FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v McMahon Services Pty Ltd (ACN 008 274 020) (No 2) [2004] FCA 1172

TRADE PRACTICES – contravention of Trade Practices Act 1974 (Cth) – penalty – factors to consider in determining penalty – admission of involvement in price fixing arrangement – penalties not agreed by parties – permissible range – discount to be applied for cooperation – capacity of respondents to meet penalties.

Trade Practices Act 1974 (Cth) ss 45, 45A 76

Australian Competition and Consumer Commission v McMahon Services Pty Ltd (ACN 008 274 020) (No 1) [2004] FCA 1171 related

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v McMAHON SERVICES PTY LTD (ACN 008 274 020); PHILLIP JAMES BUBNER; S.A. DEMOLITION AND SALVAGE PTY LTD (ACN 086 777 022); SPIROS PARENTES; DCD ENTERPRISES PTY LTD (ACN 050 165 485); FERNANDO DANIEL D’APOLLONIO AND VLADO TURIC

SAD 10 of 2003

LANDER J

9 SEPTEMBER 2004

ADELAIDE

THE COURT ORDERS THAT:

1.         The third respondent pay to the Commonwealth of Australia a pecuniary penalty pursuant to s 76 of the Act in the sum of  $65,625.

2.         The fourth respondent pay to the Commonwealth of Australia a pecuniary penalty pursuant to s 76 of the Act in the sum of $35,000.

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

REASONS FOR JUDGMENT

1                     The history of these proceedings is set out in my reasons for judgment given in Australian Competition and Consumer Commission v McMahon Services Pty Ltd (ACN 008 274 020) (No 1) [2004] FCA 1171.

HISTORY

2                     On 24 January 2003 the applicant (the ACCC) brought these proceedings claiming that all seven respondents had contravened the Trade Practices Act 1974 (Cth) (the Act) by engaging in anti-competitive conduct.

3                     The conduct complained of was that the first respondent (McMahon Services) and the third respondent (SA Demolition) entered into an arrangement or arrived at an understanding which had the purpose or effect of fixing the price for demolition and asbestos removal services to be supplied by McMahon Services and/or SA Demolition in relation to the Marlu Curu demolition works.

4                     The ACCC claimed that the parties gave effect to the arrangement or understanding by SA Demolition submitting a tender at a price not less than a price specified by McMahon Services in a document provided to SA Demolition by the sixth respondent (Mr D’Apollonio), and McMahon Services submitting a tender at a price lower than that specified, for the purpose of ensuring that SA Demolition would be unlikely to be successful as against McMahon Services in the tender for demolition works.  The tender was provided to the Department of Defence in response to its Request for Tender.

5                     The ACCC also alleged that the Demolition Operations Manager of McMahon Services, Mr Bubner, and a director of SA Demolition, Mr Parentes, aided and abetted or, alternatively, were knowingly concerned in that conduct.

6                     Lastly, the ACCC alleged that the fifth respondent, which conducts its business under the name D & V Services, aided and abetted, alternatively, was knowingly concerned in the contraventions of the Act by McMahon Services and SA Demolition, and its two directors, the sixth and seventh respondents, aided and abetted or, alternatively, were knowingly concerned in that conduct.

7                     In late January/early February 2004, the ACCC accepted an offer of settlement by the fifth respondent, D &V Services, and the sixth and seventh respondents, in which they admitted that D & V Services aided and abetted a price-fixing arrangement or understanding between McMahon Services and SA Demolition in relation to the Marlu Curu’s demolition works and its directors aided and abetted that conduct, with the parties to make submissions to the Court as to the appropriate penalties to be imposed pursuant to s 76 of the Act.

8                     A statement of agreed facts to be used for the purpose of imposing the appropriate penalty was formulated and the parties made submissions in relation to the appropriate penalties.  During the hearing of those submissions, the parties agreed on the assessment of the appropriate penalties:

DCD Enterprises Pty Ltd                                                   $65,000

Mr D’Apollonio                                                                $30,000

Mr Turic                                                                           $30,000

Total                                                                              $125,000

9                     The parties agreed that a discount of 20 per cent would be appropriate.  That discount would reflect the cooperation of those respondents in these proceedings.

