FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission

v ABB Transmission and Distribution Limited

[2001] FCA 383

TRADE PRACTICES – contravention of Pt IV of the Trade Practices Act 1974 (Cth) – pecuniary penalty – joint submission – court’s role in sentencing – factors relevant to assessing appropriate penalty

Trade Practices Act 1974 (Cth)  s 76

NW Frozen Foods v Australian Competition and Consumer Commission (1997) ATPR     ¶41-546  cited

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

Trade Practices Commission v CSR Ltd (1991) ATPR ¶41-076  cited

Australian Competition and Consumer Commission v J McPhee & Son (Australia) Pty Ltd (No 5 ) (1998) ATPR ¶41-628  cited

Australian Competition and Consumer Commission v Roche Vitamins Australia Pty Ltd [2001] FCA 150  cited

Australian Competition and Consumer Commission v Pioneer Concrete Pty Ltd (1996) ATPR ¶41-457  cited

Alice Car & Truck Rentals Pty Ltd v NT Outback Adventure Rentals Pty Ltd (1997) ATPR ¶41-582  cited

O M Fiss, “Against Settlement” 93 Yale L J 1073 (1983-1984)

G Fisher, “Plea Bargaining’s Triumph” 109 Yale L J 857 (2000)

“Developments in the Law – Corporate Crime:  Regulating Corporate Behaviour Through Criminal Sanctions” 92 Harvard L R 1227 (1979)

W M Landes, “Optimal Sanctions for Antitrust Violations” 50 University of Chicago L R 652 (1983)

G Becker, “Crime and Punishment: An Economic Approach” 76 Journal of Political Economy 169 (1968)

K Yeung, “Quantifying Regularity Penalties:  Australian Competition Law Penalties and Perspective” (1999) 23 Melbourne University L R 440

A-M Allgrove, “The Assessment of Penalties Under the Trade Practices Act for Breaches of the Competitive Conduct Rules” (1996) 4 TPLJ 104.

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v ABB TRANSMISSION AND DISTRIBUTION LIMITED and ORS

V 553 of 1999

FINKELSTEIN J

MELBOURNE

5 APRIL 2001

THE COURT DECLARES THAT:

1.         The conduct of the second respondent in becoming a party to the Power Transformer Market Sharing Arrangement as referred to in paragraphs 1 and 70 of the Agreed Statement of Facts as agreed between the applicant and the second, sixth and eighth respondents and Admissions of Contraventions filed in the proceeding (“the Alstom statement of Agreed Facts”):

(a)        constituted the making of an arrangement or the arriving at an understanding which contained an exclusionary provision in contravention of s 45(2)(a)(i) of the Trade Practices Act 1974 (Cth); and

(b)        constituted the making of an arrangement or the arriving at of an understanding, which:

(i)         contained provisions to which the provisions of s 45A of the Act applied; and

(ii)        accordingly substantially lessened competition for the supply of transformers in Australia and New Zealand in contravention of s 45(2)(a)(ii).

2.         The conduct of the second respondent in implementing the Power Transformer Market Sharing Arrangement as referred to in paragraphs 71 to 88 of the Alstom Statement of Agreed Facts:

(a)        constituted giving effect to an arrangement or understanding which contained an exclusionary provision in contravention of s 45(2)(b)(i) of the Trade Practices Act 1974; and

(b)        constituted giving effect to an arrangement or understanding, which:

(i)         contained provisions to which the provisions of s 45A of the Act applied; and

(ii)        accordingly substantially lessened competition for the supply of transformers in Australia and New Zealand in contravention of s 45(2)(b)(ii).

3.         The conduct of the sixth respondent in giving effect to the Power Transformer Market Sharing Arrangement as referred to in paragraphs 71 to 88 of the Alstom Statement of Agreed Facts constituted being knowingly concerned in, or a party to, the contraventions of the second respondent referred to in paragraph 2 above, insofar as the conduct that constituted those contraventions occurred before 10 November 1994.

