FEDERAL COURT OF AUSTRALIA

ACCC v Simsmetal Ltd [2000] FCA 818

TRADE PRACTICES – penalties – attempt to enter into market-sharing arrangement – previous contravention

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

Trade Practices Commission v CSR Limited (1991) ATPR 41-076 at 52,152-3 mentioned

NW Frozen Foods Pty Ltd v Australian Competition & Consumer Commission (1997) 71 FCR 285 mentioned

J McPhee & Son (Australia) Pty Ltd v Australian Competition & Consumer Commission (2000) ATPR 41-758, [2000] FCA 365 mentioned

Trade Practices Commission v Simsmetal Limited and Ors (1996) ATPR 41-449 at 41,512 mentioned

Pye Industries Sales Pty Ltd v Trade Practices Commission (1979) ATPR 40-124 at 18,326 mentioned

In re Supply of Ready Mixed Concrete (No 2)  [1995] 1 AC 456 at 465 mentioned

Meridian Global Funds Management Asia Ltd  v Securities Commission [1995] 2 AC 500 at 508-512 mentioned

AUSTRALIAN COMPETITION & CONSUMER COMMISSION v SIMSMETAL LIMITED & ORS

NO. AG 14 OF 1998

HEEREY J

20 JUNE 2000

MELBOURNE

THE COURT ORDERS THAT:

1.         Leave be granted to the applicant to discontinue this proceeding as against the second and third respondents.

2.         Leave be granted to the applicant to file and serve a further amended application on 7 June 2000 in the form of exhibit “MJC-2” to the affidavit of Meredith Jane Cole affirmed on 2 June 2000.

3.         Leave be granted to the applicant to file and serve a second further amended statement of claim on 7 June 2000 in the form of exhibit “MJC-3” to the affidavit of Meredith Jane Cole affirmed on 2 June 2000.

4.         The first respondent, pursuant to s 76 of the Trade Practices Act 1974 (Cth) pay to the Commonwealth of Australia a pecuniary penalty in the sum of $2 million within twenty-eight days of the date of this order. 

5.         Declare that the first respondent attempted, on 20 July 1995 and 4 August 1995, to make a contract, arrangement, or arrive at an understanding with a competitor, Philip Buck, which contained provisions which had the purpose, or a substantial purpose of, preventing, restricting or limiting the first respondent and Philip Buck from acquiring ferrous scrap in South Australia from each others’ suppliers, and thereby attempted to make a contract, arrangement or arrive at an understanding which, if successful, would have contained exclusionary provisions in contravention of s 45(2)(a)(i) of the Act.

6.         Except in relation to conduct referred to in ss 45(6), 45(8) and 45(9) of the Act, the first respondent, whether by its directors, servants or agents or otherwise howsoever, be restrained for three years from:

            (a)        attempting to make or arrive at;

            (b)        making or arriving at; or

            (d)        giving effect to:

            any contract, arrangement or understanding with any person who is or would otherwise be likely to be in competition with the first respondent, which contains a provision that has the purpose, or a substantial purpose of, preventing, restricting or limiting the first respondent, any body corporate related to the first respondent, and/or any party to the contract, arrangement or understanding, from acquiring ferrous scrap in Australia from particular persons or classes of persons either absolutely or in particular circumstances or on particular conditions.

7.         The first respondent pay to the Commonwealth of Australia a contribution to the applicant’s costs of and incidental to the proceedings, such contribution agreed in the sum of $100,000 within twenty-eight days of the date of this order.

8.         The first respondent undertakes to the Court that the first respondent will, as soon as possible:

            (a)        comprehensively review its current Trade Practices Compliance Program; and

(b)        use reasonable endeavours to ensure that the Program meets the Australian Standard for such programs, being AS 3806-1998, and be tailored to suit the first respondent’s circumstances.

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

REASONS FOR JUDGMENT

1                     The first respondent Simsmetal Limited has admitted attempting in 1995 to make a market sharing arrangement with a competitor, Mr Philip Buck, in relation to the acquisition of steel scrap in South Australia contrary to s 45(2)(a)(i) of the Trade Practices Act 1974 (Cth) (“TPA”). 