10                  It was agreed, therefore, that I should impose the following penalties:

DCD Enterprises Pty Ltd                                                   $52,000

Mr D’Apollonio                                                                $24,000

Mr Turic                                                                           $24,000

Total                                                                              $100,000

11                  In my separate judgment delivered today, I have imposed the agreed penalties on those respondents.

12                  In these reasons, I have considered the ACCC’s claims against SA Demolition and Mr Parentes.

13                  The ACCC alleges that SA Demolition contravened ss 45(2)(a)(ii) and 45(2)(b)(ii).  It alleges that Mr Parentes aided and abetted, alternatively, was knowingly concerned in or a party to, the contraventions by SA Demolition in breach of s 76 of the Act.

14                  Initially, the third and fourth respondents filed a defence denying the contravention of the Act.

15                  However, on 7 April 2004 the ACCC accepted an offer of settlement by SA Demolition and Mr Parentes in which they acknowledged that SA Demolition arrived at a price fixing arrangement with McMahon Services in relation to the Marlu Curu demolition works and that Mr Parentes aided and abetted the conduct, and that the matter would be referred to the Court for the purpose of the ACCC and the third and fourth respondents making submissions to the Court as to the appropriate penalties to be imposed.

16                  For that purpose, the parties agreed on the Statement of Agreed Facts.

17                  McMahon Services carries on the business of providing demolition and asbestos removal services in the greater metropolitan area of Adelaide.  Mr Bubner is alleged in ACCC’s Statement of Claim to be the Operations Demolition Manager at McMahon Services who had the responsibility for the submission of McMahon Services’ response to the Request for Tender and for making arrangements to ensure the success of McMahon Services’ tender.  SA Demolition carries on the same business.  Mr Parentes was a director and shareholder of SA Demolition.  At the relevant time he was the mind and will of SA Demolition.

18                  D & V Services, which is the business name under which DCD Enterprises Pty Ltd trade, also carries on the same business in the greater metropolitan area of Adelaide.

19                  Mr D’Apollonio and Mr Turic are directors and shareholders of D & V Services.

20                  Mr Parentes, Mr D’Apollonio and Mr Turic were well known to each other and had been since 1998.  Their two companies had worked together on various projects and had assisted each other from time to time in relation to various projects.

21                  In November 2000 the Commonwealth Department of Defence issued a Request to Tender to four companies, including SA Demolition and McMahon Services for the removal of asbestos from, and the demolition of, structures at the Marlu Curu site at Salisbury SA (the Request for Tender).

22                  The Request for Tender was in standard form and titled ‘Facilities Contract for Medium Works’ and was in a number of parts.  I will set out the relevant matters from each part.

23                  Part A required, inter alia:

1.         That the tenderer complete, sign and have witnessed Part H of the Request for Tender being a statutory declaration declaring, inter alia, that the tenderer:

(a)        had no knowledge of the price of any other tenderer submitting a tender for the Marlu Curu demolition project;

(b)        had not provided any information to any other tenderer to assist that other tenderer to prepare a ‘cover bid’; and

(c)        its tender was genuinely competing and was not a ‘cover bid’: Clause 1.3(c) of Part A and Tender Schedule I of Part H.

2.         That the tenderer submit as part of its tender a signed Undertaking of Compliance in the form of Schedule J to Part H to comply, and otherwise at all times act consistently, with the requirements and other provisions of the National Code of Practice for the Construction Industry (the National Code) should it be the successful tenderer: Clause 1.7.2 of Part A.

24                  Clause 1.19 of Part A, under the heading ‘Tendering Ethics’ provided as a condition of tender that:

‘Each Tenderer shall not communicate (verbally or otherwise) or have any arrangement or arrive at any understanding with any of the other Tenderers or with any employee of any association of which the Tenderer or any of the other Tenderers is a member about the work under the Contract or any aspect of the work under the Contract.  Without limitation the Tenderers will not engage in:

(a)       any discussion or correspondence with such persons concerning the sum of money which they propose to tender;

(b)       any collusive tendering with any of the Tenderers; or

(c)        any conduct or have any arrangement or arrive at any understanding with any of the other Tenderers,

which in any way could have the effect of reducing the competitiveness of the tender process for the work under the Contract.’

25                  Part G sets out the ‘Special Conditions’ to apply to the Medium Works Contract which include a requirement that the Contractor ‘must, and must ensure that its subcontractors … comply with and otherwise at all times act consistently with the requirements and other provisions of the National Code …’.

26                  Attachment 3 to Part G provided a copy of the National Code setting out the national principles which included, inter alia, the following principle:

‘Competitive Behaviour

Principles of ethical behaviour must be adhered to by all parties, at all times, and at all levels.  Tendering processes must be conducted with commitment, honesty and fairness.  Anti-competitive behaviour or any other practice which denies other participants legitimate business opportunities are unacceptable.  These practices are inconsistent with the establishment and maintenance of ethical business practices which must underlie good working relationships between a client and a service provider and between service providers.