4.         The conduct of the eighth respondent in giving effect to the Power Transformer Market Sharing Arrangement as referred to in paragraphs 75 to 88 of the Alstom Statement of Agreed Facts constituted being knowingly concerned in, or a party to, the contraventions of the second respondent referred to in paragraph 2 above, insofar as the conduct that constituted those contraventions occurred after 10 November 1994.

5.         The conduct of the seventh respondent in knowing and acquiescing in the second respondent’s participation in the Power Transformer Market Sharing Arrangement as referred to in paragraphs 41 to 43 of the Statement of Agreed Facts as agreed between the applicant and the seventh respondent and Admissions of Contraventions filed in the proceeding (the “Elliot Statement of Agreed Facts”) constituted being knowingly concerned in the contraventions of the second respondent referred to in paragraph 2 above.

THE COURT FINDS THAT:

6.         For the purposes of s 83 of the Trade Practices Act 1974 (Cth), the relevant facts in the proceeding in relation to the second, sixth and eighth respondents are those set out in the Alstom Statement of Agreed Facts.

7.         For the purposes of s 83 of the Trade Practices Act 1974 (Cth), the relevant facts in the proceeding in relation to the seventh respondent are those set out in the Elliot Statement of Agreed Facts.

THE COURT ORDERS THAT:

8.         The second respondent pay to the Commonwealth of Australia a pecuniary penalty pursuant to s 76 of the Trade Practices Act 1974 (Cth) in the sum of $5,500,000 within thirty days of the making of this order.

9.         The seventh respondent pay to the Commonwealth of Australia a pecuniary penalty pursuant to s 76 of the Trade Practices Act 1974 (Cth) in the sum of $150,000 within thirty days of the making of this order

THE COURT ORDERS BY CONSENT THAT:

10.       The second respondent (whether by its directors, servants, agents or otherwise) be restrained for a period of four years from:

            (a)        making or arriving at;

            (b)        giving effect to;

            (c)        attempting to make or arrive at;

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

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

any contract, arrangement or understanding between manufacturers or suppliers of power transformers that contain a provision that has:

(f)         the purpose, or has or is likely to have the effect, of:

            (i)         fixing, controlling or maintaining, or

            (ii)        providing for the fixing, controlling or maintaining,

            of tender prices submitted by such manufacturers or suppliers; or

(g)        the purpose of preventing, restricting or limiting the supply of power transformers by such manufacturers or suppliers to electricity utilities, large industrial and mining companies and other purchasers of power transformers.

11.       Each of the sixth, seventh and eighth respondents be restrained for a period of 4 years from being in any way, directly or indirectly, knowingly concerned in, or a party to:

            (a)        making or arriving at; or

            (b)        giving effect to:

            any contract, arrangement or understanding between manufacturers or suppliers of power transformers that contains a provision that has:

            (c)        the purpose, or has or is likely to have the effect, of:

                        (i)         fixing, controlling or maintaining, or

                        (ii)        providing for the fixing, controlling or maintaining:

                        of tender prices submitted by such manufacturers or suppliers; or

(d)        the purpose of preventing, restricting or limiting the supply of power transformers by such manufacturers or suppliers to electricity utilities, large industrial and mining companies and other purchasers of power transformers.

12.       The second respondent pay the applicant’s costs of and incidental to these proceedings in the amount of $60,000 as agreed between the applicant and the second respondent within thirty days of the date of this order.

THE COURT ACCEPTS THE UNDERTAKING OF THE SECOND RESPONDENT THAT:

13.       The second respondent will use its best endeavours to ensure that its trade practices compliance program continues to conform to the Australian Standard, AS3806-1198.

