FEDERAL COURT OF AUSTRALIA

Australian Competition & Consumer Commission v Ithaca Ice Works Pty Ltd [2001] FCA 1716

TRADE PRACTICES – price fixing agreement – primary judge approved some agreed penalties, including penalty imposed on a corporation where the controller of the corporation had disclosed circumstances of agreement and co-operated with the Commission– whether agreed penalty relevant in considering parity of penalty - whether penalty imposed upon respondents manifestly inadequate – whether trial judge correctly applied parity principle in imposing pecuniary penalty

J McPhee & Son (Australia) Pty Ltd v Australian Competition and Consumer Commission (2000) 172 ALR 532 applied

NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 referred to

Trade Practices Commission v Stihl Chain Saws (Aust) Pty Ltd (1978) 2 ATPR 40-091 referred to

AUSTRALIAN COMPETITION AND CONSUMER COMMISSIONvITHACA ICE

WORKS PTY LIMITED AND ANTHONY JOHN MEE

Q 117 OF 2001

WILCOX, HILL & CARR JJ

7 DECEMBER 2001

SYDNEY (HEARD IN BRISBANE)

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

THE COURT ORDERS THAT:

1.      The appeal be dismissed.

2.      The appellant pay the costs of the respondent.

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

ON APPEAL FROM A JUDGE OF THE FEDERAL COURT OF AUSTRALIA

REASONS FOR JUDGMENT

THE COURT:

1                     The appellant, the Australian Competition and Consumer Commission (“Commission”), appeals against the pecuniary penalties imposed by a Judge of this Court (Dowsett J) upon the first respondent, Ithaca Ice Works Pty Limited (“Ithaca”), and the second respondent, Anthony John Mee, in respect of contraventions of the Trade Practices Act 1974 (Cth) (“the Act”) found to have been committed by them under ss 45 and 75B respectively.

2                     The appeal was heard in Brisbane on 15 November 2001.  At the close of the appellant’s case the Court announced that it was of the view that the appeal should be dismissed with costs and that it would at a later date publish reasons for decision.  These are those reasons.

3                     The proceedings before his Honour were based upon an agreed statement of facts supplemented, to some extent, by affidavit evidence.  Save with respect to two minor matters which his Honour thought were insignificant, there was thus no disagreement among the parties as to the facts of the case. 

The facts

4                     The contraventions arose from agreements reached in August 1993 and confirmed in October 1993 involving, inter alia, price fixing among participants in the ice manufacturing and supply industry in south-eastern Queensland and Tweed Heads.

5                     The proceedings against the present respondents were part of proceedings brought against a number of the parties to the agreements and in some cases officers of corporate parties including Queensland Ice Supplies Pty Limited (“QIS”) and a director of that company, a Mr Bradley, a Mr Matheson and a Mr Berry (each small participants in the industry with their respective businesses having under 5 per cent market share at all relevant times) as well as other participants.  Prior to the proceedings being heard, however, agreement had been reached between the Commission, QIS and Mr Bradley as well as between the Commission and Mr Matheson and the Commission and Mr Berry, but subject to the approval of the Court, that pecuniary penalties be imposed upon them of agreed amounts and in the case of Mr Bradley that no penalty at all should be imposed.  There was no such agreement reached between the Commission and either of the present respondents.  In the case of Mr Matheson the agreed amount was $7,500, together with agreed costs.  In the case of Mr Berry the agreed amount was $10,000, together with agreed costs.  A penalty was also imposed with respect to a Mr Smith of $15,000, which was less than the amount agreed between the Commission and him.

6                     As at August 1993 Ithaca was the largest supplier of ice in the relevant geographical market with approximately 30-35 per cent of the market.  The second largest supplier was QIS with approximately 20 per cent of the market.  By the time the agreements ceased to be implemented in 1996 Ithaca had increased its market share to about 60 per cent, although the increase came about largely as a result of acquisitions.  QIS was approximately 60 per cent of the size of Ithaca as at August 1993.  Ithaca in the year ending 30 June 1993 had a turnover of $1,355,701, a before tax net profit of $214,413 and an after tax profit of $138,650.  By the end of the next financial year its turnover had increased to $1,668,269, its before tax net profit to $447,924 and its after tax profit to $309,991.  QIS had in 1993 a turnover of approximately $1,100,000 and this did not change significantly over time.  Nothing is known of the pre or after tax profit of QIS except that in the year ending 30 June 1999 QIS made an operating loss before income tax of $284,814.  Some part of the increase in profit of Ithaca (around $50,000) was attributed to a decrease in wages and other production costs.

