FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v SIP Australia Pty Limited [2003] FCA 336

TRADE PRACTICES – penalties –company and individual director engaged in price fixing and market sharing conduct in contravention of ss 45(2)(a)(i) and (ii) and ss 45(2)(b)(i) and (ii) of the Trade Practices Act 1974 (Cth) – relevant factors to consider in assessing penalties under s 76 of the Trade Practices Act 1974 (Cth)

Trade Practices Act 1974 (Cth); s 45(2)(a) and s 45(2)(b)

Australian Competition and Consumer Commission v SIP Australia Pty Ltd (2002) ATPR 41‑877, referred to

Australian Competition and Consumer Commission v SIP Australia Pty Ltd (1999) ATPR 41‑702, referred to

Trade Practices Commission v CSR Limited (1991) ATPR 41‑076, applied

Australian Competition and Consumer Commission v NW Frozen Foods Pty Ltd v (1996) ATPR 41‑515, applied

Schneider Electric (Australia) Pty Ltd v Australian Competition and Consumer Commission [2003] FCAFC 2, applied

Australian Competition and Consumer Commission v Ithaca Ice Works Pty Ltd (2002) ATPR 41‑851, considered

Australian Competition and Consumer Commission v The Vales Wine Company Pty Ltd (1996) ATPR 41‑528, applied

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

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

McDonald v R (1994) 48 FCR 555, applied

AUSTRALIANCOMPETITIONANDCONSUMERCOMMISSIONvSIPAUSTRALIAPTY LIMITED & ORS

V 189 of 1999

GOLDBERG J

16 APRIL 2003

MELBOURNE

THE COURT DECLARES THAT:

1.         The first respondent (“SIP”), by making a contract with a competitor (namely the fourth respondent) (“Baker Bros”) on 24 March 1994 (“the March 1994 contract”), which contained a provision which had the purpose of preventing the supply of compressors and compressor parts to classes of persons by SIP and Baker Bros, has contravened s 45(2)(a)(i) of the Trade Practices Act 1974 (Cth) (“the Act”).

2.         SIP, by giving effect to a provision of the March 1994 contract, which had the purpose of preventing the supply of compressors and compressor parts to classes of persons by SIP and Baker Bros, has contravened s 45(2)(b)(i) of the Act.

3.         SIP, by making the March 1994 contract, which contained a provision which had the purpose and had the effect of providing for the fixing, controlling and maintaining of, the price for compressors to be supplied by SIP and Baker Bros, has contravened s 45(2)(a)(ii) of the Act.

4.         SIP, by giving effect to a provision of the March 1994 contract, which contained a provision which had the purpose and had the effect of providing for the fixing, controlling and maintaining of, the price for compressors to be supplied by SIP and Baker Bros, has contravened s 45(2)(b)(ii) of the Act.

5.         SIP, by attempting to make a contract with a competitor (namely Baker Bros) between November 1997 and February 1998, which contained a provision which had the purpose of preventing the supply of goods to particular persons by SIP and Baker Bros, has attempted to contravene s 45(2)(a)(i) of the Act.

6.         The second respondent (“Mr Ippaso”), by being knowingly concerned in SIP’s conduct in making the March 1994 contract, which contained a provision which had the purpose of preventing the supply of compressors and compressor parts to classes of persons by SIP and Baker Bros, has been knowingly concerned in and a party to a contravention of s 45(2)(a)(i) of the Act.

7.         Mr Ippaso, by being knowingly concerned in SIP’s conduct in giving effect to a provision of the March 1994 contract, which had the purpose of preventing the supply of compressors and compressor parts to classes of persons by SIP and Baker Bros, has been knowingly concerned in and a party to a contravention of s 45(2)(b)(i) of the Act.

8.         Mr Ippaso, by being knowingly concerned in SIP’s conduct in making the March 1994 contract, which contained a provision which had the purpose and had the effect of providing for the fixing, controlling and maintaining of, the price for compressors to be supplied by SIP and Baker Bros, has been knowingly concerned in and a party to a contravention of s 45(2)(a)(ii) of the Act.

9.         Mr Ippaso, by being knowingly concerned in SIP’s conduct in giving effect to a provision of the March 1994 contract, which contained a provision which had the purpose and had the effect of providing for the fixing, controlling and maintaining of, the price for compressors to be supplied by SIP and Baker Bros, has been knowingly concerned in and a party to a contravention of s 45(2)(b)(ii) of the Act.

10.       Mr Ippaso, by attempting to induce SIP and Baker Bros to make a contract between November 1997 and February 1998, which contained a provision which had the purpose of preventing the supply of goods to particular persons by SIP and Baker Bros, has attempted to induce a contravention by SIP and Baker Bros of s 45(2)(a)(i) of the Act.

AND THE COURT ORDERS THAT:

11.       Mr Ippaso, whether by himself, his servants or agents, is restrained for a period of three years from the date of this order from:

(a)        making or arriving at, or being knowingly concerned in, or a party to, the making of, or arriving at of;

(b)        giving effect to, or being knowingly concerned in, or a party to, the giving effect to of;

(c)        attempting to make, arrive at or give effect to, or inducing or attempting to induce the making of, the arriving at or the giving effect to of,

any contract, arrangement or understanding with any competitor or any entity with which Mr Ippaso is associated as a director, employee or shareholder in the supply of compressors anywhere in Australia, which contract, arrangement or understanding contains a provision that:

(i)         has the purpose, or has or is likely to have the effect, of fixing, controlling and maintaining the price for, or a discount in relation to, compressors supplied or to be supplied anywhere in Australia;

(ii)        has the purpose of preventing, restricting or limiting the supply of compressors to particular persons or classes of persons anywhere in Australia;

(iii)       has the purpose of preventing, restricting or limiting the supply or distribution of compressors, in particular circumstances or on particular conditions, anywhere in Australia.