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

REASONS FOR JUDGMENT

1                     The Commission alleges that three corporations, Alstom Australia Ltd (the second respondent), Wilson Transformer Company Pty Ltd (the third respondent) and ABB Power Transmission Pty Ltd (in liquidation) (the twelfth respondent), contravened s 45 of the Trade Practices Act 1974 (Cth).  The first two corporations are manufacturers and suppliers, and the third is a former manufacturer and supplier, of power transformers (a piece of equipment that transforms voltage from that required for transmission to that required by a user).  They are alleged to have entered into an arrangement to maintain their respective shares in the market for power transformers.  The Commission also alleges that the three corporations gave effect to their arrangement.  Finally the Commission alleges that senior executives of the corporations were involved in the contraventions by their company.  The executives include Mr Grabham (the sixth respondent), who was the general manager of Alstom’s transformer division (1990-1992) and general manager and later chief executive of Alstom’s heavy engineering division (1992-1994), Mr Elliot (the seventh respondent), who was the managing director of Alstom, and Mr James (the eighth respondent), who was the general manager of Alstom’s power transformer division (1993-1994) and later chief executive of that division.

2                     I deal for now only with the case put forward against the second, sixth, seventh and eighth respondents.  They have asked for their case to be determined separately to the case against the remaining respondents, which will be heard later this year.

3                     Alstom admits the allegations which are made against it, and Mr Grabham, Mr Elliot and Mr James admit the allegations made against them.  The Commission, Alstom and its executives have put forward what they contend are appropriate penalties under s 76 to be imposed in consequence of the contraventions.  The proposal is the product of extensive negotiations between the parties.  The negotiations have resulted in a statement of agreed facts, a supplementary statement of agreed facts and a joint submission which provides an analysis of the decided cases concerned with the imposition of penalties and suggests how those principles should be applied to the agreed facts. 

4                     Before I consider the joint submission, there are some preliminary comments that should be made.  The first concerns the approach a court should take to any agreement by the parties on penalties, a topic which is covered by the joint submission.  There is now a long line of cases that hold that it is not only appropriate, but often desirable, for such agreements to be made.  It is said that settlements encourage the resolution of complex disputes.  They allow the court to deal with other matters.  They promote competition in the particular markets concerned.  They provide certainty to the business community.  Indeed, the Full Court has said that the court should “not depart from an agreed figure merely because it might otherwise have been disposed to select some other figure”: NW Frozen Foods v Australian Competition and Consumer Commission (1997) ATPR ¶41-546 at 43,580.  Departure should occur only in a clear case, such as where the proposal is outside the range of penalties that a court would fix, even though the court would not itself have imposed the suggested penalty:  Trade Practices Commission v TNT Australia Pty Ltd (1995) ATPR ¶41-375. 

5                     The settlement of quasi-criminal proceedings (in which may be included proceedings for pecuniary penalties) is not without its critics.  There are very real problems.  Consent may be coerced.  It may be given to avoid detection of other contravenions and higher penalties.  The absence of a trial has the potential to create difficulty when the court is finally asked to intervene.  A hasty disposal of a case, though it does free up the court’s time, may sometimes be at the expense of justice.  Professor Fiss of the Yale Law School described both alternative dispute resolution and plea bargaining as “capitulation to conditions of mass society and should neither be encouraged or praised”:  O M Fiss, “Against Settlement” 93 Yale L J 1073 (1983-1984).  Professor G Fisher of Stanford Law School has gone further.  He begins a recent article, “Plea Bargaining’s Triumph” 109 Yale L J 857 (2000), with the following observation:

“There is no glory in plea bargaining.  In place of a noble clash for truth, plea bargaining gives us a skulking truce.  Opposing lawyers shrink from the battle, and the jury’s empty box signals the system’s disappointment.  But though its victory merits no fanfare, plea bargaining has triumphed.  Bloodlessly and clandestinely, it has swept across the penal landscape and driven our vanquished jury into small pockets of resistance.  Plea bargaining may be, as some chroniclers claim, the invading barbarian.  But it has won all the same.”

6                     This brings me to the second preliminary point.  It is now quite common in antitrust litigation for the parties to reach agreement on the appropriate level of penalty and to submit jointly that the court should implement their agreement.  It is so common that an examination of the reported cases shows that, in the last five years or so, most prosecutions under Part IV of the Trade Practices Act have been resolved by “consent”, that is, without a full hearing on the merits of the case.  One consequence of this practice is to make it more difficult for a court to determine whether the penalty which has been agreed is within the range that the court would fix.  Moreover, decisions which sanction agreed penalties are not a good yardstick against which to measure whether what is agreed in later cases is within the range of appropriate penalties. This is because  the agreed penalty need not be the penalty that would have been imposed by the court, although the penalty was not inappropriate.