All clients emphasise the need for ethical behaviour at all levels of a project.  These expectations are essentially based on the following nine ethical principles:

all aspects of the tendering process must be conducted with honesty and fairness at all levels of the industry

parties must conform to all legal obligations

parties must not engage in any practice which gives one party an improper advantage over another

tenderers must not engage in any form of collusive practice and must be prepared to attest to their probity

…

These principles apply to all parties in the contractual chain thus the terms ‘client’ and ‘tenderer’ are interchangeable at each link in the chain.  For example, a contractor will act as a client when seeking tenders for subcontract packages.

All jurisdictions emphasise that collusive tendering, participation in price-fixing cartels for either service or supplies, ‘bid shopping’ or any other practice which seeks to limit competition, are specifically prohibited.  Prohibited practices include

agreement between tenderers as to who should be the successful tenderer

any meetings of tenderers to discuss tenders prior to the submission of the tenders if the client is not present

exchange of information between tenderers for the payment of money or the securing of reward or benefit for unsuccessful tenderers by the successful tenderer

agreements between tenderers to fix prices or conditions of contract (this means any collaboration between tenderers on prices or conditions to be included in contracts or commissions without the consent of the client)

any assistance to any tenderer to submit a cover tender (that is, a tender submitted as genuine but which has been deliberately priced in order not to win the contract or commission) …’

27                  There is no doubt that the Request for Tender clearly brought to the reader’s attention a tenderer’s obligation to behave ethically and to avoid or desist from any anti-competitive conduct or behaviour.

28                  In particular, the tenderer had to acknowledge on the tenderer’s oath that the tenderer had no knowledge of the price of any other tenderer and had not provided any information to any other tenderer, and that the tenderer’s tender was genuinely competing and was not a cover bid.

29                  The Request for Tender, in addition to referring to the National Code, reinforced the tenderer’s obligation to avoid anti-competitive conduct or behaviour and the reasons why such conduct should be avoided.

30                  Shortly after receiving the Request for Tender, Mr Parentes engaged the fifth, sixth and seventh respondents to assist SA Demolition in the preparation of its tender.

31                  It was agreed at that time that SA Demolition would nominate D & V Services as a nominated subcontractor for asbestos removal.

32                  Mr Sabatino Feleppa was a consultant who provided cost estimation and tender preparation services to various demolition and asbestos removal companies in Adelaide, including D & V Services.  He was experienced in all aspects of the demolition and asbestos removal industry in South Australia, including the preparation of cost estimates.  He taught courses on asbestos removal at the Marleston TAFE.

33                  Mr Feleppa, Mr D’Apollonio and Mr Turic were acquainted with each other.  Mr Parentes agreed that Mr Feleppa should assist Mr D’Apollonio and Mr Turic in preparation of the SA Demolition tender.

34                  Mr Feleppa undertook a series of tasks for the purpose of preparing the SA Demolition tender and arrived at an estimated tender price of approximately $1.6 million.  SA Demolition assumed that McMahon Services had also been asked to tender in response to the Request for Tender and thereby assumed that McMahon Services officers would be making various calculations and estimates for the purpose of preparing a tender.

35                  Some time in November 2000, at McMahon Services, Mr Bubner handed Mr Turic a document which was a photocopy of ‘Tender Schedule “B” Summary of Proposed Contract Price’, which was a document included in the Request for Tender.  The document disclosed McMahon Services breakdown of the proposed contract price.  The document was in the following form:

‘TENDER SCHEDULE “B”

SUMMARY OF PROPOSED CONTRACT PRICE

The Tenderer must submit a breakdown of the proposed Contract Price as detailed in the schedule below.

There was other writing on the document but that writing is not relevant to these proceedings.

36                  The total figure on the document was $2,488,600.  Mr Turic gave this document to Mr D’Apollonio.

37                  A little later in the same month, a meeting took place at the premises of D & V Services for the purpose of finalising the SA Demolition tender.  Present at the meeting were Mr Parentes, Mr D’Apollonio, Mr Turic and Mr Feleppa.

38                  At that meeting, Mr D’Apollonio provided the document to Mr Feleppa.

39                  At that same meeting, Mr Feleppa told Mr Parentes that Mr Feleppa had estimated a tender price of $1.6 million.