7                     Mr Anthony Mee, the second Respondent to the appeal, was, at relevant times responsible for administration of and marketing for Ithaca.  He was neither a director nor shareholder of that company.  His parents were the sole directors and shareholders.  Apparently no proceedings were brought against them.  Mr Anthony Mee’s brother, Gregory, who was the sixth respondent in the proceedings was responsible for distribution of the company’s products.  His Honour found that he too had contravened the Act and imposed upon him a pecuniary penalty of $7,500.  There is no appeal from that penalty.

8                     The agreements in breach of the Act arose as a result of a meeting of some 17 people engaged in the industry that was convened for 13 August 1993 by the President of the Packaged Ice Association of Australia, Mr Smith.  The meeting was convened as a result of a request by Mr James Mee, Mr Anthony Mee’s father who, as previously noted, was a director of Ithaca, that Mr Smith arrange a meeting between Mr James Mee and a Mr Hicks of Gold Coast Ice Supply (“GCIS”) because of concerns that GCIS was taking customers away from Ithaca.  The meeting was convened, also, against the background that by mid-1993 there was a price war in the ice market in south-eastern Queensland and indeed from 1985 to 1993 strong competition in that market.

9                     At the meeting agreements were reached, inter alia, that from 13 August 1993 participants would not compete with other participants to supply ice to existing customers and that from 14 August 1993 participants would supply ice at agreed prices.  These prices were substantially higher than those then being charged by participants to at least some customers.   The meeting resolved upon the agreements notwithstanding that it was addressed by Mr Anthony Mee’s sister, a solicitor, who advised that price fixing was illegal.  Agreement was also reached that no participant would approach customers of another participant.

10                  The second meeting was held on 5 October 1993.  The terms of the agreements reached at the August meeting were confirmed by those present.

11                  A third meeting was held in December 1993.  By that time the Trade Practices Commission had instituted proceedings concerning alleged price fixing in the Sydney ice supply market.  It was suggested at the December meeting that a representative of the Trade Practices Commission be asked to address a later meeting.   Possibly it was thought that this might deflect the interest of the Commission away from the Queensland industry. 

12                  The meeting which was addressed by a representative of the Trade Practices Commission took place in April 1994.  No-one mentioned to the representative who spoke at the meeting what had been agreed at the previous meetings.  No-one sought the advice of the Trade Practices Commission at any time as to whether what had been agreed was lawful. 

13                  At an earlier meeting held in February 1994, it was suggested that the parties to the agreements should destroy their copies of the minutes of the first two meetings.  It seems Ithaca did so.  When enquiries were made at some time after the third meeting by a representative of the Trade Practices Commission, Mr Anthony Mee responded by saying that there was no price fixing in the ice industry in Queensland.

14                  Ithaca substantially implemented the agreements by, inter alia, increasing charges to existing customers and on occasions quoting the agreed prices when approached by new customers or customers of other participants.  The conduct continued for a period of between twelve to eighteen months.  Thereafter Ithaca gave sporadic effect to the agreements until September 1996, by which time (or perhaps earlier) the agreements were no longer being implemented.

15                  His Honour was of the view that while there were minor variations in the degree of involvement of the various companies and individuals against which or whom the Commission had commenced proceedings for recovery of pecuniary penalties, all were parties to the same illegal conduct and the extent of the variations was immaterial.  That finding is not challenged.

16                  There was one significant difference, however.  It is noted by his Honour.  Mr Bradley, the co-owner and a director of QIS, had alerted the Commission to the fact of the agreements some time after the agreements had ceased to be implemented.  He thereafter gave very substantial  (indeed it was said by Senior Counsel for the Commission to be “exceptional”) co-operation to the Commission which resulted in the present proceedings.  It may be noted that Mr Bradley may not have been motivated in making the disclosure to the Commission by a desire to perform a public service.  There was, it seems, another motive arising from a personal dispute between him and one or more participants in the agreements which precipitated his approaching the Commission and disclosing all to them.  The co-operation resulted in the Commission agreeing, subject to his Honour’s approval, that no penalty at all should be imposed upon Mr Bradley.  It led also to an agreement being reached between the Commission and QIS, again subject to the approval of his Honour, that an appropriate penalty for the conduct of QIS should in the circumstances be $25,000 and that there should be no order for costs against QIS.