12.       SIP pay a pecuniary penalty pursuant to s 76(1) of the Act:

(a)        in the sum of $120,000 in respect of the contravention referred to in par 1 of this order;

(b)        in the sum of $120,000 in respect of the contravention referred to in par 2 of this order;

(c)        in the sum of $120,000 in respect of the contravention referred to in par 3 of this order;

(d)        in the sum of $120,000 in respect of the contravention referred to in par 4 of this order;

(e)        in the sum of $100,000 in respect of the attempted contravention referred to in par 5 of this order;

within sixty days of the date of this order.

13.       Mr Ippaso pay a pecuniary penalty pursuant to s 76(1) of the Act:

(a)        in the sum of $25,000 in respect of the contravention referred to in par 6 of this order;

(b)        in the sum of $25,000 in respect of the contravention referred to in par 7 of this order;

(c)        in the sum of $25,000 in respect of the contravention referred to in par 8 of this order;

(d)        in the sum of $25,000 in respect of the contravention referred to in par 9 of this order;

(e)        in the sum of $20,000 in respect of the attempted contravention referred to in par 10 of this order;

within sixty days of the date of this order.

14.       SIP and Mr Ippaso pay the applicant’s costs of and incidental to the application save for the costs of the applicant relating to the proceeding to the extent to which they relate solely to the third respondent.

15.       The applicant pay the costs of the third respondent to the extent to which such costs have been incurred by the third respondent independently of any costs incurred by SIP and Mr Ippaso and which are not costs, or part of costs, which have been incurred by SIP or Mr Ippaso.

16.       The applicant shall not take any step to enforce the payment by SIP of the penalties referred to in par 12 hereof or the costs referred to in par 14 hereof without the leave of the Court.

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

REASONS FOR JUDGMENT

1                     On 28 June 2002 I published reasons for judgment in which I found that the first respondent, SIP Australia Pty Ltd (“SIP”), had contravened a number of the provisions in Pt IV of the Trade Practices Act 1974 (Cth) (“the Act”) and that the second respondent, Mr Filippo Ippaso, had been knowingly concerned in and a party to those contraventions; Australian Competition and Consumer Commission v SIP Australia Pty Limited (2002) ATPR 41‑877 (“the earlier reasons”).  In general terms, those contraventions related to price fixing and market sharing conduct between SIP and the fourth respondent, Baker Bros (Aust) Pty Ltd (“Baker Bros”), who were competitors in the market for the distribution and sale of compressors and compressor parts.  Subsequent to the publication of the reasons for judgment, submissions were made in relation to the penalties to be imposed and as to the form of the orders which should be made.  These reasons determine the penalties to be imposed upon SIP and Mr Ippaso and the orders which should be made against them.

2                     The Court has already determined the penalties to be paid by Baker Bros and its directors, the fourth and fifth respondents (“Mr Andrew Baker” and “Mr Guy Baker”), and the orders which should be made against them.

3                     The proceeding was commenced by the applicant (“the Commission”) against SIP, two of its directors – Mr Ippaso and the third respondent, Mr John Gates – and against Baker Bros and its two directors – Mr Andrew Baker and Mr Guy Baker.  The Commission alleged that SIP and Baker Bros had contravened ss 45(2)(a)(i) and (ii) and ss 45(2)(b)(i) and (ii) of the Act in relation to price fixing and market sharing conduct which occurred principally in Victoria and New South Wales between January 1994 and March 1998 in relation to the supply of compressors and compressor parts.  Baker Bros and its two directors admitted the allegations against them and on 25 June 1999 I made orders, in substance, restraining Baker Bros and its two directors from making, or giving effect to, any contract, arrangement or understanding with any competitor of Baker Bros in relation to the supply of compressors, anywhere in Australia, which contained provisions in contravention of s 45 of the Act for a period of three years.  I also ordered Baker Bros to pay a pecuniary penalty of $50,000 and each of its two directors to pay a penalty of $5,000:  Australian Competition and Consumer Commission v SIP Australia Pty Ltd (1999) ATPR 41‑702.

4                     After the trial of the proceeding against SIP, Mr Ippaso and Mr Gates concluded and before I published my reasons for judgment, an order was made by the Supreme Court of New South Wales on 4 October 2001 that SIP be wound up and that a liquidator of SIP be appointed.  The order was made on the application of Allianz Australia Workers Compensation (NSW) Limited. 

5                     On 10 July 2002, consequent upon the publication of the earlier reasons for judgment, I ordered that the proceeding against Mr Gates be dismissed and that the Commission have leave pursuant to s 471B of the Corporations Act 2001 (Cth) to proceed against SIP provided that such leave did not extend to enforcing against SIP any order for the payment of any amount of money ordered to be paid by SIP in this proceeding, whether by way of penalty, costs or otherwise, without the further leave of the Court.

6                     In the earlier reasons I found that a number of contraventions of s 45(2) of the Act had been established arising out of the agreement entered into by SIP, Baker Bros and a manufacturer and supplier of compressors and compressor parts, ABAC Area Compressa SpA (“ABAC”), on 24 March 1994 (“the March 1994 agreement”).  I made the following findings:

(a)        the making of the March 1994 agreement by SIP contravened s 45(2)(a)(i) of the Act as it contained an exclusionary provision within s 4D(1) of the Act, it was made between competitors, SIP and Baker Bros, and it divided up the market for direct‑drive compressors with a receiver capacity of 24 litres and 50 litres and for compressor parts between SIP and Baker Bros;

(b)        the making of the March 1994 agreement by SIP contravened s 45(2)(a)(ii) of the Act as it contained provisions which had the purpose of fixing, controlling or maintaining the prices at which SIP and Baker Bros would sell the compressors;

(c)        Mr Ippaso was directly knowingly concerned in, and a party to, SIP’s said contraventions and was therefore liable to penalties under s 76(1) of the Act;

(d)        SIP contravened s 45(2)(b)(i) of the Act by giving effect to the March 1994 agreement in respect of the market sharing provisions of the agreement;

(e)        SIP contravened s 45(2)(b)(ii) of the Act by giving effect to the price fixing provisions of the March 1994 agreement;

(f)         Mr Ippaso was directly knowingly concerned in, and a party to, SIP’s said contraventions and was therefore liable to penalties under s 76(1) of the Act.