40                  Mr Parentes understood that the document which was tabled at that meeting meant that McMahon Services wanted SA Demolition to tender at a price no less than $2,488,600 and that McMahon Services would tender below that figure.

41                  At that same meeting, Mr Feleppa told Mr Parentes that he believed that SA Demolition had no chance of winning the tender because: SA Demolition did not have a builder’s licence; did not have an EPA licence for transportation; had inadequate public liability insurance; and limited financial capacity.

42                  At that same meeting, Mr D’Apollonio and Mr Turic requested Mr Feleppa to insert the figure of $2,488,600 into the SA Demolition tender document for submission to the Department of Defence.  Mr Parentes agreed to that course and Mr Feleppa inserted that figure.

43                  Mr Parentes believed, as a result of the matters to which I have referred, that SA Demolition would not be successful ahead of McMahon Services in winning the tender.

44                  SA Demolition and Mr Parentes agreed, by reason of the above:

(a)        there was an understanding between McMahon Services and SA Demolition that, in response to the request for tender, SA Demolition would tender at a price no less than $2,488,600 and that McMahon Services would tender at a price less than that figure;

(b)        SA Demolition gave effect to the provision of the understanding by submitting the tender to the Department of Defence.

45                  SA Demolition acknowledges that the understanding (to which SA Demolition gave effect) was likely to have had the effect of substantially lessening competition (because the understanding was likely to have had the effect of fixing the price for the services of removing asbestos from, and the demolition of, structures in the asbestos and demolition market in the greater metropolitan area of Adelaide) in contravention of s 45 of the Act.

46                  Mr Parentes admits that, in his capacity as director of SA Demolition, by reason of his conduct, he aided and abetted the contraventions by McMahon Services and SA Demolition in breach of s 76 of the Act.

47                  The ACCC has submitted that the conduct of SA Demolition and Mr Parentes could not be described as accidental or inadvertent.  Indeed, it was submitted that in the case of Mr Parentes he signed each page of the tender notwithstanding Mr Feleppa’s advice in relation to the estimated price and the circumstances in which the price contained in the tender had been obtained.  Moreover, it was submitted that Mr Parentes had signed that tender in circumstances where it was a condition of the tender that the tenderer not have an arrangement or understanding of the kind that existed.  Further, it was submitted that Mr Parentes had signed the tender page containing the statutory declaration (Tender Schedule I) and the tender page containing the undertaking of compliance (Tender Schedule J) both contained in Part H of the tender.

48                  Neither SA Demolition nor Mr Parentes instigated the arrangement or understanding with McMahon Services but they did agree, in the case of SA Demolition, through Mr Parentes to Mr D’Apollonio’s and Mr Turic’s request to Mr Feleppa to insert the McMahon Services figure into the SA Demolition tender.  In doing so, they ensured that the SA Demolition tender would not be successful as against the McMahon Services tender.

THE MARKET

49                  The ACCC submitted that the market that McMahon Services, SA Demolition and D & V Services were in competition with each other in was the market for the provision of demolition and asbestos removal services in the grater metropolitan area of Adelaide, including Salisbury.  I agree with that submission.

purpose of part iv

50                  I need not set out here the purpose of Part IV of the Act.  Nor do I need to set out in these reasons the principles applicable when imposing a penalty pursuant to s 76 of the Act for a contravention of s 45 of the Act.

51                  Those matters are set out in Australian Competition and Consumer Commission v McMahon Services Pty Ltd (ACN 008 274 020) (No 1).

THE PARTICULAR PENALTIES

52                  Although the third and fourth respondents admitted that they had contravened the Act, they did not agree on the appropriate penalties with the ACCC.  In those circumstances, it falls to me to determine the appropriate penalties.

53                  The ACCC submitted to me that the appropriate penalties should be assessed:

1.         The third respondent SA Demolition - $75,000.

2.         The fourth respondent Mr Parentes - $40,000.

54                  The ACCC submitted that some discount in the order of 12.5 per cent should be allowed for the third and fourth respondents’ willingness to admit the contraventions and therefore the penalties imposed in those circumstances should be:

1.         SA Demoltion - $65,625.

2.         Mr Parentes - $35,000.

55                  The respondents argued that the combined penalties for the third and fourth respondents should not exceed $25,000.  The respondents argued that the third and fourth respondents’ conduct was not as culpable as the fifth, sixth and seventh respondents.  Moreover, they argued that the third and fourth respondents did not have the same financial capacity as the fifth, sixth and seventh respondents to meet any penalties.