17                  In accepting the agreement between the parties and ordering that QIS pay a pecuniary penalty of $25,000 his Honour said:

“… I am of the view that the most serious factors for present purposes are that the second respondent was a substantial force in the relevant market, although not the largest, that the conduct was deliberate and that it extended over a substantial period of time.  In mitigation, there is the very substantial co-operation offered by the second and seventh respondent, leading to the joint submissions made in this matter.  In those circumstances the agreed penalty of $25,000 would be sufficient to constitute a deterrent to others, to reflect reasonably the seriousness of the offence and to take appropriate account of the second respondent’s capacity to pay.  I see no reason to depart from this figure.”

18                  Both Ithaca and Mr Anthony Mee admitted their involvement at a relatively early stage once confronted with the relevant allegations and made what his Honour referred to as “appropriate disclosures”.  In fact those admissions came about following notices being served by the Commission under s 155 of the Act.  They were, as his Honour noted, entitled to some credit for their cooperation with the investigating authority.  His Honour remarked that in respect of QIS the penalty imposed upon that company had also been reduced somewhat because of its financial position.

The reasons of the primary judge

19                  The critical part of his Honour’s reasons for imposing the penalty of $100,000 on Ithaca reads as follows:

“Counsel for the applicant has submitted that the penalty to be imposed on the first respondent ought be in the range of $300,000 - $550,000.  This range has been calculated largely by reference to the penalty imposed upon Mr Matheson, the tenth respondent.  He was of advanced years, and his business was very small.  The penalty was said to be the lowest consistent with providing an adequate deterrent.  The size of his business was such that a penalty based upon it, and consistent with the penalties imposed on others would not have been adequate.  Again, this penalty was agreed between the parties.  It seems to me that the penalty imposed upon the second respondent [QIS] gives a better guide to that appropriate to the first respondent [Ithaca], given that of all those participating in the offending conduct, the former was nearest in size to the latter.  I consider that the appropriate penalty in the case of the first respondent will be substantially higher than that imposed on the second respondent.  In a short-hand way it is convenient to say that this reflects the higher turnover of the first respondent’s business compared with that of the second respondent.  Really, it is because higher turnover reflects a greater capacity to benefit from the illegal conduct and to persist in it.  The first respondent appears to be in a substantially stronger financial position than was the second respondent.

In the circumstances I consider it appropriate to impose upon the first respondent a pecuniary penalty of $100,000.  As to [Mr Anthony Mee], I impose … a pecuniary penalty of $7,500.”

20                  In refusing to distinguish between Mr Anthony Mee and his brother Mr Gregory Mee, in respect of whom, as already mentioned, his Honour also imposed a pecuniary penalty of $7,500, his Honour noted that both appeared to have been generally aware of what was happening, even if one of them may have been more involved in the detail than the other.

21                  It is in these circumstances that the Commission appeals to the Full Court against the penalties imposed upon Ithaca and Mr Anthony Mee.

The submissions

22                  Senior Counsel for the Commission submitted that:

1.                  The learned primary judge had erred in setting the penalties applicable to Ithaca and Mr Anthony Mee in that, while he had purportedly applied the parity principle (which his Honour referred to as the principle of “relative equality”), in fact he had not done so.

2.                  The learned primary judge had erred in principle in assessing the penalty imposed upon Ithaca by reference to the penalty imposed upon QIS rather than assessing it by reference to the penalties imposed upon Mr Matheson or Mr Berry.  Reference was also made to the penalty imposed upon Mr Smith.

3.                  Each of the penalties the subject of the present appeal was manifestly inadequate.

23                  The first two submissions are closely related and it is convenient to consider them together.  We shall consider the third submission separately.

Parity of penalties – QIS or Mr Matheson?

24                  There is no disagreement as to the appropriate test to be applied by an appellate court in considering the quantum of pecuniary penalties imposed for breaches of the Act.  The relevant principle is that set out in the judgment of the Full Court in J McPhee & Son (Australia) Pty Ltd v Australian Competition and Consumer Commission (2000) 172 ALR 532 at 574 as follows:

“It was accepted that an appellate court may interfere with a penalty imposed only if it is shown that the trial judge fell into error by acting on a wrong principle, by acting on a misapprehension of the facts, by taking into account irrelevant material or by failing to take into account relevant material.  It was also submitted that error could be presumed if the penalty imposed was manifestly excessive: Pye Industries Sales Pty Ltd v Trade Practices Commission (1979) ATPR 40-124 at 18,325-7. ...”