7                     I was also satisfied that in and between November 1997 and February 1998 SIP attempted to contravene s 45(2)(a)(i) of the Act by propounding, and being involved in attempts to reach, an agreement in the terms of draft agreements which were prepared in and during that period (“the November 1997/February 1998 agreement”).  The draft agreements provided for the market sharing of customers.  I found that there was an attempt by SIP for the purposes of s 76(1)(b) of the Act to contravene s 45(2)(a)(i).  I also found that Mr Ippaso attempted to induce SIP and Baker Bros to contravene s 45(2)(a)(i).  I was not so satisfied in respect of Mr Gates.

8                     Although Baker Bros was a party to the agreement and the conduct which resulted in the contraventions of s 45(2) of the Act and was prepared to go along with the agreement and the conduct, it was Mr Ippaso’s initiative and sustained conduct which brought about the contraventions.  This is demonstrated in the passage of the earlier reasons at 44,998 where I said:

“I am satisfied that Mr Ippaso was the moving force which brought about the agreement.  It was he who initiated the discussions with Baker Bros and ABAC which led to the meeting on 23 and 24 March 1994 and the making of the agreement.  Mr Andrew Baker said that Mr Ippaso ‘generated the whole thing’ and that Baker Bros only attended the meeting because Mr Ippaso wanted Baker Bros to be present.  According to Mr Andrew Baker, Mr Ippaso was the “pushing force” behind the agreement, it was Mr Ippaso who had all the ideas and ABAC went along with what he wanted.  I accept Mr Andrew Baker’s evidence, it is consistent with the tenor of Mr Ippaso’s report of 10 December 1993 and his subsequent documentation.  Mr Andrew Baker may have signed the agreement because Mr Arrigoni and Dr Balma wanted him to do so, but the motivation and pressure on him to do so came from Mr Ippaso’s proposals and discussions with ABAC.  Mr Ippaso was concerned about the competition which would come from Baker Bros in relation to the sale of assembled compressors and he was particularly concerned about the prices Baker Bros charged as is demonstrated by his letter of 7 February 1994 to Mr Arrigoni.”

9                     I am satisfied that the contraventions by SIP, and the participation in them by Mr Ippaso, should be considered as serious contraventions of the Act as they were the result of a deliberate and well considered course of conduct by Mr Ippaso to insulate SIP from competition from Baker Bros in the Australian market for the distribution and sale of direct‑drive compressors and compressor parts.  There can be no doubt about the deliberateness of SIP’s purpose and intention and Mr Ippaso’s participation in it.  Mr Ippaso deliberately set out to distort the relevant market by dividing up the market between SIP and Baker Bros and insulating potential purchasers of direct‑drive compressors from competitive conduct between SIP and Baker Bros.  Mr Ippaso also set out to ensure that there was no price competition between SIP and Baker Bros and that prices were to be maintained at levels above the levels of prices that would have been available from SIP and Baker Bros in a competitive market environment.  There were other suppliers of compressors in the market in which SIP and Baker Bros operated but SIP had the largest market share and was particularly concerned about the threat of competition from Baker Bros.

10                  What is unusual about this case is that Mr Ippaso had no compunction about recording his purpose and intention in writing.  This can be seen in his report of his meeting with ABAC representatives, Dr Roberto Balma and Mr Paolo Arrigoni, in Turin on 10 December 1993 when he recorded (see 44,992‑44,993 of the earlier reasons):

“I have to agree something with Baker Bros because they intend to distribute D.D.210/25 (and others with 25 litre tank)

…

If we do not do this [obtain a sole agency], Baker may go and sell D.D. Compressors at a very low price!”

11                  On 7 February 1994 Mr Ippaso wrote a letter to Mr Arrigoni in which he said, inter alia, (see 44,994 of the earlier reasons):

“At the moment they [Baker Bros] are selling their ABAC pumps with a very small mark‑up which is almost suicidal (it could be increased) and becomes a disaster if the same pricing policy is implemented for the finished units.”

12                  The March 1994 agreement contained explicit provisions dividing up the market and fixing the level of prices.  For example, par 7 provided “[i]t was agreed that both parties operating in Australia will stick to the following price levels…”.

13                  In short, as Mr Ippaso agreed, he was worried that if Baker Bros started selling assembled compressors in Australia they would be able to sell them more cheaply than SIP could.  Mr Ippaso thought Baker Bros’ pricing policy was suicidal, that they were selling much too cheaply in the market and if they continued to do so it would create all sorts of difficulties for everyone, including himself.  Mr Ippaso may have been acting in respect of a product line which SIP had developed for Australian conditions, and for which SIP had obtained Australian regulatory approval, but that provided no justification for the market sharing and price fixing provisions which Mr Ippaso sought to impose on Baker Bros and succeeded in so doing through the March 1994 agreement.  It is difficult to imagine a more explicitly recorded market sharing and price fixing agreement. 

14                  I am satisfied that a consequence of the implementation of the March 1994 agreement was that the market for the distribution and sale of direct‑drive compressors in Australia was distorted as between SIP and Baker Bros and that purchasers and potential purchasers of direct‑drive compressors were denied the benefit of competitive conduct from SIP and Baker Bros.  At the wholesale level of the market the participants in the Australian compressor market included both importers of compressors and assemblers in Australia who assembled compressors.  Such assemblers typically purchased imported components including compressor pumps to assemble their units.  A number of witnesses gave evidence as to the share of the market for direct‑drive compressors held by SIP and Baker Bros at relevant times.  I am satisfied that at the time the March 1994 agreement was entered into and implemented SIP’s market share of the wholesale market for the supply and distribution of direct‑drive compressors was of the order of 32%‑35% and that Baker Bros’ market share was 7.5%.  However the market which should be considered is the market for compressors, both belt‑driven and direct‑drive.  SIP had of the order of 20% of this market and Baker Bros’ market share was around 5%.