56                  In assessing the appropriate penalty, I must have regard to the penalties which I have imposed upon the fifth, sixth and seventh respondents earlier today.  It is important in the assessment of penalties that regard is had to the penalties which I imposed upon those other respondents because the concept of parity requires that, if all other things are equal, like cases be treated alike.  In this case, I must not only have regard to the nature of the contraventions but also to the conduct of each of the parties qua each other.  It is also relevant to have regard to the parties respective capacities to meet any penalty.

57                  The penalties which were agreed and imposed upon the fifth, sixth and seventh respondents are lower than those which the ACCC seek to have me impose upon the third and fourth respondents.

THE NATURE AND EXTENT OF THE CONTRAVENING CONDUCT

58                  It was the arrangement and understanding which the third and fifth respondents reached with the first respondent which gave rise to the primary contravention of Part IV of the Act.  The other respondents aided counsel or procured, alternatively, were knowingly concerned in the conduct of the first, third and fifth respondents.

59                  However, it is right to observe that it was not the third respondent or Mr Parentes who initiated the contravening conduct.  The initiative for that conduct came from the first respondent through Mr Bubner.  It was Mr Bubner who submitted the proposed SA Demolition tender price in the draft tender to Mr D’Apollonio who, in turn, handed it to Mr Turic, who then published it to Mr Feleppa and, later, Mr Parentes.

60                  The respondents’ counsel tendered that part of Mr Feleppa’s affidavit which addressed the meeting at which Mr Parentes and Mr Feleppa were advised of the McMahon Services’ figure.

61                  Mr Feleppa took all of the paper work which he had generated to make his calculations for the SA Demolition tender to the meeting and provided it to Mr Parentes who apparently read it.  Mr Feleppa told Mr Parentes that his estimate was about $1.6 million which would give a 20 per cent margin to SA Demolition.

62                  At the outset of the meeting he assured Mr Parentes that SA Demolition had a good chance of winning the tender.

63                  Later, Mr Turic entered the room and advised that Mr Bubner wished ‘to do a deal’.

64                  Whilst Mr Feleppa began filling out SA Demolition’s tender he was advised by Mr D’Apollonio that SA Demolition did not have a builder’s licence.

65                  Mr Feleppa told Mr Parentes that if he wanted to succeed on his tender bid he would have to have a builder’s licence.  Mr Feleppa offered to allow Mr Parentes and SA Demolition to use his builder’s licence.

66                  Shortly after, the McMahon Services’ document was produced.  When Mr Feleppa read that, he said:

‘Shit.  They are going to make a million bucks for nothing.  What are they going to give you guys?’

67                  Mr D’Apollonio told the meeting:

‘They are going to give us the asbestos work at the site as well as $50,000.  They may even give us some truck hire for Peter.’

68                  Mr Feleppa was later advised that SA Demolition did not have adequate public liability insurance.  He then told Mr Parentes that he (referring to both SA Demolition and Mr Parentes) had no hope of winning the tender because he did not have a builder’s licence; he lacked adequate insurance; and did not have an EPA licence for transportation.

69                  Mr Feleppa’s evidence was that Mr Parentes appeared undecided as to whether to put in a tender at $1.6 million or come to an arrangement or understanding with McMahon Services.

70                  Mr Feleppa said that, finally, at the instigation of Mr D’Apollonio, Mr Parentes included the figure suggested by McMahon Services.

71                  Mr Parentes had retained Mr D’Apollonio and Mr Turic to assist him in preparing and presenting a tender in response to the Request for Tender.  They, in turn, retained Mr Feleppa and Mr Parentes was advised to include the McMahon Services suggested figure in the third respondent’s tender.

72                  Whilst the initiative came from the first and second respondents, and was passed to the third and fourth respondents by the fifth, sixth and seventh respondents, the arrangement or understanding could not have been reached but for Mr Parentes’ and the third respondent’s agreement.

73                  The third respondent and Mr Parentes were crucial to reaching the arrangement or understanding.  The fifth, sixth and seventh respondents were not and could not be tenderers.  So it was that only the third respondent could reach an agreement or understanding of the kind which was reached.

74                  In that sense, it is difficult to distinguish between the conduct of the sixth and seventh respondents and that of the fourth respondent.  Their respective actions make the fifth respondent and the third respondent liable for the contraventions.