7                     The third matter concerns the purpose of imposing penalties.  There is as yet no concluded view on the object of the imposition of penalties for a contravention of Pt IV.  It is only when this issue is finally resolved that there can be a degree of certainty in deciding the appropriate level of penalty in a particular case.  At the moment there are two competing views, although the application of the principles of each school of thought may overlap.  Some favour the view that deterrence, either specific or general, is the sole criterion.  Others say that retribution is an important element. 

8                     The traditional aim of the criminal law is deterrence, rehabilitation and incapacitation:  see the note “Developments in the Law – Corporate Crime:  Regulating Corporate Behaviour Through Criminal Sanctions” 92 Harvard L R 1227 (1979).  Deterrence plays a significant role in corporate crime because “corporate activity is normally undertaken in order to reap some economic benefit” and “corporate decision-makers choose causes of action based on a calculation of potential costs and benefits”: 92 Harvard L R at 1235.  On this approach, the appropriate penalty is that which would be a sufficient incentive to deter a corporation from engaging in unlawful conduct.  However, in antitrust cases, the position may not be so simple.  A number of commentators have urged the view that, because the aim of antitrust law is economic efficiency, some contraventions of the law are of economic benefit and should not be deterred:  see eg W M Landes, “Optimal Sanctions for Antitrust Violations” 50 University of Chicago L R 652 (1983);  G Becker, “Crime and Punishment: An Economic Approach” 76 Journal of Political Economy 169 (1968).  So far, this Chicago School of Economics view has not taken hold in Australia.

9                     The other approach is to view retribution as a justification for corporate liability.  Although a corporation has “no soul to be damned, and no body to be kicked” (Baron Thurlow, quoted in the Oxford Dictionary of Quotations (2nd ed, 1966) at p 527), it may nevertheless be appropriate to punish a corporation for its wrong-doing, that is, for its morally blameworthy conduct. 

10                  In Trade Practices Commission v CSR Ltd (1991) ATPR ¶41-076 French J stated his firm preference for deterrence as the sole object of penalties under Pt IV.  He said (at 52-152):

“Punishment for breaches of the criminal law traditionally involves three elements:  deterrence, both general and individual, retribution and rehabilitation.  Neither retribution nor rehabilitation, within the sense of the Old and New Testament moralities that imbue much of our criminal law, have any part to play in economic regulation of the kind contemplated by Pt IV.  Nor, if it be necessary to say so, is there are any compensatory element in the penalty fixing process … .  The principal, and I think 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 contravener and by others who might be tempted to contravene the Act.”

11                  French J set out various factors to be taken into account in determining penalty.  They are often referred to and need not be set out.  As has been pointed out, however, a number of those factors cannot be reconciled with the deterrence theory.  For example, French J said that it is necessary to take into account the deliberateness of the contravention and the period over which it extended.  Thus, it is quite common for the court to hold that systematic and deliberate defiance of the law warrants a heavier penalty:  see, eg, Trade Practices Commission v TNT Australia Pty Ltd (1995) ATPR ¶41-375.  But, as K Yeung says in her article, “Quantifying Regularity Penalties:  Australian Competition Law Penalties and Perspective” (1999) 23 Melbourne University L R 440 at 471, this, and other criteria mentioned by French J, do not amount to an outright rejection of morality and punishment as having relevance to penalty.  And then there are the cases which held that retribution is a relevant criterion.  For example, in Australian Competition and Consumer Commission v J McPhee & Son (Australia) Pty Ltd (No 5 ) (1998) ATPR     ¶41-628, Heerey J said (at 40,891) that while deterrence remains a primary object of the imposition of penalties:

“…[N]vertheless 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.”