15                  There were numerous competitors in that market other than SIP and Baker Bros and this limited the extent of SIP’s market power.  There were low barriers to entry and available sources of supply of relevant products if any particular source dried up.  There is little evidence available which enables me to reach a conclusion as to the extent to which the implementation of the March 1994 agreement had an impact on the market both as to pricing and availability of product.  There was no evidence of relative pricing in the market between SIP and Baker Bros on the one hand and other suppliers on the other hand.  Mr Ippaso submitted that the March 1994 agreement had no impact on the market.  There was no specific evidence to demonstrate whether there was any such impact.  Nevertheless I consider I should be slow to conclude that SIP, through Mr Ippaso, was not successful in achieving what it set out to achieve.  I infer from the evidence of the implementation of the March 1994 agreement that there was some effect on the market which I am unable to quantify.  I therefore proceed on the basis that SIP had a significant degree of market power as it held the largest market share of all the participants in the market.

16                  Mr Ippaso’s conduct in seeking to establish, shore up and maintain SIP’s insulation from competition was continuous from the latter part of 1993 through to March 1998 when his attempt to have a further agreement with Baker Bros entered into finally lapsed. 

17                  The agreement with Baker Bros that SIP, through Mr Ippaso, procured, and to which Mr Ippaso was a party, was calculated and intended deliberately to ensure the elimination of competitive conduct insofar as it existed between Baker Bros and SIP.  Such elimination is precisely the vice to which Pt IV of the Act in particular is directed.  Section 2 of the Act provides that the object of the Act is:

“to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection.”

The object of the agreement promoted, procured and implemented by SIP through Mr Ippaso was the elimination of such competition as between SIP and Baker Bros.

Principles for determining appropriate penalties under s 76 of the Act

18                  The principles to be addressed and applied in determining the level of penalties ordered to be paid pursuant to s 76 of the Act are now well established.  Section 76(1) of the Act requires the court to have 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.”

Although s 76 empowers the court to order payment of a penalty in such amount “as the Court determines to be appropriate”, a number of cases have identified factors which are relevant for a court to take into account in determining an appropriate penalty for the purposes of s 76. 

19                  In Trade Practices Commission v CSR Limited (1991) ATPR 41‑076 French J, at 52,152‑52,153, included a number of other matters in addition to those specified in s 76(1) to be taken into account in determining the level of a penalty to be imposed, namely:

·                    the size of the contravening company;

·                    the degree of power it has, as evidenced by its market share and ease of entry into the market;

·                    the deliberateness of the contravention and the period over which it extended;

·                    whether the contravention arose out of the conduct of senior management or at a lower level;

·                    whether the company has a corporate culture conducive to compliance with the Act, as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention; and

·                    whether the company has shown a disposition to co‑operate with authorities responsible for the enforcement of the Act in relation to the contraventions. 

20                  In Australian Competition and Consumer Commission v NW Frozen Foods Pty Ltd (1996) ATPR 41‑515, Heerey J at 42,444‑42,445, added some further factors, including:

·                    the financial position of the contravening company; and

·                    the deterrent effect of the proposed penalties.

Although the penalty imposed by Heerey J was reduced on appeal:  NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285, the Full Court did not disagree with the proposition that these factors should be taken into account.

21                  As Sackville J pointed out in Schneider Electric (Australia) Pty Ltd v Australian Competition and Consumer Commission [2003] FCAFC 2 at [6], the central determinant of a penalty decision is the character of the offence in the absence of ameliorating circumstances.  In the present case the offences can be characterised as blatant and deliberate contraventions of the Act with a later attempt to contravene the Act with no ameliorating circumstances. 

22                  These factors must be considered against the proposition stated in numerous cases over many years that the object of the imposition of a penalty pursuant to s 76 of the Act is to deter persons and corporations from repetition of contraventions of the Act:  Schneider Electric (Australia) Pty Ltd v Australian Competition and Consumer Commission (supra) per Sackville J at [3]; see also Trade Practices Commission v Stihl Chain Saws (Aust) Pty Ltd (1978) ATPR 46‑091 at 17,896; Trade Practices Commission v CSR Limited (supra) at 52,152; Trade Practices Commission v Mobil Oil Australia Ltd (1984) 4 FCR 296 at 298; NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (supra) at 294; Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 145 ALR 36 at 44.

23                  Deterrence has two aspects to it; specific deterrence and general deterrence.  The approach of a court to the dual nature of deterrence was explained succinctly by the majority of the Full Court of the Federal Court in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (supra) at 294‑295 where Burchett and Kiefel JJ stated:

“The Court should not leave room for any impression of weakness in its resolve to impose penalties sufficient to ensure the deterrence, not only of the parties actually before it, but also of others who might be tempted to think that contravention would pay, and detection lead merely to a compliance program for the future.”

24                  There is an unresolved issue as to whether the element of punishment has a role in the imposition of a penalty pursuant to s 76.  Differing views have been expressed.  The majority of the Full Court in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (supra) at 296‑297 considered that the purpose of penalties is not punishment.  The other member of the Full Court, Carr J, left the issue open at 299.  However, as Sackville J said in Schneider Electric (Australia) Pty Ltd v Australian Competition and Consumer Commission (supra), “[t]here may be less to this apparent difference of opinion than appears at first glance”.  His Honour continued at [4]:

“Even proponents of the deterrence theory have acknowledged that the deliberateness of the contravention and the period over which it has extended are matters to be taken into account in determining penalty:  Trade Practices Commission v CSR Ltd [1991] ATPR 41‑076, at 52,152‑52,153, per French J; NW Frozen Foods v ACCC, at 292, per Burchett and Kiefel JJ. This acknowledgement is hardly surprising, given that s 76 of the TP Act itself requires the nature and extent of the act or omission and the circumstances in which the act or omission took place to be taken into account.”