LOSS OR DAMAGE CAUSED

75                  It is difficult to determine the amount of loss or damage caused by the contravention of the Act.

76                  The Department of Defence’s pre-tender estimate was $1.9 million.

77                  On the one hand, there is evidence that Mr Feleppa’s assessment of the appropriate price was $1.6 million.  The SA Demolition tender was in the sum of $2,488,600.  McMahon Services’ tender, which was accepted, was in the sum of $2,392,096.

78                  The difference between Mr Feleppa’s assessment and the impugned tenders is $888,600 and $792,096.

79                  The difference between the Department’s pre-tender estimate and the impugned tenders is $588,600 and $492,096.

80                  However, two other tenders were submitted by contractors who were not parties to the arrangement or understanding.  One tender was in the sum of $2,420,000 and the other in the sum of $2,585,000.

81                  McMahon Services’ tender was therefore the lowest tender.

82                  Those other tenders may suggest that the Department’s pre-tender estimate of $1.9 million was understated.  They might also suggest that Mr Feleppa’s assessment of $1.6 million was grossly understated.

83                  In the end result, it is not possible to say how much less an untainted third respondent’s tender would have been or whether it would have been accepted.

84                  The Department of Defence concluded that, price aside, in any event, McMahon Services was the most suitable contractor for the redevelopment and that SA Demolition did not have the capacity to undertake the job in question.

85                  I think in the end result all that can be said is that the Department of Defence has lost the opportunity to negotiate a lower contract price as a result of the arrangement or understanding reached between the first and third respondents.  The Department of Defence has also lost the ability to negotiate with two tenderers at arm’s length.

THE SIZE OF THE CONTRAVENER

86                  Two sources of information which allow some assessment of the size of the third respondent were tendered by ACCC.

87                  Schedule 8 to SA Demolition’s tender in response to the Request for Tender sets out SA Demolition’s turnover for each of the financial years ending 30 June 1998, 1999 and 2000, and the net taxable profit in each of those years.  It is disclosed:

88                  Recent financial information for the financial years ended 30 June 2001, 2002 and 2003 was also provided.

89                  From those statements, the following can be extracted:

90                  Although the respondents relied upon a submission that both the third and fourth respondents did not have the financial capacity to meet penalties of the kind contended for by ACCC, the respondents were reluctant to put information before the Court in relation to their financial position.

91                  Eventually, I was provided with information which, in my opinion, denied the respondents’ contention that they did not have the financial capacity to meet the ACCC’s suggested penalties.

92                  The draft balance sheet as at 30 June 2003 of the third respondent discloses total assets of $764,097, including cash on hand of $68,989.

93                  The balance sheet also discloses liabilities to the directors/shareholders of $555,102.  The liabilities are to Mr Parentes.

94                  Eventually, Mr Parentes’ counsel handed up an estimate of his net worth showing his assets and liabilities and net worth of $492,724.  The assets do not include the director/shareholders’ loans of $555,102.

95                  To that extent, the document indicating his net worth at $492,724 is understated by the amount of the directors’ loans.

96                  Moreover, the liabilities are overstated by at least $110,232.  A contingent debt to BankSA is included in the liabilities.  That sum, apparently, reflects a guarantee given by Mr Parentes in relation to SA Demolition’s indebtedness to BankSA.

97                  There is, however, no suggestion that SA Demolition cannot meet its liability to the bank, so that amount should be deleted from Mr Parentes’ liabilities.

98                  In my opinion, Mr Parentes’ estimated net worth is understated by $665,334.  Mr Parentes’ net worth is at least in the order of $1.2 million.

99                  Amongst his assets are a number of properties upon which the third respondent conducts its business.

100               A number of valuations were provided.  The five properties which are on South Road and Bacon Street, Hindmarsh are contiguous.  The total value of those properties is $970,000.

101               There is no valuation of all five properties as a whole.  One would expect that if the properties were valued as a whole they would show a value greater than that disclosed.

102               In any event, I do not need to speculate on that.

103               In my opinion, both the company and Mr Parentes are in a position to meet penalties of the kind suggested by the ACCC.

PARTICIPATION OF SENIOR MANAGEMENT

104               At the relevant time, Mr Parentes was the sole director and sole shareholder of the third respondent.  In those circumstances, he was the mind and will of the company.  It is fair to say, however, Mr Parentes is not a well-educated man, nor is he sophisticated commercially.

105               He was born in 1964 and left school in 1979 when he was approximately 14 years of age.  He did not complete Year 9.  I am told he has a limited vocabulary and a limited ability to read or comprehend any form of documentation, and especially complex forms.  He began work as a labourer.  He has never acquired any formal trade skills or qualifications.  He has not had any formal business training and his commercial knowledge and his abilities are quite limited.

