for the arrangement and $1 million for giving effect thereto.  McPhee did not submit a figure, other than the $900,000 already mentioned which included the Just Jeans contravention.

I think an appropriate penalty is $500,000 for the arrangement and $250,000 for giving effect.

ACI Florapak Contravention - Mr Webb

In contrast to the other individual respondents, Mr Webb swore an affidavit as to his financial position.  The Commission did not seek to cross examine him and I accept his evidence.  At the time of the contravention in November 1994 he earned $37,076 before tax.  He had the use of a company car and his home telephone was paid.  At the present time he earns $42,300, also with a car and telephone.  He has never had a shareholding or other financial interest in McPhee.  He is not entitled to any commission or bonus and derived no benefit from the arrangement involving ACI Florapak. 

He is 38 years old.  He and his wife have two children aged five and three.  They moved to Traralgon in July 1992.  They paid $90,000 for a house using $55,000 from their own resources and borrowing the balance from a bank.  The amount now outstanding on the mortgage is approximately $19,000.  The house is now worth about $91,000.  Mrs Webb has not worked since the time the first child was born except for some brief part-time work last year as a waitress. 

Mr Webb’s present net weekly income after tax is about $595 per week which is fully used in meeting living expenses, including repayment of the mortgage.  He has a car worth about $9,000 and furniture and personal effects worth about $15,000 and some $2,000 worth of shares in National Mutual.

The Commission, before the foregoing affidavit was filed, submitted a penalty of $150,000 was appropriate.  

Having regard to the detailed evidence supplied by Mr Webb I think the submission put by his counsel of a penalty of $15,000 is a reasonable and realistic one.  Without going into precise calculations I would expect it to be more than half his annual income after tax.  Counsel also proposed, and I agree, that the penalty should be paid in two equal instalments of $7,500, the first by 31 December 1998 and the second by 31 December 1999.  In the event of default for more than fourteen days in the first payment, the whole amount will become due and payable.

Injunction

The Commission claimed an injunction in very general terms against all respondents to restrain, in essence, any further price-fixing arrangements.  The respondents did not oppose an injunction.  Indeed counsel for some of the respondents relied on an injunction as operating like a bond for good behaviour and thus as an assurance against further contravention and a matter going to mitigation. 

For the reasons discussed by Northrop J in Carlton & United Breweries 24 FCR at 539-541, I am not persuaded as to the utility of an injunction.  (His Honour did grant an injunction, although, I think it fair to say, with some reluctance.)  I do not think the true purpose of an injunction is to mark the Court’s disapproval of the contravening conduct.  That purpose is achieved in fixing the level of penalty.  The hope that an injunction would provide a quick, summary remedy against further contravention is somewhat illusory.  Were further contravention alleged in the future, the respondents would doubtless argue that they were entitled to full particulars, discovery, witness statements etc etc.  Such procedures could hardly be denied.  If the contraventions were proved, there would be the further complication whether some additional penalty, including perhaps imprisonment, should be imposed for contempt of Court.  That in turn would raise difficult questions, having regard to the basic policy decision enshrined in the TPA that there should not be incarceration for anti-competitive conduct.  In Pt IV matters the Court does not have a supervisory probation role.  Its function is to determine whether contraventions are proved and, if so, to impose an appropriate penalty. 

Costs

There will be orders that the respondents, other than the fourth respondent, pay the Commission’s costs of and incidental to this proceeding as against them, including reserved costs.  The Commission will pay the costs of the fourth respondent.

Associate:                    

                                    Christine Petrov

Dated:                          27 March 1998