25                  If deliberateness of the contravention is to be taken into account in determining the appropriate penalty, together with other factors, regard is then being had to a factor not strictly relevant to the issue of deterrence but perhaps more relevant to the issue of punishment.  This issue was addressed by the Full Court of the Federal Court in Australian Competition and Consumer Commission v Ithaca Ice Works Pty Ltd (2002) ATPR 41‑851.  At 44,543 the Full Court said:

“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) ATPR 41‑562 at 43,810‑43,811; (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.”

26                  See also Australian Competition and Consumer Commission v J McPhee & Son (Australia) Pty Ltd (1998) ATPR 41‑628 at 40,890‑40,892.

27                  I turn to consider the application of the relevant principles to the facts as found in the case. 

Nature and extent of contravening conduct

28                  I have already referred to the nature of the contravening conduct in pars [8] to [13] and [16] above but it is desirable to develop this issue further.  Although it is necessary, when considering the appropriate penalty to impose for a number of contraventions, to have regard to the totality principle, this factor should not be allowed to obscure the fact that SIP committed, and Mr Ippaso was a party to, a number of separate contraventions of the Act.  This is not a case where the contraventions of the Act established are contraventions of two or more provisions of Pt IV of the Act, thereby drawing in aid subs (3) of s 76 of the Act so that the contravener is not liable for more than one pecuniary penalty in respect of the same conduct.  Five separate and distinct contraventions have been established and although two sets of the contraventions arose out of the same commercial negotiation and transaction, namely market sharing and price fixing, they expose two different types of conduct which exacerbates the situation which would have existed had only a market sharing or a price fixing agreement been entered into and implemented. 

29                  Put shortly, SIP’s conduct, and Mr Ippaso’s participation in it, was rendered all the more serious by the compounding of the price fixing conduct with the market sharing conduct.  I refer again to the observations made in pars [8]‑[13] above relating to the initiation of the proposals by Mr Ippaso, the principal role Mr Ippaso played in the negotiation, execution and implementation of the March 1994 agreement, the deliberate nature of Mr Ippaso’s conduct and his blatant concern to ensure that Baker Bros was not competitive with SIP on its pricing policy.

30                  The seriousness of the conduct engaged in by SIP and Mr Ippaso is underscored by the per se nature of price fixing conduct legislated by s 45A of the Act.

31                  Mr Ippaso submitted that the March 1994 agreement lacked the insidiousness of more serious contraventions of the Act because, unlike the more insidious covert market sharing and price fixing arrangements uncovered from time to time, the parties recorded the agreement in writing.  True it is that the agreement was recorded in a formal document but SIP and Mr Ippaso should not obtain a credit for indulging in their contravening conduct in such a blatant manner.

32                  The seriousness of the contraventions is not diminished by the fact that, at trial, SIP and Mr Ippaso sought to justify the March 1994 agreement and its implementation on the basis that it, and the proposed November 1997/February 1998 agreement, were excluded from the operation of s 45(2) by ss 45(5) and (6).  There was no suggestion in any of the evidence that the March 1994 agreement was conceived, propounded, entered into, or implemented, on the basis that no contravention of the Act would occur by virtue of the operation of ss 45(5) and (6) of the Act.

33                  I reject Mr Ippaso’s submission that the March 1994 agreement was not well‑organised but was at best a relatively clumsy effort to compromise disagreements between SIP, Baker Bros and ABAC about distribution arrangements for ABAC direct‑drive compressors.  Mr Ippaso’s conduct was not clumsy but rather was deliberate and calculating.  This can be seen by the nature of the communications he had with ABAC.

34                  Mr Ippaso places significance on the fact that the March 1994 agreement was only carried into effect to a limited extent because issues arose as to whether the parties were adhering to the agreement.  It is true that such issues did arise but the fact remained that the agreement was implemented over a considerable period of time albeit with occasional departures.  As late as 18 March 1998 Mr Ippaso was saying in a letter to Mr Andrew Baker that “up to now we have religiously observed our agreement re finished compressors”.

35                  Mr Ippaso submitted that by late 1995/early 1996 it was apparent that the agreement had broken down and he supported that submission by reference to pars [52]‑[55] of the earlier reasons at 45,002.  Those paragraphs do not support the proposition that the agreement had broken down.  They refer to the fact that issues had arisen as to whether the agreement was being observed but both parties were still acting on the basis that the agreement should be regarded as being operative.

36                  However, I do consider that the contravention constituted by the attempt in and between November 1997 and February 1998 to contravene s 45(2)(a)(i) of the Act should not be considered as reaching the same level of seriousness as the other contraventions as it was not consummated or implemented, although there were strenuous attempts by Mr Ippaso to achieve that result with detailed drafting of an agreement being undertaken and almost finalised.

The amount of loss and damage caused

37                  I have noted earlier that the amount of loss and damage is difficult to quantify having regard to the market share of the direct‑drive compressor market held by SIP and the extent to which there were other suppliers in the market.  Put shortly, it is not possible to determine or infer that any particular level of loss or damage was suffered by purchasers from SIP and Baker Bros.  Mr Ippaso submitted that it was likely that there was no loss or damage suffered by anyone.  I am not prepared to make a finding that there was no loss or damage suffered by any purchaser from SIP or Baker Bros as the March 1994 agreement was implemented, albeit with occasional departures, until at least the end of 1997.  I am satisfied that it is reasonable to conclude, as a result of the nature of the implementation of the March 1994 agreement which occurred, that some purchasers probably purchased direct‑drive compressors from SIP and Baker Bros at prices higher than they would have obtained had the March 1994 agreement not been entered into or implemented.  However, I cannot quantify any relevant amount.