25                  It is also common ground that it is appropriate to take into account in fixing penalties the penalties imposed on respondents who have been found to have committed similar contraventions.  As Burchett and Kiefel JJ said in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 at 295:

“A hallmark of justice is equality before the law, and, other things being equal, corporations guilty of similar contraventions should incur similar penalties: Trade Practices Commission v Axive Pty Ltd (at 42,795).  There should not be such an inequality as would suggest that the treatment meted out has not been even-handed: cf the criminal law case Lowe v The Queen (1984) 154 CLR 606. …”

26                  Of course, as their Honours point out in the passage that thereafter followed, it would be a rare case where contraventions were identical.  Consequently, factors such as differing circumstances, differing market power, and differing size and responsibility will all play a part in determining the appropriate penalty to be imposed upon different respondents.

27                  As mentioned earlier, Senior Counsel for the Commission emphasised that Mr Bradley, and through him QIS, had given “exceptional” assistance to the Commission.  Thus it was submitted this factor made the penalty imposed upon QIS virtually irrelevant.  It was said that the learned primary judge had failed to consider the comparative size and market power of the businesses conducted by Mr Matheson, Mr Berry or for that matter Mr Smith, the co-owner and manager of another business and a party to the anti-competitive agreements entered into.  Rather parity in the case of Ithaca would be best brought about by using the penalties imposed upon Mr Matheson or Mr Berry or perhaps Mr Smith. 

28                  In support of his submissions, Senior Counsel for the ACCC took the Court to such factual material as was before the learned primary judge as concerned Ithaca, QIS, Mr Matheson and Mr Berry and which related to turnover, size and benefit from the prohibited conduct.  It is useful, therefore, to set that material out.

29                  First, as to turnover, it may be noted that Ithaca was the company with the largest turnover in the market.  As already noted, at the time the agreements were entered into its turnover was $1,355,701.  When the agreements ceased to be implemented its turnover was $3,510,115.  However, since that increased turnover was to some extent at least not a consequence of the anti-competitive agreements but rather arose by way of acquisition, it is not helpful to seek to draw any conclusion from the increase. 

30                  QIS had at all relevant times a turnover of approximately $1,100,000.  In other words, its turnover was approximately 81 per cent of that of Ithaca at the time the agreements commenced.   It had not increased its turnover, at least to any appreciable extent, by the time the agreements ceased to be implemented.

31                  The business of which Mr Matheson was co-owner and manager, Caboolture Ice Works, had at all relevant times a turnover of approximately $65,000.  That amounted to approximately 5 per cent of the turnover of Ithaca at the time the agreements commenced. 

32                  Ipswich Ice Supplies, of which Mr Berry was the co-owner and manager, had a turnover, at all relevant times, of approximately $70,000, which again was approximately 5 per cent of the Ithaca turnover at the time the agreements were entered into. 

33                  If a comparison of penalty is made by reference to these turnover figures it can be seen that the penalty imposed upon Ithaca represented approximately 7 per cent of its turnover at the time the agreements were entered into.  By comparison the penalties imposed upon QIS, Mr Matheson and Mr Berry taken as a percentage of turnover at the commencement of the agreements were respectively 2 per cent, 12 per cent and 14 per cent.  Expressed as a percentage of the penalty imposed on Ithaca, the penalties imposed upon QIS, Mr Matheson and Mr Berry can be seen to have been 25 per cent, 7.5 per cent and 10 per cent respectively.

34                  Next, there is the financial position of the respective respondents.  Ithaca had as at 30 June 2000 gross assets of just under $6,000,000 and net assets of approximately $2.7 million.  By comparison, QIS had as at 30 June 1999 gross assets of slightly less than $1,000,000 and a deficiency of net assets, having as at that date liabilities of $1.25 million.  Mr Matheson’s business (Caboolture Ice Works) had net business assets of approximately $300,000 as at 30 June 1999 (the figure includes the value of freehold premises).  The learned primary judge did not have before him a calculation of the gross assets of Caboolture Ice Works or, for that matter, the gross assets of Mr Berry’s business (Ipswich Ice Works).  It seems, however, that the net business assets of Ipswich Ice Works were approximately $1,500,000 as at 30 June 2000. 