2                     The Commission seeks an order for payment of a penalty under s 76(1)(d).  The second respondent Mr Peter Jaksa was Simsmetal’s Ferrous Manager in South Australia and the third respondent Mr John Babister was the company’s General Manager for South Australia.  They were joined as parties to an alleged attempted contravention of s 46 in relation to the same episode.  As part of the resolution of this proceeding, the s 46 case has been dropped and the Commission was granted leave to discontinue the proceeding as against Mr Jaksa and Mr Babister. 

3                     As to s 45, on the statement of facts agreed to by the parties (including Mr Jaksa) it is clear that, as will appear in a little more detail below, Mr Jaksa sought to induce Mr Buck to contravene s 45 by entering into a market-sharing arrangement.  However Mr Buck did not trade as a corporate entity.  The Commission takes the view that s 45 can only be contravened by a corporation.  So Mr Jaksa could not have induced Mr Buck “to contravene” s 45(2)(a)(i).  Of course, where there is conduct between corporations which contravenes s 45, individuals can be liable for inducing or attempting to induce such contraventions:  J McPhee & Son (Aust) Pty Ltd v ACCC (2000) ATPR 41-578, [2000] FCA 365. 

Simsmetal

4                     Simsmetal is a listed corporation which deals in scrap metal recycling in Australia and also in New Zealand, Asia, North America and the United Kingdom.  In the year ended 30 June 1996, the year in which the contravening conduct occurred, it had revenues of $1.2 billion and recorded profit before interest and tax of $73 million.  It is one of the largest metal recyclers in the world. 

The South Australian scrap market

5                     Throughout Australia, including South Australia, steel scrap, that is ferrous recyclable metal, is acquired and processed for resupply to foundries and steel mills.  Steel scrap includes items such as manufacturer’s off-cuts, car wrecks, obsolete white goods and steel components from derelict buildings or construction sites.  Scrap collectors or recyclers buy scrap from the public and each other and sell it to each other and end users.  Most of the steel scrap is acquired by scrap collectors, processed into suitable form, and then sold to steelmakers who use the scrap as feed stock for furnaces.

6                     In 1995 Simsmetal was (and remains today) overwhelmingly the largest acquirer of steel scrap in South Australia.  It acquired about 150,000 tonnes per annum of steel scrap.  One of its competitors was Mr Buck.   He only acquired approximately 2,500 tonnes per annum but he was nevertheless the second largest supplier of processed steel scrap to foundries in South Australia.  He was thus a competitor with Simsmetal for the acquisition of steel scrap.

Contravening conduct

7                     On 20 July 1995 Mr Jaksa visited Mr Buck’s business premises and spoke to him.  Mr Jaksa said that Simsmetal wanted Mr Buck to supply Simsmetal with more of the high grade steel scrap which he normally sold to South Australian foundries.  If Buck did not comply with this request Simsmetal would make it hard for Buck to purchase steel scrap from scrap generators.  Further, Buck should not buy scrap from or approach customers who had a Simsmetal steel scrap collection bin located on their premises or who Buck otherwise knew were Simsmetal suppliers.  Buck should only buy or offer to buy steel scrap from persons who were not suppliers to Simsmetal.  If Buck did as he was told, Simsmetal would allow Buck to retain the customers that he had and Simsmetal would not buy or offer to buy scrap from Buck’s suppliers.

8                     A few days after that visit Mr Buck arranged another meeting with Mr Jaksa for 4 August.  In the meantime he had complained to the Trade Practices Commission and purchased a small voice-activated tape recorder.

9                     On 4 August Mr Jaksa again went to Mr Buck’s premises.  Without Mr Jaksa’s knowledge the conversation was taped.

10                  At the meeting on 4 August Mr Jaksa told Mr Buck that he was causing a problem for Simsmetal by competing with it for the acquisition of certain steel scrap.  Buck must not put his steel scrap collection bins in areas where Simsmetal’s bins were located.  If Buck received a call from a Simsmetal client offering to sell to Buck then he was to advise Simsmetal.  Buck was not to approach a Simsmetal client or offer to purchase steel scrap.  Buck was only to acquire steel scrap from scrap generators not currently selling to Simsmetal.  Unless Buck did as demanded, Simsmetal would approach Air International Pty Ltd, which was a major supplier of steel scrap to Buck, and offer $160 per tonne for their scrap.  This was almost twice the price being paid by Buck to Air International at that time.  Mr Jaksa said that Simsmetal would destroy Buck’s business if Buck approached Simsmetal’s clients for the supply of steel scrap.  If, however, Buck acted in accordance with the demands of Simsmetal then it would look after Buck.