Circumstances in which the conduct took place

38                  The most significant circumstance in which the contravening conduct took place was that SIP, through Mr Ippaso, was seeking to pre‑empt Baker Bros from becoming a competitive threat to SIP.  During the second half of 1993 Mr Ippaso had investigated the feasibility of importing completely assembled direct‑drive compressors with receivers or tanks that would comply with the relevant Australian standard.  By the end of 1993 Mr Ippaso was concerned about the competitive threat Baker Bros presented to SIP in relation to its proposal, and as I found in the earlier reasons at 44,992, “he wanted to take steps to reduce or eliminate this competition”.  Put shortly, Mr Ippaso’s intention and purpose was to create a regime in which he would be free from a significant measure of competitive conduct in relation to the distribution and sale of ABAC direct‑drive compressors.  Although SIP and Baker Bros did not always adhere to the March 1994 agreement, each would complain from time to time of the fact that the agreement was not being implemented and would seek to have it continue to operate.

The size of the contravening company

39                  SIP was a subsidiary of a group of companies that has carried on business in other countries including England and Italy.  Nevertheless, I approach the matter on the basis of SIP’s size in the context of the market in Australia.  Between the year ended 31 December 1994 and the year ended 31 December 1998 SIP’s sales revenue grew from $5.97 million to $9.88 million.  For the same period its operating profit after income tax fluctuated between $1 million in 1994, $924,927 in 1995, $996,343 in 1996, $290,724 in 1997 and $167,694 in 1998.  SIP’s net asset position in 1994 was negative $1.365 million and in 1998 its net asset position was positive $1.014 million.

40                  Baker Bros’ financial position was substantially less than SIP, Baker Bros’ average turnover for the three or four years prior to 1999 being of the order of $3.4 million per annum.  Its net assets in 1998 were of the order of $1.75 million.  However, for the reasons to which I shall refer I do not consider that there should be parity of penalty as between Baker Bros and SIP or between the directors of Baker Bros and Mr Ippaso.

41                  Although evidence was available as to the financial position of SIP between 1994 and 1998, there was no evidence of Mr Ippaso’s financial position or his capacity to meet any penalties that he be ordered to pay.  I therefore infer that Mr Ippaso has the capacity to pay penalties at or about the level put by the Commission in the course of its submissions.

Degree of market power

42                  Although SIP’s market share for the sale in Australia of direct‑drive compressors was about 32% and its market share for the sale of direct‑drive and belt‑driven compressors was of the order of 20%, there were a significant number of other suppliers of direct‑drive compressors in the market.  After SIP, the second greatest volume of sales of direct‑drive compressors was made by a company called Champion whose market share was of the order of 8%.  Baker Bros’ share of the market for direct‑drive compressors was of the order of 7.5%.  SIP may not have had a substantial degree of market power but it had a significant degree of market power, holding the largest market share of all the participants in the market.

The deliberateness of the contraventions and the period over which they extended

43                  SIP’s conduct through Mr Ippaso could not have been more deliberate.  Indeed Mr Ippaso set out initially to obtain a sole agency from ABAC for distribution of its products in Australia and New Zealand.  His purpose in doing so was to avoid having to compete with Baker Bros in the marketplace in relation to the sale of direct‑drive compressors.  Mr Ippaso’s policy, according to the report of the meeting with Dr Balma and Mr Arrigoni on 10 December 1993, was to control all ABAC distribution in Australia and New Zealand and to “devise a stable co‑operation policy” with Baker Bros.

44                  The March 1994 agreement was a continuum of Mr Ippaso’s deliberate decision to avoid SIP having Baker Bros as a competitor on competitive terms.  The March 1994 agreement may not have been Mr Ippaso’s first preference, as he submitted, and it may have presented a better alternative than withdrawing SIP’s operation from Australia.  Nevertheless, contrary to Mr Ippaso’s submissions, the conduct constituting SIP’s contraventions, to which Mr Ippaso was a party, was well‑organised and systematic.  Mr Ippaso was the prime mover of the proposal for the March 1994 agreement and its implementation and he succeeded in what he set out to achieve.  That agreement continued to operate until at least the end of 1997, a period of the order of almost four years.

Whether the contraventions arose out of conduct of senior management

45                  The conduct of SIP occurred at its highest level of management.  Mr Ippaso was in complete control of SIP’s operation in Australia and was answerable to no‑one other than the shareholders of SIP.

Evidence of corporate compliance culture

46                  The evidence did not show that SIP or Mr Ippaso had any consideration or regard for the Act in the manner in which they conducted SIP’s business.  I therefore proceed on the basis that at the time the contraventions occurred there was a complete lack of any corporate culture of compliance with the Act.  There was no evidence to the effect that SIP had any trade practices compliance program in place during the relevant periods of the contravening conduct.

47                  It is true that following the service of notices under s 155 of the Act on SIP and its officers around November 1998, SIP subsequently in March 1999 instituted a Trade Practices Act compliance program.  However, I regard such implementation as too late to be relevant to the assessment of the appropriate penalties to impose in respect of the contraventions by SIP in which Mr Ippaso participated.  That program was a response to the service of the s 155 notices and the issues which they raised for SIP and was very much a case of shutting the stable door after the horse had bolted.  I do not consider that this is a case where it is appropriate to give SIP and Mr Ippaso a credit, or the benefit of an allowance, in respect of mitigation of penalty for the compliance program instituted after the service of the s 155 notices. 

Evidence of co‑operative behaviour

48                  It is well accepted that a party’s co‑operation with the Commission in relation to a contravention which has been alleged against it or is the subject of a proceeding brought against it is relevant to the quantum of any penalty to be imposed and may reduce the amount of penalty that would otherwise be imposed were it not for the co‑operation:  Trade Practices Commission v TNT Australia Pty Limited (1995) ATPR 41‑375; Trade Practices Commission v CC (New South Wales) Pty Limited (1995) ATPR 41‑415; Australian Competition and Consumer Commission v Tyco Australia Pty Ltd (2000) ATPR 41‑760.