35                  Then there is the question of profitability.  It seems that there was not before his Honour profit and loss accounts of the various parties, other than of Ithaca, with comparative figures to show the benefit obtained by each.  Such information as there was in regard to Ithaca (its accounts were tendered through its accountant) showed a before tax net profit of $214,413 and an after tax profit of $138,650 for the year ending 30 June 1993, increasing to $447,924 and $309,991 respectively in the next year.  In parenthesis it may be noted that the pre tax net profit in the next year had dropped to $125,175, although to what extent this was a consequence of the acquisitions it made or increased expenditure in respect of superannuation is unknown.  Taking the year ending 30 June 1994, it would seem that gross profit rose by about 40 per cent (from $637,540 to $893,703) and net profit more than doubled.  One reason, as noted earlier, appears to have been a reduction in wage and electricity costs, both major inputs for ice production.  A difficulty is, however, that comparable figures are simply not available for any of the other parties and in consequence it is difficult to see what use can be made of the material just referred to.

36                  Other statistics relied upon by the Commission were that as at the time the agreements were entered into Ithaca’s turnover was twenty times greater than that of either of Mr Matheson or Mr Berry.  Also, by the time the contravening conduct ceased, Ithaca’s business was 50 times the size of Mr Berry’s business and 54 times the size of Mr Matheson’s business.  The fact of increase in size by acquisitions is ignored in this calculation and in consequence the figures have little significance.  

37                  It was conceded by Senior Counsel for the Commission, and properly, that the imposition of a penalty did not involve a mathematical calculation such as, for example, applying some multiplier to turnover figures.  The comparative figures were referred to rather in support of an overall submission that when they were considered it could be seen that the penalty imposed upon Ithaca was disproportionately low when compared with the penalties imposed upon Mr Matheson or Mr Berry.  Yet, it was said, the penalties of Mr Matheson and Mr Berry represented an appropriate starting point for the calculation of the Ithaca penalty.

38                  It can be accepted that turnover or size is an appropriate factor to take into account in the computation of a penalty.  Clearly without the participation of Ithaca with 30-35 per cent of the market it would have been unlikely that the anti-competitive agreements could have been implemented.  But the same can be said to be true of QIS.  It was the second largest participant in the market with 20 per cent of the market turnover.  Without its participation it would also be unlikely that the anti-competitive agreements could have been implemented.  The same cannot, however, be said at least with confidence in the case of Mr Matheson or Mr Berry each of whose businesses had something less than 5 per cent of the market.  It might well have been possible for the agreements to have been implemented even if one or the other or both had not participated.

39                  The gross and net asset position of the respective participants would, presumably, be relevant to capacity to pay the penalty.  Capacity to pay has some relevance to penalty.  Otherwise it is hard to see what other relevance gross or net assets might have.

40                  While it may be said that an increase in profit earned as a result of anti-competitive  behaviour would be a relevant matter in assessing the penalty to be imposed, the figures available for Ithaca are of limited utility in any consideration of parity if for no other reason than that comparable figures are simply unavailable for other participants in the anti-competitive agreements.

41                  The nub of the Commission’s submission was really that the learned primary judge had given inadequate weight to the degree of co-operation which Mr Bradley and through him QIS had given in disclosing the existence of the agreements and assisting the Commission with its enquiries.  As noted previously, particular emphasis was placed upon the “exceptional” nature of that co-operation. 

42                  It may be accepted that it will be rare for parties to anti-competitive agreements to disclose the existence of those agreements to the Commission.  It may also be accepted that such voluntary disclosure (even if not necessarily motivated by the public interest) should properly be taken into account in arriving at a penalty and would properly result in a discounted penalty. 

43                  There is no doubt, however, that the learned primary judge did take this factor into account in assessing the penalty imposed upon QIS and was aware of it when determining the penalties to be imposed upon Ithaca and Mr Anthony Mee.  This being the case it is somewhat difficult to see what error of principle could have been made by the learned primary judge when the question of penalty required his Honour to determine the weight to be given to each relevant factor.  In other words, the assessment of penalty was a matter of judgment by his Honour.