106               He learned the business which is now conducted whilst he worked for another demolition company.  He established his own business, SA Demolition, in March 1999.

107               At the time when this contravention occurred, he had only been conducting his business for about 18 months.

108               It is relevant that, since proceedings were commenced, Mr Parentes has resigned as a director of the company and he has been replaced by two other men.  One is an experienced builder and the other an accountant.  Each of those men became shareholders.

109               Whilst Mr Parentes was the sole shareholder prior to this contravention, he now holds 60 per cent of the company’s equity, the other 40 per cent being held by the two directors.  On the evidence, it is not clear whether those men hold the shares beneficially or on trust for Mr Parentes.  I am told that no money was paid by those directors for their shareholding.  That might suggest they hold as trustees.

110               Whilst Mr Parentes is not commercially sophisticated, he understood that McMahon Services wanted SA Demolition to tender at a price which would allow McMahon Services to tender below.

111               He had the opportunity of causing the third respondent not to tender at all or, alternatively, to tender in accordance with the advice given by Mr Feleppa.

112               He must have known that what was being proposed was at the very least wrong, even though I am quite sure he did not know it was a contravention of the Act.

COMPLIANCE SCHEME

113               This is not the type of company or the type of business where it would be expected that the company would have in place a compliance scheme.  This is a relatively small company and business which does not have the structure of a public corporation.

114               Like the fifth respondent, it is not practicable to have a compliance program of the type which is often employed in public companies and larger proprietary companies.  There is no evidence before me that such a scheme will be implemented.

115               However, the directors of the third respondent have undertaken to the Court that they will attend a Trade Practice Compliance seminar conducted by an independent person with appropriate knowledge of Trade Practices law.

116               I have no doubt that these proceedings, these penalties and that seminar will make the third and fourth respondents aware of their obligations under the Act.

PREVIOUS SIMILAR CONDUCT

117               There is no evidence of any previous similar conduct.

THE LEVEL OF COOPERATION BY THE THIRD AND FOURTH RESPONDENTS

118               The ACCC accepts that SA Demolition and Mr Parentes are both entitled to some discount from what would otherwise be the appropriate penalties by virtue of their cooperation and willingness to arrive at a settlement.  It is accepted that there has been a saving of cost to the ACCC and a saving of time to the Court because of that willingness.

119               It is appropriate, however, to take into account that when Mr Parentes was first interviewed in March 2002 he denied any wrongdoing.  When examined in August 2002, pursuant to s 155 of the Act, he continued to deny any wrongdoing.

120               The third and fourth respondents did not enter into negotiations to settle this matter until after it had become known that the fifth, sixth and seventh respondents had agreed facts and had made admissions.

121               No other cooperation has been offered by the third and fourth respondents, except the agreement of those facts.

CONCLUSION

122               The conduct of the respondents which gave rise to the arrangement or understanding, in my opinion, was a serious contravention of s 45 of the Act.

123               It is necessary in fixing the appropriate penalty to have regard to the deterrent effect on the third and fourth respondents but also to consider the general deterrent effect that such penalties may have on all others who might be minded to breach the Act.

124               A total penalty of the kind suggested by the third and fourth respondents would have no deterrent value at all either upon the third and fourth respondents or generally.

125               In my opinion, the conduct was so serious that it warrants a penalty of the kind suggested by ACCC.  As I remarked in Australian Competition and Consumer Commission v McMahon Services Pty Ltd (ACN 008 274 020) (No 1), at one stage I doubted whether the penalties being proposed by the ACCC were sufficient.

126               In the end, I was persuaded that the penalties proposed in respect of the fifth, sixth and seventh respondents were within the range of penalties which might be imposed.

127               The penalties suggested by the ACCC in respect of the third and fourth respondents are also within that range.

128               In my opinion, those penalties are appropriate and should be imposed upon the third and fourth respondents.

129               I make the following orders:

1.         The third respondent pay to the Commonwealth of Australia a pecuniary penalty pursuant to s 76 of the Act in the sum of  $65,625.

2.         The fourth respondent pay to the Commonwealth of Australia a pecuniary penalty pursuant to s 76 of the Act in the sum of $35,000.

The Court notes the undertakings given by the third respondent.