49                  There is little in the conduct of SIP and Mr Ippaso which can be claimed as co‑operation for the purposes of mitigating the level of the appropriate penalties to be imposed.  Although SIP and Mr Ippaso responded to the s 155 notices served on them, they complied with the letter of the notices, which, of course, was all they were obliged to do.  However, in terms of actual co‑operation with the Commission there is little more to be said.  For example, they did not produce any copy of, or make any reference to, the March 1994 agreement.  On one view of the s 155 notices they were not obliged to do so but then it cannot be said they should be given a credit for active co‑operation with the Commission which assisted it in its enquiries.

50                  I do not consider that SIP and Mr Ippaso should be given any credit for any degree of co‑operation with the Commission.

51                  The Commission’s allegations against SIP and Mr Ippaso resulted in the institution of this proceeding and SIP and Mr Ippaso contested the allegations against them, which they were entitled to do, more particularly because the burden of proof lay upon the Commission.  SIP and Mr Ippaso were entitled to say to the Commission – prove your case, and they should not be penalised or subjected to a heavier penalty by making this decision.  Although SIP and Mr Ippaso should not be penalised for contesting the proceeding, I consider that they also are not entitled to claim any credit or factor of mitigation of penalty by so doing. 

52                  To the extent to which Mr Ippaso, in particular, may have co‑operated with the Commission after the service of the s 155 notices in his response to them, I consider that such co‑operation is cancelled out or neutralised by the tenor of some of his evidence before the Court which was at variance with his documentation.  For example, he denied on several occasions that as at December 1993 and January 1994 he knew or believed that Baker Bros was interested in entering the business of selling and distributing assembled compressors or intended to do so.  In par [42] of the earlier reasons at 44,999 I did not accept that evidence and noted that it was quite inconsistent with his report of 10 December 1993.

53                  I also noted in par [68] of the earlier reasons at 45,006 that Mr Ippaso was not candid in his evidence about what he was trying to achieve with the agreement he was propounding in November 1997/February 1998.  I also refer to my finding in par [73] at 45,007 where I did not accept Mr Ippaso’s evidence that he could not recall the agreement to which he was referring in a letter of 18 March 1998 when he wrote “up to now we have religiously observed our agreement re finished compressors”.

Evidence of similar conduct in the past

54                  There was no evidence that suggested that either SIP or Mr Ippaso had engaged in similar conduct in the past, that is to say that they had previously engaged in conduct constituting a contravention of the Act. 

Determination of amount of penalties

55                  The starting point for a consideration of the appropriate penalty to impose is to recognise that for each of the contraventions found against SIP the maximum penalty is $10 million:  s 76(1A).  The maximum pecuniary penalty payable in respect of Mr Ippaso being directly knowingly concerned in and a party to each of SIP’s contraventions is $500,000.  As I have observed earlier (par [28] above), each of the contraventions established is separate from the other contraventions which have been established for the purpose of determining a penalty.  Thus, SIP is potentially liable for a total penalty of up to $50 million and Mr Ippaso is potentially liable for a total penalty of up to $2.5 million.  Thus, from an arithmetical point of view, the penalty which the Commission submitted should be payable by SIP, namely $500,000, represents 1% of the maximum penalty available.  Even if one were to consider that overall the conduct should be regarded as one contravention, the Commission’s submitted penalty is only 5% of the maximum available.  The penalty submitted by the Commission in relation to Mr Ippaso, namely $100,000, represents 4% of the maximum penalty potentially available or 20% of the maximum penalty for one contravention.

56                  I do not consider that the parity principle requires the imposition of penalties similar to those imposed upon Baker Bros and its directors.  As Sackville J observed in Schneider Electric (Australia) Pty Ltd v Australian Competition and Consumer Commission (supra) at [11]:

“The parity principle does not necessarily require corporations guilty of similar contraventions of the TP Act to incur the same or similar penalties.  The test suggested by Burchett and Kiefel JJ in NW Frozen Foods v ACCC(at 295), was that

‘there should not be such an inequality as would suggest that the treatment meted out has not been even‑handed’.

As their Honours pointed out, it is a rare case in which the circumstances of a contravention are identical and a variety of factors may play a part in determining the appropriate penalty.”

57                  There is no basis for considering that there should be any parity with, or relationship between, the penalties imposed upon Baker Bros and its two directors and the penalties to be imposed upon SIP and Mr Ippaso.  In the present circumstances there are significant differences between the position of Baker Bros and its directors on the one hand and SIP and Mr Ippaso on the other.  In particular, Baker Bros admitted its contraventions at a very early stage of the proceeding, as did its directors in relation to their participation in those contraventions.  Baker Bros was a much smaller company than SIP by reference to factors such as financial resources and commercial resources generally and SIP’s market share between 1994 and 1998 and its turnover were significantly greater than Baker Bros’ turnover.  Further, Baker Bros and its two directors actively co‑operated with the Commission in finalising the case against them and assisting it in prosecuting its case against SIP and Mr Ippaso.  Although SIP and Mr Ippaso co‑operated with the Commission when s 155 notices were served on them, they contested the proceeding.  They are not to be penalised for so doing but they are not entitled to any discount in respect of co‑operating with the Commission so as to obviate the necessity for a trial.  Further, although Baker Bros committed the contraventions, it did so only after significant commercial pressure was placed upon Messrs Baker by Mr Ippaso.  The role played by Mr Ippaso and SIP in procuring and implementing the March 1994 agreement was significantly different in that it was the initiating factor and the factor which drove the negotiations which culminated in the agreement.  This difference warrants SIP and Mr Ippaso being given significantly and substantially greater penalties than Baker Bros and their directors.  Mr Ippaso’s culpability is significantly greater than that of the two directors of Baker Bros. 