44                  The submission was made that the penalty properly to be imposed upon QIS absent its exceptional co-operation would have been in the order of $180,000 and that his Honour had, in effect, discounted the penalty imposed upon QIS down to $25,000.  It is difficult, with respect, to see how the submission can be made given that his Honour was never asked to determine the penalty payable by QIS by reference to any starting point such as $180,000.  Nor is it apparent why $180,000 is a necessary starting point in the calculation of the penalty.   Rather, his Honour was given an agreed figure of $25,000 and asked to approve the imposition of a penalty in the amount of that agreed figure.  In the result his Honour regarded the penalty agreed between the parties as reasonable in the circumstances.

45                  A glance at his Honour’s judgment approving the penalty payable by QIS shows that his Honour noted that QIS was the second largest supplier, even if its market share was well below that of Ithaca.  His Honour noted that the breaches were blatant and deliberate and probably caused significant loss to consumers.  By way of mitigation his Honour referred to the high degree of co-operation Mr Bradley had provided.  Reference was also made to the fact that QIS was a relatively small family-owned and operated company, to its turnover, its gross and net assets and the operating loss it had made in the 1999 financial year.  It was having regard to all these matters that his Honour took the view that a penalty of $25,000 was in the circumstances a sufficient deterrent to others and reflected reasonably the seriousness of the offence after taking into account capacity to pay.

46                  By contrast, there were significant differences between the circumstances concerning Ithaca on the one hand and those concerning either Mr Matheson or Mr Berry on the other.  The most obvious difference was relative size, whether judged by reference to turnover, market share or assets.  In discussing the penalty to be imposed upon Mr Matheson his Honour pointed out that he probably had little choice in participating in the agreements considering his relatively small market share.  His Honour also noted that the active steps he took in implementation of the agreements were quite limited.  Generally the circumstances relating to Mr Berry were similar to those relating to Mr Matheson save that Mr Berry apparently only co-operated at a relatively late stage.  No doubt that was reflected in the slightly higher penalty imposed upon Mr Berry.  It is hard to see why the penalty imposed on either should be taken as a benchmark in assessing the penalty payable by Ithaca given the differences in turnover and size, not to mention capacity to pay, and the extent of the Ithaca participation. 

47                  With respect to the submission we can see no error of principle in the approach which his Honour took in calculating the penalty applicable to Ithaca using QIS as a guide but recognising Ithaca’s higher turnover and potentially greater capacity to benefit from the anti-competitive conduct.

Was the penalty manifestly too low?

48                  There is little doubt that the penalty imposed upon Ithaca (and upon Mr Anthony Mee) is low.  As has already been indicated Ithaca was a moving party in the bringing together of the competing participants in the market.  It was the firm with the largest turnover.  It participated in conduct obviously in breach of the Act notwithstanding advice that the conduct was in breach of the Act.  It probably profited over time substantially from the conduct in which it engaged.

49                  In Trade Practices Commission v Stihl Chain Saws (Aust) Pty Ltd (1978) 2 ATPR 40-091 Smithers J said at 17,896:

“… The penalty should constitute a real punishment proportionate to the deliberation with which the defendant contravened the provisions of the Act.  It should be sufficiently high to have a deterrent quality, and it should be kept in mind that the Act operates in a commercial environment where deterrence of those minded to contravene its provisions is not likely to be achieved by penalties which are not realistic.  It should reflect the will of Parliament that the commercial standards laid down in the Act must be observed, but not be so high as to be oppressive. …”

50                  Factors which are relevant to take into account in determining the penalty to be imposed are discussed by a full court of this Court in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission  (supra).  It is unnecessary to repeat that discussion here.  It suffices to say that all relevant circumstances should be taken into account.  There has been some discussion upon whether punishment for the contravention is a relevant matter to take into account: see per Goldberg J in Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 75 FCR 238 at 241-2.  It was raised with us in submissions by Senior Counsel for the Commission.  The present is not an appropriate case to resolve that issue.  However, as presently advised, we see little or indeed no difference between taking into account, in computing the penalty, the deliberate nature of the conduct in question (a matter the relevance of which is not in dispute) and taking into account the fact that the penalty should act as a punishment of the offender.

51                  But for the penalties imposed upon the other participants in the present proceedings we would have little difficulty in concluding that the penalty imposed upon Ithaca (whatever may be the situation with the penalty imposed upon Mr Anthony Mee) was manifestly inadequate having regard to the relevant factors discussed in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission  (supra).  The conduct of Ithaca and those who represented it, including Mr Anthony Mee, was clearly in blatant disregard of the Act and entered into and implemented with the knowledge that it was illegal.  Price fixing and agreeing not to poach customers of competitors are both forms of anti-competitive conduct which are likely to operate to the detriment of consumers and for the commercial benefit of those who engage in them.  Parliament has legislated in the public interest to make such conduct illegal.  The public interest requires that a penalty be imposed which will operate to deter others from engaging in such behaviour.