11                  Mr Buck did not agree to, or put into effect, any of the arrangements which Mr Jaksa had demanded.  He provided a copy of the tape recording of the conversation of 4 August to the Commission.

Previous contraventions

12                  On 9 November 1994, that is to say only nine months before the contraventions with which the present case is concerned, Simsmetal admitted liability for a breach of s 45 in Victoria.  The circumstances were remarkably similar, save for the fact that there was a completed contravention.  Simsmetal entered into price-fixing and market-sharing arrangements in relation to the purchase of derelict car bodies and agreed to exclude a competitor from that market.  Lee J noted, Trade Practices Commission v Simsmetal Limited and Ors (1996) ATPR 41-449 at 41,512, that the contraventions were serious and that the penalties which the Commission and Simsmetal accepted were

“significantly less than those which could be expected to apply to the same conduct since amendments to the Act which increased the level of the range of penalties.”

His Honour was referring to the amendment in 1992 which increased the penalty for a corporate contravener from $250,000 to $10 million.  For three contraventions his Honour imposed penalties totalling $352,500.  His Honour said (at 41,512):

“In determining that the suggested penalty is appropriate I have given account to the fact that Simsmetal has taken some steps to better ensure that the company complies with the relevant laws in future.”

13                  Regrettably it seems in retrospect that his Honour’s confidence in the future conduct of Simsmetal was not justified.

Relevant principles

14                  Section 76 provides that in fixing pecuniary penalties the Court may order such penalty

“as the Court determines to be appropriate having regard to all relevant matters including the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission, the circumstances in which the act or omission  took place and whether the person has previously been found by the Court in proceedings under this Part or Part XIB to have engaged in any similar conduct.”

15                  It is not necessary to restate the relevant factors additional to those mentioned in s 76 which have been taken into account.  They are fully discussed in the authorities including Trade Practices Commission v CSR Limited (1991) ATPR 41-076 at 52,152-3, NW Frozen Foods Pty Ltd v Australian Competition & Consumer Commission  (1996) 71 FCR 285 and McPhee at pars 153-173.

Relevant factors in the present case

16                  A number of factors in the present case argue in favour of a substantial penalty: 

·                     Market sharing arrangements, like price-fixing, contravene fundamental principles of competition law and are very damaging to the community;

·                     Because such arrangements are inherently difficult to detect, when they are revealed a substantial deterrent is called for;

·                     The conduct in the present case was quite deliberate, being instigated by Mr Jaksa and occurring over a two  week interval;

·                     The conduct was accompanied by bullying and intimidation by a large and powerful organisation against a vulnerable small trader (cf Pye Industries Sales Pty Ltd v TPC (1979) ATPR 40-124 at 18,326);

·                     The corporate culture of TPA compliance by Simsmetal was, not to put too fine a point on it, appalling.  Less than a year earlier the company had admitted to serious contraventions.

17                  In 1992, and after the Trade Practices Commission commenced the proceeding which led to the 1994 penalties, Simsmetal established a trade practices compliance program.  The company’s records have Mr Jaksa attending a trade practices compliance seminar on 1 September 1993 and reading a compliance manual in December 1994.  Mr Jaksa however has no recollection of these events.  If they took place, either they made no impression on him or he thought he could get away with conduct which the most elementary understanding of the TPA would show to be seriously unlawful. 

18                  On the credit side, no actual harm was caused.  Mr Buck continued to operate in the market and competition was not impaired. Simsmetal ultimately co-operated with the Commission and admitted the contraventions.  The trial had been set down for hearing this year with an estimated duration of eight to ten weeks.  Simsmetal’s admission saves the Court and the Commission, and through them the community, substantial resources.  As a result the appropriate penalty is substantially less than it would otherwise be.

Penalty

19                  The penalty suggested by the Commission, and which Simsmetal accepts, is $2 million.  The Commission and Simsmetal recognise that it is for the Court to determine what relief should be ordered and the quantum of any pecuniary penalties to be imposed.  I think $2 million is an appropriate penalty.  As Senior Counsel for the Commission submitted, while each case turns on its own facts it is useful as a check to compare this case with a recent Full Court decision which also concerned an attempted contravention.  In McPhee the penalty was reduced on appeal to $2 million.  The personnel involved in that case were at a higher level in the corporate structure.  On the other hand there was no admission of liability.