58                  I am therefore satisfied that a more substantial penalty should be imposed upon SIP and Mr Ippaso than was imposed upon Baker Bros and Messrs Baker.

59                  Taking all these matters into consideration, I consider that it is appropriate to fix penalties in respect of each contravention by SIP and Mr Ippaso.  The fact that SIP is in liquidation and that an order has been made for its winding up is no bar to an order being made against it for the payment of penalties.  However consistently with the order I made on 10 July 2002, no proceeding can be taken for the recovery of that penalty without further order of the Court.  Even though SIP is in liquidation, it is still appropriate to order that it pay penalties for its contraventions of the Act as a measure of the Court’s disapproval of the contraventions established and as a measure of the seriousness with which the Court regards those contraventions.  If the principal object of the imposition of penalties is deterrence, not only of the participants, but also others who might be influenced to contravene the Act, then it is quite appropriate to order that a company in liquidation pay pecuniary penalties for contraventions of the Act.  If general deterrence is to have any meaning, a company in liquidation which has contravened the Act must be ordered to pay an appropriate pecuniary penalty as a deterrent to others who might be tempted to engage in similar conduct:  Australian Competition and Consumer Commission v The Vales Wine Company Pty Ltd (1996) ATPR 41‑528 at 42,776.

60                  In fixing the penalties for each contravention I have taken into account the principle of “totality”:  Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (supra) at 52‑53.  That is to say I have considered whether the aggregate of the penalties imposed for the several contraventions in the case of both SIP and Mr Ippaso results in the total of the penalties exceeding what is considered to be proper having regard to the totality of the contravening conduct involved:  McDonald v R (1994) 48 FCR 555.  I have determined the penalty which I consider appropriate for each contravention and I have then considered whether the aggregate is appropriate for the whole of the contravening conduct involved. 

61                  In relation to each of the contraventions involving a contravention of s 45(2) by SIP, I consider that an appropriate penalty to be imposed is $120,000 for each of the four contraventions and $100,000 for the attempt in November 1997/February 1998 which was well developed and fell just short of consummation.  Overall I consider that a total penalty imposed upon SIP of $580,000 is an appropriate overall penalty having regard to the blatant nature of the contraventions and the implication of its most senior management and board officer. 

62                  In the case of Mr Ippaso, I consider an appropriate penalty for each of the contraventions of s 45(2) to be $25,000 and that an appropriate penalty for the attempt to be $20,000, a total of $120,000.  This represents just under 5% of the total maximum of the penalties which might be imposed.  Overall I consider that to be an appropriate amount having regard to the centrality of the role played by Mr Ippaso in the conception, negotiation, finalisation and implementation of the March 1994 agreement and the attempt, which was almost successful, to renegotiate that agreement in November 1997/February 1998.  I acknowledge that the total of these penalties is higher than has been fixed in relation to individual respondents in a number of other cases but I nevertheless regard the total amount as appropriate having regard to Mr Ippaso’s position in SIP.  As managing director he was at the apex of its organisational structure.  Everyone else was responsible to him and he was responsible to no other officer or employee in the company.  The centrality of his role in the contraventions warrants a substantial penalty for each contravention and I do not consider a penalty of $25,000 to be excessive for the contraventions; nor do I consider $20,000 excessive for an attempt which was carried through almost to completion.

63                  SIP and Mr Ippaso should pay the Commission’s costs in relation to the proceeding against SIP and Mr Ippaso.

64                  The proceeding against Mr Gates was dismissed and I consider that he should have an order for such costs as he incurred which are not, and which do not form part of, any of the costs incurred by SIP.  The Commission submitted that a number of the findings set out in the earlier reasons demonstrated that Mr Gates was a person who would have been called to give evidence by SIP and Mr Ippaso.  The Commission, for example, pointed to findings that Mr Gates supplied Mr Ippaso with information which Mr Ippaso had requested in relation to contravening conduct, that Mr Gates was a conduit for the passage of information to Mr Ippaso and that Mr Gates attended a meeting with Messrs Baker on 17 February 1998 in order to finalise the customer lists and formalise the agreement.  I note that Mr Gates was not present for the whole of that meeting.  I am prepared to accept the proposition that Mr Gates would have been called as a witness even if he had not been a party to the proceeding, but I do not consider that that proposition bears upon the issue of whether an order for costs should be made in favour of Mr Gates insofar as he incurred costs as a party. 

65                  The fact that there was joint representation of SIP, Mr Ippaso and Mr Gates does not necessarily mean that Mr Gates has not incurred separate costs which were not otherwise incurred by SIP or by Mr Ippaso.  If such costs have been incurred I consider it appropriate that those costs be paid by the Commission.  Ultimately it is a matter of the taxing officer to determine on proper material placed before him or her whether such costs have been incurred.

66                  Mr Gates referred to cases in which there were a number of respondents jointly represented by the same solicitor and counsel where the general rule was that, in the absence of evidence to the contrary, each was liable to pay to the solicitor a proportionate part of the total costs so that if successful a costs order in their favour was a proportionate part of the total costs:  Ellingsen v Det Skandinaviske Compani [1919] 2 KB 567; Trade Practices Commission v Nicholas Enterprises Pty Ltd (1979) 28 ALR 201; Rogers v Kabriel [1999] NSWSC 474.

67                  However, pursuant to s 43 of the Federal Court of Australia Act 1976 (Cth), costs are in the discretion of the Court and the principle identified in Ellingsen v Det Skandinaviske Compani (supra) is just one approach open to the Court, another approach being to distinguish between costs referrable to all respondents and costs referrable to a particular respondent.

68                  Having regard to the peripheral participation of Mr Gates in the circumstances involved in the proceeding, I consider an appropriate order to be that the Commission pay Mr Gate’s costs to the extent to which they have been incurred by him independently of any costs incurred by SIP and Mr Ippaso and which are not costs or any part of costs which have been incurred by, or are payable by SIP or Mr Ippaso.

Associate:

Dated:              16 April 2003