On appeal ((2000) ATPR ¶41-758) the Full Court did not dissent from this view. 

12                  The final point concerns the quantum of the penalties that in the past have been imposed.  The Trade Practices Act was enacted in 1974.  A contravention of the anti-competitive provisions attracted a penalty of $250,000 in the case of a corporation and $50,000 in the case of an individual.  In 1993 the penalties were increased to $10,000,000 for a corporation and $500,000 for an individual.  The parties have provided me with a detailed schedule of penalties that have been imposed in the last ten years.  In a number of the cases there was a systematic and deliberate breach of the law over an extended period, often many years, which resulted in significant harm to consumers and to large gains by the offending corporations.  In some cases the maximum possible penalty may have been in the tens of millions of dollars, perhaps more.  The two highest penalties that have been imposed are $15,000,000 and $7,500,000 in the case of a corporation (these penalties were imposed in Australian Competition and Consumer Commission v Roche Vitamins Australia Pty Ltd [2001] FCA 150), the next highest penalty being $6,600,000 (in Australian Competition and Consumer Commission v Pioneer Concrete Pty Ltd (1996) ATPR ¶41-457) and the highest in the case of an individual is $150,000 (in Alice Car & Truck Rentals Pty Ltd v NT Outback Adventure Rentals Pty Ltd (1997) ATPR ¶41-582).  Most penalties for corporations are below $2,000,000.

13                  Of course, it is correct that an appropriate penalty must take into account mitigating circumstances such as remorse, the expression of remorse before discovery of the contravention, cooperation with the Commission, a plea of guilty, the financial capacity to pay the penalty, the parity principle, and the totality principle.  This said, I am left with the distinct impression that current penalties are on the low side.  It is now more than five years since a similar comment was made: see A-M Allgrove, “The Assessment of Penalties Under the Trade Practices Act for Breaches of the Competitive Conduct Rules” (1996) 4 TPLJ 104.  If general deterrence is the principal object of imposing a penalty, the number of cases that still come before the court, and the seriousness of the conduct that is involved in some of them, suggests that past penalties are not achieving that object.  For a penalty to have the desired effect, it must be imposed at a meaningful level.  Most antitrust violations are profitable.  Accordingly, the penalty must be at a level that a potentially-offending corporation will see as eliminating any prospect of gain. 

14                  I return now to the facts of this case.  In virtue of the view I have formed, it is not necessary to do more than provide a brief summary, which is taken from the agreed statement of facts.

15                  The group of which Alstom is a member, is one of the leading world-wide suppliers of components, systems and services in various infrastructure markets.  In the year to 31 March 1999 Alstom employed approximately 1157 people and had sales of $558,000,000.  Its transformer business, located in Rocklea, Queensland, represented approximately 10 per cent of sales. 

16                  Transformers are equipment used for transforming the voltage of electricity between the voltage at which the electricity is generated or used and the voltage at which the electricity is generated or used and the voltage at which the electricity is transmitted.  The total value of sales in the Australian transformer market at relevant times was approximately $60,000,000. Alstom had approximately 20 to 30 per cent of the market, with production capacity to supply approximately 60 per cent.  Between them, Alstom, and two other transformer manufacturers, ABB Power Transmission and Wilson Transformer, controlled 90 per cent of the market.

17                  Between mid 1989 and late 1995 Alstom was a party to an arrangement or understanding with Wilson Transformer and ABB Power Transmission to allocate tenders to be let by power utility companies for the manufacture and supply of power transformers to one of them, in order to maintain their respective market shares.  It was agreed that ABB Power Transmission would retain approximately 44 per cent of total sales and the remaining 46 per cent would be shared equally between Wilson Transformer and Alstom.

18                  In the period between 1989 and 1995, the three corporations gave effect to their market sharing arrangement.  To implement the arrangement, there were private meetings in relation to forthcoming tenders which were attended by senior executives of each company, including Mr Grabham.  Mr Grabham and Mr James both belonged to a trade organisation which allowed them frequent contact with the senior executives of suppliers who competed with Alstom.  Once it was agreed which of the three companies would be allocated a tender, that company would submit a tender for a lower capitalised cost than would be submitted by the other companies.  The difference between the capitalised cost tendered by the company that would take the tender and the costs submitted by the other parties was usually around 3 per cent. 