The third respondent gives an undertaking for a period of five years, whether by its directors, servants or agents or otherwise howsoever, to refrain from:

(a)     making available to any company or person who supplies services in competition with the third respondent (or in competition with any company or person with whom the third respondent supplies services), any information, costings or budget estimates relating to the price (or a component thereof) likely to be tendered by the third respondent (or any company or person with whom the third respondent supplies services), for the provision of demolition and asbestos removal services to any person seeking tenders or quotations for the provision of such services;

(b)     discussing with any company or person who supplies services in competition with the third respondent (or in competition with any company or person with whom the third respondent supplies services), any information, costings or budget estimates relating to the price (or a component thereof) likely to be tendered by the third respondent (or any company or person with whom the third respondent supplies services), for the provision of demolition and asbestos removal services to any person seeking tenders or quotations for the provision of such services;

(c)     acting upon the receipt from any company or person who supplies services in competition with the third respondent (or in competition with any company or person with whom the third respondent supplies services), documents relating to the price (or a component thereof) likely to be tendered by such other company or person, for the provision of demolition and asbestos removal services to any person seeking tenders or quotations for the provision of such services;

(d)     knowingly fixing, or aiding and abetting the fixing of, the price (or a component thereof) in any tender for the provision of demolition and asbestos removal services to any person by the third respondent (or any company or person with whom the third respondent supplies services), or any company or person who supplies services in competition with the third respondent (or in competition with any company or person with whom the third respondent supplies services), at an amount no less than a price calculated by the third respondent (or any company or person with whom the third respondent supplies services), or such other company or person, or agreed by them, with the intention of assisting any one of them to win the tender;

(e)     organising, attending or otherwise participating in, any meeting of representatives of companies or persons carrying on business for the provision of demolition and asbestos removal services, being a meeting held for the purpose, or for purposes which include the purpose of fixing, controlling or maintaining the prices offered or charged by such companies or persons for the provision of demolition and asbestos services.

The Court notes the undertakings given by the fourth respondent.

The fourth respondent gives an undertaking for a period of five years, that the fourth respondent will refrain from:

(a)     making available to any company or person who supplies services in competition with any company or person by whom the fourth respondent is employed or engaged, any information, costings or budget estimates relating to the price (or a component thereof) likely to be tendered by the company or person by whom the fourth respondent is employed or engaged, for the provision of demolition and asbestos removal services to individuals or entities seeking tenders or quotations for the provision of such services;

(b)     discussing with any company or person who supplies services in competition with any company or person by whom the fourth respondent is employed or engaged, information, costings or budget estimates relating to the price (or a component thereof) likely to be tendered by the company or person by whom the fourth respondent is employed or engaged, for the provision of demolition and asbestos removal services to individuals or entities seeking tenders or quotations for the provision of such services;

(c)     acting upon the receipt from any company or person who supplies services in competition with any company or person by whom the fourth respondent is employed or engaged, documents relating to the price (or a component thereof) likely to be tendered by such other (competitor) company or person, for the provision of demolition and asbestos removal services to individuals or entities seeking tenders or quotations for the provision of such services;

(d)     knowingly fixing, or aiding and abetting the fixing of, the price (or a component thereof) in any tender for the provision of demolition and asbestos removal services to any individuals or entities by any company or person by whom the fourth respondent is employed or engaged, or any company or person who supplies services in competition with the person by whom the fourth respondent is employed or engaged, at an amount no less than a price calculated by the company or person by whom the fourth respondent is employed or engaged, or such other (competitor) company or person, or agreed by them, with the intention of assisting any one of them to win the tender;

(e)     organising, attending or otherwise participating in, any meeting of representatives of companies or persons carrying on business for the provision of demolition and asbestos removal services, being a meeting held for the purpose, or for purposes which include the purpose of fixing, controlling or maintaining the prices offered or charged by such companies or persons for the provision of demolition and asbestos services.

The Court notes that:

The directors of the third respondent and the fourth respondent undertake to the Court that the directors of the third respondent and the fourth respondent will at their cost, as soon as is practicable, attend a Trade Practices Compliance seminar of the following kind:

1.         The directors of the third respondent and the fourth respondent will attend a Trade Practices Compliance Seminar conducted by an independent person with appropriate knowledge of trade practices law within 3 months of this order.

2.         The Seminar will address the provisions of Part IV of the Trade Practices Act 1974 (Cth) proscribing restrictive trade practices and will, in particular, address the issue of price-fixing and anti-competitive collusion in the context of contracts, arrangements and understandings.

3.         The directors of the third respondent and the fourth respondent will notify the applicant within one week of attending the seminar of their attendance.

Associate:

Dated:              9 September 2004