52                  However, it would be unjust for the Court not to take into account in considering the range of penalties which it would be appropriate to impose the level of penalties imposed upon other participants who entered into and carried out the anti-competitive agreements with which the present case is concerned.  It is not to the point that most of the penalties which were imposed had before the matter came before the learned primary judge been the subject of agreement between the Commission and the offender.  For it is for the Court and not for the parties to impose the penalty.  In so doing, however, it will be relevant and appropriate for the Court to take account of the fact that the parties have come to an agreement on penalty in circumstances where the offender has admitted the offence.

53                  The penalty which the Commission proposes that the Court substitute for that imposed by the learned primary judge and which it submits is at the very lowest of the range of appropriate penalties is $300,000.  That is twelve times the penalty which his Honour imposed upon QIS, thirty times the penalty imposed upon Mr Berry and 40 times the penalty imposed upon Mr Matheson.  Yet, on his Honour’s findings, the conduct of each was virtually the same if one excludes the discount which might be allowed for the disclosure to and co-operation with the Commission given by QIS.  QIS had, after all, a 20 per cent market share while Ithaca had a 30-35 per cent market share.  The fact that Ithaca had 50 per cent more market share than QIS, while relevant, would not as such suggest that the penalty imposed upon Ithaca should be half as much again as that imposed upon QIS.  There is not a mathematical relationship in imposing penalties between the penalty and relative market share or, for that matter, between the penalty and any of turnover, relative gross or net profit, or relative net assets.  In our view a penalty in the order of $300,000 would be totally disproportionate to the penalties which his Honour imposed upon other offenders in respect of the same offences.  Once the quantum of these other penalties is taken into account it is not possible for the Court to conclude that the penalty imposed upon Ithaca is so manifestly insufficient that it can be said that the learned primary judge erred in law in imposing it.  The same is true in respect of the penalty imposed upon Mr Anthony Mee.

the procedural problem

54                  It is clear that the present problem has arisen because the cases against those parties to the anti-competitive agreements with whom penalties had been agreed were heard before the case against the present respondents.  The sequence of proceedings, coupled with the quite low level of agreed penalties, made it highly likely that the penalties that would be imposed on Ithaca and Mr Anthony Mee would of necessity be lower than might be expected to have been the case had the proceedings against Ithaca and Mr Anthony Mee been determined first.  

55                  By seeking to have the Court determine the penalty payable by the respondents before considering the penalties to be imposed upon the other offenders with whom agreed penalties had been negotiated the Commission would most likely have ensured the imposition of a higher penalty upon both Ithaca and Mr Anthony Mee.  It is possible, then, that his Honour may not quite as readily have approved in subsequent proceedings all of the penalties which had been agreed.  By having the cases dealt with in the different order the Commission might more readily have secured higher penalty levels but nevertheless parity of penalty among offenders would have been preserved.  As it was, the agreed levels of penalty imposed in the first hearings before the Court rather served as the bench mark by which the penalties imposed upon Ithaca and Mr Anthony Mee were set by the learned primary judge.

56                  Further, where the Commission proposes to the Court an agreed penalty which is calculated taking into account a substantial discount from what would otherwise be considered the appropriate penalty so as to reflect a degree of co-operation, it would be desirable that the Commission disclose the process by which the discounted penalty has been arrived at.  In particular, it would be of assistance to the Court, particularly where there are other proceedings pending, to hear submissions on the range of appropriate penalties and the discount which it is proposed should be allowed to take into account the level of co-operation afforded by the offender.  Had that been done in the present case, the learned primary judge would have been able to form a view as to the appropriate range of penalty absent co-operation and have then been in the position to calculate an appropriate discount to take into account the exceptional level of co-operation afforded by QIS.  It is only in this way that a comparison could properly be made between the penalty payable where the offender had offered a high level of co-operation and the penalty payable where the level of co-operation was of a lesser magnitude.

57                  In the present circumstances we are of the view that the Commission has not established any error of principle and accordingly the appeal should be dismissed.

Associate:

Dated:              7 December 2001