19                  By the end of 1993, senior executives of the three companies met and adopted more organised procedures to give effect to their arrangement.  There was an adjustment to the market shares which the agreement would perpetuate.  ABB Power Transmission was to secure 44 per cent of the market, Alstom 28 per cent of the market and Wilson Transformers 28 per cent.  Senior executives of the three companies continued to meet to implement the agreement. Initially Mr Grabham attended on behalf of Alstom.  From about November 1994 the meetings were attended by Mr James.  

20                  There were occasions between 1989 and late 1995 when the parties did not give effect to their agreement.  Sometimes the companies were unable to reach agreement on the allocation of a tender.  On other occasions agreement was reached but tenders were not submitted as had been agreed. 

21                  The agreed statement of facts gives twenty-five examples of tenders which were allocated between the companies from late 1993 to late 1995.  The successful tender price ranges from $285,000 to $4,326,000.  Most exceed $1,000,000. 

22                  When the contraventions occurred, Alstom did not have a trade practices corporate compliance program and did not provide its executives, employees and other representatives with trade practices education or training.  Still, the executives engaged in the contravening conduct covertly and clandestinely, with full knowledge of its illegality.

23                  I should make specific reference to Mr Elliot.  Mr Elliot has been the managing director of Alstom since 1989.  He was ultimately responsible for the performance of Alstom.  At all times Mr Elliot knew that his company had entered into a market sharing agreement with Wilson Transformer and ABB Power Transmission.  Mr Elliot was regularly informed by Mr Johnson, the general manager of Alstom’s transformer division (1989-1992), Mr Grabham or Mr James of the arrangements to implement the agreement.  He was not, however, directly involved in either entering into the arrangement or giving effect to it.  Mr Elliot concedes that on behalf of Alstom he acquiesced in the company’s participation in the arrangement and was knowingly concerned in contraventions of the Trade Practices Act. 

24                  The arrangement came to an end in late 1995.  That was around the time when multi-million dollar penalties were imposed in respect of cartel arrangements in the Australian express freight industry (Trade Practices Commission v TNT Australia Pty Ltd (1995) ATPR ¶41-375) and the pre-mixed concrete industry (Australian Competition and Consumer Commission v Pioneer Concrete Pty Ltd (1996) ATPR ¶41-457).  This shows that high penalties will deter unlawful conduct.

25                  Whilst Alstom and its three executives did not volunteer to the Commission the fact of their contravening conduct, once the Commission approached them they cooperated with the Commission by assisting it in its investigation, providing it with information, reviewing Alstom’s compliance program and agreeing with the Commission on penalties to be submitted to the court.

26                  The penalty that has been suggested for Alstom is $5.5 million and for Mr Elliot it is $150,000.  The suggested penalties are in respect of all the contraventions.  It has become the practice for the court not to impose separate penalties for each contravention which is proven or conceded but instead to impose one aggregate penalty, which is regarded as appropriate for all contraventions.  It is not proposed that any monetary penalty be imposed upon Mr Grabham or Mr James.  However, the intention is that they, and the other respondents, be restrained from engaging in anti-competitive conduct for a period of four years.  Finally, Alstom has agreed to pay the Commission’s costs fixed in the sum of $60,000.

27                  The parties submit that the proposals fall within the range of penalties that the court would consider appropriate.  Subject to the comments that I made earlier, their submissions in that regard are correct.  In so far as Alstom is concerned, the suggested penalty is among the larger that have been imposed.  So far as Mr Elliot is concerned it seems to be the equal highest imposed on an individual. 

28                  I consider the suggested penalties are appropriate.  I will also grant the injunctions that are sought.  Accordingly, there will be orders and declarations in accordance with the minutes filed.

Associate:

Dated:              5 April 2001