20                  I agree with counsel that the result in McPhee provides some guide to the appropriateness of the suggested penalty in the present case.  However, I would not regard Mr Jaksa’s position as a factor tending much, if at all, towards a lesser penalty.  He was responsible for the company’s acquisition of steel scrap in South Australia (as noted above, about 150,000 tonnes per annum) including the negotiation of prices.  He reported directly to Mr Babister, the manager for South Australia.  So Mr Jaksa was not a minor functionary.  More importantly, for the purpose of scrap acquisition in South Australia, he was Simsmetal:  see In re Supply of Ready Mixed Concrete (No 2)  [1995] 1 AC 456 at 465, Meridian Global Funds Management Asia Ltd  v Securities Commission [1995] 2 AC 500 at 508-512. 

Individual respondents

21                  As already mentioned, the  proceeding was withdrawn as against the individual respondents.  This was not the case in McPhee where the three individual executives were given penalties (after reduction by the Full Court) ranging from $45,000 to $65,000.  It would of course be unlawful for a company to assist individuals in payment of those penalties.  So the individual respondents, and in particular Mr Jaksa, in this case might count themselves lucky for the purely fortuitous circumstance that Mr Buck did not use a corporate entity for his business. 

Injunction

22                  Simsmetal did not oppose an injunction to restrain its engaging in price fixing in relation to scrap metal for a period of three years.  Accordingly an injunction will be granted.

Trade Practices Compliance Program

23                  Simsmetal gave undertakings for the review of its compliance program.

Costs

24                  Simsmetal agreed to a contribution of $100,000 towards the Commission’s costs.

Orders

1.         Leave be granted to the applicant to discontinue this proceeding as against the second and third respondents.

2.         Leave be granted to the applicant to file and serve a further amended application on 7 June 2000 in the form of exhibit “MJC-2” to the affidavit of Meredith Jane Cole affirmed on 2 June 2000.

3.         Leave be granted to the applicant to file and serve a second further amended statement of claim on 7 June 2000 in the form of exhibit “MJC-3” to the affidavit of Meredith Jane Cole affirmed on 2 June 2000.

4.         The first respondent, pursuant to s 76 of the Trade Practices Act 1974 (Cth) pay to the Commonwealth of Australia a pecuniary penalty in the sum of $2 million within twenty-eight days of the date of this order. 

5.         Declare that the first respondent attempted, on 20 July 1995 and 4 August 1995, to make a contract, arrangement, or arrive at an understanding with a competitor, Philip Buck, which contained provisions which had the purpose, or a substantial purpose of, preventing, restricting or limiting the first respondent and Philip Buck from acquiring ferrous scrap in South Australia from each others’ suppliers, and thereby attempted to make a contract, arrangement or arrive at an understanding which, if successful, would have contained exclusionary provisions in contravention of s 45(2)(a)(i) of the Act.

6.         Except in relation to conduct referred to in ss 45(6), 45(8) and 45(9) of the Act, the first respondent, whether by its directors, servants or agents or otherwise howsoever, be restrained for three years from:

            (a)        attempting to make or arrive at;

            (b)        making or arriving at; or

            (d)        giving effect to:

            any contract, arrangement or understanding with any person who is or would otherwise be likely to be in competition with the first respondent, which contains a provision that has the purpose, or a substantial purpose of, preventing, restricting or limiting the first respondent, any body corporate related to the first respondent, and/or any party to the contract, arrangement or understanding, from acquiring ferrous scrap in Australia from particular persons or classes of persons either absolutely or in particular circumstances or on particular conditions.

7.         The first respondent pay to the Commonwealth of Australia a contribution to the applicant’s costs of and incidental to the proceedings, such contribution agreed in the sum of $100,000 within twenty-eight days of the date of this order.

8.         The first respondent undertakes to the Court that the first respondent will, as soon as possible:

            (a)        comprehensively review its current Trade Practices Compliance Program; and

(b)        use reasonable endeavours to ensure that the Program meets the Australian Standard for such programs, being AS 3806-1998, and be tailored to suit the first respondent’s circumstances.

Associate:

Dated: