FEDERAL COURT OF AUSTRALIA

Australian Competition & Consumer Commission v

Leahy Petroleum Pty Ltd (No 3) [2005] FCA 265

TRADE PRACTICES – price‑fixing – petroleum products – agreement restraining competition – admission of contravention – penalty – principles to be applied.

Trade Practices Act 1974 (Cth):  ss 45(2)(a)(ii), 45(2)(b)(ii), 45A(1), 76, 80 and 83

Minister for Industry, Tourism & Resources v Mobil Oil Australia Pty Ltd (2004) ATPR 41‑993, cited

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

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

Trade Practices Commission v CC (New South Wales) Pty Limited & Ors (1994) ATPR 41‑363, referred to

Australian Competition and Consumer Commission v George Weston Foods Ltd (2000) ATPR 41‑763, referred to

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

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

Australian Competition and Consumer Commission v ABB Transmission and Distribution Limited (2001) ATPR 41‑815, considered

Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 75 FCR 238, cited

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

Australian Competition and Consumer Commission v Roche Vitamins Australia Pty Ltd (2001) ATPR 41‑809, referred to

Australian Competition and Consumer Commission v Tyco Australia Pty Ltd (2000) ATPR 41‑760, referred to

J McPhee & Son (Aust) Pty Ltd v Australian Competition and Consumer Commission (2000) 172 ALR 532, cited

Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (No 2) (2002) 190 ALR 169, referred to

Schneider Electric (Australia) Pty Ltd v Australian Competition and Consumer Commission (2003) 127 FCR 170, cited

Australian Competition and Consumer Commission v SIP Australia Pty Ltd (2003) ATPR 41‑937, followed

Trade Practices Commission v TNT Australia Pty Ltd (1995) ATPR 41‑375, cited

Australian Competition and Consumer Commission v Ithaca Ice Works Pty Ltd (2000) ATPR 41‑777, cited

Australian Competition and Consumer Commission v Midland Brick Co Pty Ltd (2004) 207 ALR 392, referred to

Australian Competition and Consumer Commission v Tubemakers of Australia Ltd (2000) ATPR 41‑745, referred to

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

Australian Competition and Consumer Commission v Monza Imports Pty Ltd (2001) ATPR 41‑843, cited

Australian Competition and Consumer Commission v Apollo Optical (Aust) Pty Ltd [2001] FCA 1456, referred to

ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248, followed

Australian Competition and Consumer Commission v Francis [2004] FCA 487, followed

BMW Australia Ltd v Australian Competition and Consumer Commission (2004) 207 ALR 452, followed

Australian Competition and Consumer Commission v Dermalogica Pty Ltd [2005] FCA 152, followed

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v LEAHY PETROLEUM PTY LTD & ORS

GOLDBERG J

17 MARCH 2005

MELBOURNE

THE COURT DECLARES THAT:

1.         In and between June 1999 and December 2000 the first respondent, Leahy Petroleum Pty Ltd (“Leahy Petroleum”), the second respondent, Leahy Petroleum – Retail Pty Ltd (“Leahy Retail”), the fourth respondent, J. Chisholm Pty Ltd (“Chisholm”) and the fifth respondent, Justco Pty Ltd (“Justco”):

(a)               arrived at an arrangement in relation to the supply of motor spirit in the wider Ballarat area (being the area centred around Ballarat city bounded approximately by Avoca, Maryborough and Carisbrook to the North, Lake Bolac and Buangor to the West, Dereel and Elaine to the South and Daylesford and Ballan to the East) a provision of which had the purpose and had the effect of fixing the retail price in the wider Ballarat area for motor spirit at service stations controlled and supplied by the parties to the arrangement and thereby each of them contravened s 45(2)(a)(ii) of the Trade Practices Act 1974 (Cth) (“the Act”);

(b)        gave effect to the said arrangement on 59 occasions in respect of Leahy Petroleum and Leahy Retail, on at least 47 occasions in respect of Chisholm and on 68 occasions in respect of Justco and thereby each of them contravened s 45(2)(b)(ii) of the Act.

2.         In and between June 1999 and December 2000 the eighth respondent, John Robert Gourley, the ninth respondent, Robert Andrew Levick, the tenth respondent, Robin Herbert Palmer, the twelfth respondent, Justin Matthew Bentley and the sixteenth respondent, Peter Robert Muller, were each a person who was directly knowingly concerned in, and a party to, the said arrangement and aided, abetted, counselled and procured the respective corporation by which they were employed to arrive at and give effect to the said arrangement and each of them was accordingly, within the meaning of s 75B(1) of the Act, a person involved in the contraventions of s 45(2)(a)(ii) and s 45(2)(b)(ii) of the Act by the said corporation which employed each of them.

AND THE COURT ORDERS THAT:

3.         Leahy Petroleum, Leahy Retail, Chisholm and Justco be restrained whether by themselves, their employees, servants or agents, or otherwise howsoever, for a period of four (4) years from the date of the making of this order, from making, arriving at, entering into or giving effect to any arrangement or understanding with any respondent in this proceeding or a competitor of each of them which contains a provision that has the purpose, or has or is likely to have the effect, of fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining, of the retail price for motor spirit at service stations controlled or supplied by them and each of them, whether by way of wholesale or retail, in the wider Ballarat area referred to in paragraph 1(a) of this order.

4        A.           The said respondents referred to in paragraphs 1 and 2 of this order pay to the Commonwealth of Australia the following pecuniary penalties set out opposite their respective names in respect of the said contraventions in which each of them was involved:

(a)          Leahy Petroleum                  $1,500,000

(b)         Leahy Retail                         $2,500,000

(c)          Chisholm                              $2,500,000

(d)         Justco                                  $3,000,000

(e)          Mr Gourley                               $40,000

(f)          Mr Levick                                 $25,000

(g)          Mr Palmer                              $100,000

(h)          Mr Bentley                              $200,000

(i)           Mr Muller                                 $40,000

B.                 There be a stay on the payment of such penalties until 4.00pm on 6 April 2005 or further order.

5.         Liberty is reserved to any party to apply to the Court for such further orders and directions as he or it may be advised in relation to the manner of time for, or period of, the payment of the said penalties.

6.         The ninth respondent, Mr Levick, pay the applicant’s costs of and incidental to the proceeding which are fixed by agreement between the applicant and Mr Levick in the sum of $1,000 which is to be payable on or before 17 March 2006.

7.         Liberty is further reserved to any party to apply to the Court for such further orders and directions as it or he may be advised in relation to the implementation and carrying into effect of this order.

8.         The further hearing of the application be adjourned for the purpose of making other final orders until 6 April 2005.

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

REASONS FOR JUDGMENT

Introduction

1                     This is an application by the Australian Competition and Consumer Commission (“the Commission”) for the imposition of penalties and other relief in relation to conduct in contravention of s 45(2)(a)(ii) (which proscribes arrangements which have the purpose or likely effect of lessening competition) and s 45(2)(b)(ii) (which proscribes giving effect to such arrangements) of the Trade Practices Act 1974 (Cth) (“the Act”).

2                     While there are sixteen respondents in this proceeding, this judgment is confined to those respondents who have admitted contraventions of the Act.  Those respondents are:  the first respondent, Leahy Petroleum Pty Ltd (“Leahy Petroleum”), the second respondent, Leahy Petroleum – Retail Pty Ltd (“Leahy Retail”) (collectively “the Leahy companies”), the fourth respondent, J Chisholm Pty Ltd (“Chisholm”), the fifth respondent, Justco Pty Ltd (“Justco”), the eighth respondent, Mr John Robert Gourley, the ninth respondent, Mr Robert Andrew Levick, the tenth respondent, Mr Robin Herbert Palmer, the twelfth respondent, Mr Justin Matthew Bentley, and the sixteenth respondent, Mr Peter Robert Muller.

Background

3                     It is helpful to explain several aspects of the petroleum industry.  Petrol is a relatively homogenous product.  Its purchase forms a significant part of the household budget for most people.  Most petrol is sold through petrol stations.  Petrol prices in metropolitan cities and some rural towns on major highways exhibit cyclical movements that are fairly regular and are said to follow a “sawtooth pattern”, that is prices increase rapidly over a short period of time and then steadily decrease.  The price of petrol is influenced by a complex interplay of factors, which may vary between locations and over time.

4                     Petrol stations can be classified into the following categories:

·                    “company operated sites” being those sites owned and operated by the supplier;

·                    “commission agent sites” being those sites which sell petrol to the public on behalf of the supplier and retain a commission on the petrol sold but in which the supplier maintains the right to set the petrol price;

·                    “reseller sites” being those sites which purchase petrol from the suppliers for resale to the public and have the right to set their own prices;

·                    “oil major franchisee sites” being those sites operated under a franchisee agreement and supplied by either Shell Company of Australia Ltd (“Shell”), Mobil Oil Australia Ltd (“Mobil”), BP Australia Limited (“BP”) or Caltex Australia Limited (“Caltex”);

·                    “independents” being those sites operated by companies that display their own brand, including Swift (operated by Justco), Apco, Liberty, United and Alien branded sites; and

·                    “supermarkets” who purchase petrol from either or both independent importers and the oil majors and retail at their own sites.

5                     This proceeding is concerned with an arrangement between a number of wholesale and retail suppliers of petroleum products to fix the price of petrol in and around the regional centre of Ballarat (“the Ballarat arrangement”) and the giving effect to that arrangement between 1 June 1999 and 31 December 2000.  Prior to June 1999 and at least from 1997, an arrangement existed between competitors who were wholesale and retail suppliers of petrol to fix the price of petrol in and around the regional centre of Ballarat.  However, the contraventions of the Act in respect of which penalties are to be imposed are contraventions which occurred between 1 June 1999 and December 2000.  The parties to the Ballarat arrangement are said to include Justco, Chisholm, Balgee Oil Pty Ltd (“Balgee”) (now Cavallo Volante Pty Ltd), the Leahy companies, from around August 1998, Triton 2001 Pty Ltd (“Triton”), Apco Service Stations Pty Ltd (“Apco”) and from about September 1998 Brumar (Vic) Pty Ltd (“Brumar”) (collectively “the corporate respondents”).  Each corporate respondent carried on business in the Ballarat region as a supplier of petroleum products under the Mobil (Balgee), BP (Leahy Petroleum and Leahy Retail), Shell (Triton and Brumar), Ampol/Caltex (Chisholm), Apco or Swift (Justco) brand.

6                     The area in which the contravening conduct is said to have taken place is the wider Ballarat area, that is the area centred around Ballarat city bounded approximately by Avoca, Maryborough and Carisbrook to the North, Lake Bolac and Buangor to the West, Dereel and Elaine to the South and Daylesford and Ballan to the East.  In this area the corporate respondents carried on business in competition with each other.  The Commission alleges that in about June 1999 the corporate respondents entered into an arrangement to fix or control the retail price for petrol at service stations owned or controlled by them and that during the relevant period (1 June 1999 to 31 December 2000) they gave effect to that arrangement on at least 69 occasions.

7                     The Commission’s case is that as at June 1999 the arrangement operated in the following way: 

·                    any one of the corporate respondents which wished to increase its prices for motor spirit at the service stations controlled and or supplied by it could telephone or contact one or more of the other corporate respondents to communicate the amount and approximate time of the price increase (“a board price call”);

·                    any corporate respondent receiving a board price call would telephone or contact the sites controlled and/or supplied by it in order to implement a similar board price increase at about the same time (“a site call”);

·                    any corporate respondent which became aware that a service station controlled and or supplied by another corporate respondent had not implemented the board price increase could inform a corporate respondent of the fact (“a complaint call”) and the corporate respondent receiving the complaint call would use its best endeavours to have the service station implement the board price change; and

·                    any corporate respondent which became aware of any service station controlled and/or supplied by it that had not put the price increase into effect would make another site call.

8                     The board price calls usually took place after a period of downward price movement. The purpose of the discussion was to move prices up and recommence the cycle.  Prices were usually increased in the order of 4 to 12 cents per litre.  On some occasions the agreed increase did not “stick”.  When this happened it was common for the party receiving the board price call to contact the party that was not observing the price increase to encourage that party to increase its board prices. 

9                     It is now convenient to provide a brief description of those respondents who admitted having contravened the Act.  This description and other facts that I will later recount are taken from several agreed statements of fact filed by the parties.  They may well differ from findings of fact made by Merkel J and they do not emerge from a contested hearing.

10                  Justco was incorporated in 1995 with its head office in Ballarat.  Mr Bentley is the sole director and shareholder of Justco.  During the relevant period Justco had 90 employees, 24 of whom were employed in Justco’s petrol and convenience operations.  Justco began operating in the Ballarat petrol market in June 1996.  During the relevant period Justco sold petroleum products from four sites in the Ballarat area under the Apco and Swift brands.  One site was acquired in June 2000.  Several were high visibility/high volume sites, that is sites with large multi‑bowsers located in areas where there is a large amount of passing traffic, which turn over a high volume of petrol and whose board prices have a significant impact on the volume of petrol sold at petrol stations.  There were 24 high visibility/high volume sites in the Ballarat area.  Justco became party to the Ballarat arrangement through Mr Bentley in about 1997.  At his direction the company gave effect to the arrangement on 68 occasions, moving the price of petrol upwards by 4 to 12 cents per litre.

11                  Chisholm is a family‑owned company.  During 1999 and 2000, among other businesses, Chisholm operated two petrol stations and sold petrol through 15 other sites operated by commission agents in the Ballarat area.  Chisholm had two directors:  Robert Chisholm who was responsible for administrative matters relating to the company’s operations in Ballarat, and his brother, Graeme Chisholm, who had the general supervision of Chisholm’s business in the Ballarat area.  Neither were involved in Chisholm’s day‑to‑day business operations in Ballarat.  Brendan Zala was Chisholm’s Ballarat Manager.  He was responsible for the day‑to‑day operations of Chisholm’s retail business. 

12                  In January 1997, Chisholm became a party to the Ballarat arrangement.  It gave effect to the Ballarat Arrangement on at least 47 occasions during the period from and including June 1999 to December 2000, increasing its price in the order of 6 to 8 cents per litre.  Mr Zala was the person responsible for bringing about this state of affairs. However, the directors of Chisholm were aware of what was going on. 

13                  The two Leahy companies (Leahy Petroleum and Leahy Retail), operating under the BP brand, sold petrol through three company operated sites and three commission agent sites in Ballarat and supplied petrol to eleven commission agent sites and between 18 and 25 reseller sites in the wider Ballarat area.  They had around 110 employees, mostly casuals or part time workers.  In 2000 they changed the nature of its operations and most of these consignment sites became independent reseller sites.

14                  Robert Leahy and Anthony Wood were the directors of Leahy Petroleum.  Mr Palmer was the General Manager of both Leahy Petroleum and Leahy Retail with responsibility for making decisions about changes to the retail price at which petrol was sold at the commission agent and company operated sites in the wider Ballarat area.  Mr Palmer reported to, and obtained strategic guidance on operational matters from, Mr Leahy.  Mr Carmichael, the Transport and Operations manager at Leahy Petroleum, performed Mr Palmer’s duties on occasions when Mr Palmer was absent.

15                  The Leahy companies acknowledge that they were involved in the Ballarat arrangement to coordinate increases in petrol prices.  Their participation was through Mr Palmer and Mr Carmichael.  The Leahy companies gave effect to the arrangement on 52 occasions during the period from and including June 1999 to December 2000.

16                  Balgee was a large Mobil‑branded distributor and retailer, supplying products at both the wholesale and retail levels.  It is partly owned by Mobil through Mobil’s subsidiary Vacuum Oil Company Pty Ltd.  Balgee operated or supplied approximately eight sites in the Ballarat area.  Now it is in voluntary administration.

17                  Mr Levick was employed by Balgee first as a Sales Representative and later in a position with responsibility for retail pricing.  Balgee became a party to the Ballarat arrangement, through the work of Mr Levick, he being its representative for that purpose.  Mr Levick procured Balgee to implement the arrangement on about 69 occasions.  He says that he engaged in that conduct on the instruction, or with the knowledge, of Balgee’s senior management.

18                  Mr Gourley is involved in these proceedings because between 1997 and 2002 he was the General Manager of Balgee, being responsible for the day‑to‑day running of its affairs.

19                  Following his appointment as General Manager, Mr Gourley became aware of Balgee’s participation in the Ballarat arrangement.  Mr Gourley could have brought the participation to an end, but instead encouraged its continuance.  Moreover, he permitted Balgee to give effect to the arrangement on at least 69 occasions.

20                  Mr Muller, is also involved in this proceeding through his association with Balgee.  He was the company’s Operations Manager, and then from March 2000 he held the position of Sales Operations Manager.  In both capacities he participated in the Ballarat arrangements by initiating an increase in board prices and by checking on other companies’ board price increases at the request of Mr Levick.  He was aware that Mr Levick, who reported to him, also participated in the Ballarat Arrangement.

21                  Mr Muller has acknowledged that on behalf of Balgee he implemented the Ballarat arrangement on 69 occasions during the period from and including June 1999 to December 2000, either directly or by allowing other employees to implement the arrangement.

22                  Although the parties to the present application have reached agreement on all material facts, they were unable to agree on the appropriate penalties to be suggested to the Court.  During the course of the submissions it was apparent that there was marked disagreement on what those penalties should be. 

23                  The Commission submitted that the appropriate penalty for Justco is in the range of $3 million to $3.5 million and for Mr Bentley it is $150,000 to $200,000.  Counsel for Justco and Mr Bentley said that the appropriate penalties were $5,000 and $25,000 respectively.

24                  The Commission submitted that the appropriate penalty for Chisholm is between $2 million and $2.5 million.  Chisholm submitted that this sum was excessive, but did not submit a figure.

25                  The Commission and Mr Levick jointly submitted a penalty in the range of $25,000 to $30,000 would be appropriate for Mr Levick, although Mr Levick submitted that an appropriate penalty would be at the lower end of that range, that is, around $25,000.

26                  The Commission submitted that the appropriate figure in relation to the Leahy companies was $5 million for each company.  The Leahy companies submitted that a proper figure was one comparable to the figure suggested by the Commission for Chisholm.  The Leahy companies also submitted that, as between themselves, it would be more appropriate to apportion the penalties such that a higher penalty was imposed on Leahy Petroleum than on Leahy Retail, bearing in mind the ‘subsidiary role’ of Leahy Retail; it was submitted that the appropriate ratio between the penalties for Leahy Petroleum and Leahy Retail was three‑to‑one.

27                  The Commission submitted that a figure of $150,000 to $200,000 would be appropriate for Mr Palmer.  He suggested that it should be in line with the penalty imposed on Mr Levick.

28                  The Commission submitted that an appropriate penalty for Mr Gourley would be between $100,000 and $150,000 and also submitted a range of $150,000 and $200,000.  Mr Gourley said that the appropriate figure was $10,000 (although the amount of $1,000 appeared in his outline of submissions).

29                  The Commission submitted that the appropriate figure for Mr Muller is between $50,000 and $60,000.  Mr Muller did not submit a particular figure, but suggested that the Commission’s figure was excessive.

30                  I have been assisted by the submissions from the parties and will take what they said into account in fixing the appropriate penalties.  I will also bear in mind what was said by the Commission.  In Minister for Industry, Tourism & Resources v Mobil Oil Australia Pty Ltd (2004) ATPR 41‑993 at 48,626, the Full Court of the Federal Court said that:

“…the views of the regulator on matters within its expertise (such as the ACCC’s views as to the deterrent effect of a proposed penalty in a given market) will usually be given greater weight than its views on more ‘subjective’ matters.”

Factors to be considered

31                  Section 76(1A) of the Act provides that the pecuniary penalty payable by a body corporate for a contravention of Pt IV is not to exceed $10 million for each act or omission, and for an individual the penalty payable is not to exceed $500,000 (s 76(1B)).  To determine the appropriate penalty for a contravention of a provision in Pt IV of the Act, s 76(1) 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.”

32                  A number of cases have identified other relevant factors.  In Trade Practices Commission v CSR Limited (1991) ATPR 41‑076 French J, at 52,152‑52,153, listed the following, some relevant only to corporations and some to both individuals and corporations:

·                    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. 

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

·                    whether the company had engaged in similar conduct in the past;

·                    the financial position of the contravening company; and

·                    the deterrent effect of the proposed penalties.

These items are not exhaustive:  Trade Practices Commission v CC (New South Wales) Pty Limited & Ors (1994) ATPR 41‑363 at 42,723.  Other factors may be relevant in a particular case. 

34                  The Commission submitted that additional factors that should be taken into account in this case are:

·                    the nature of the subject goods and services and their relative importance to the community and its dependence on those goods and services;

·                    the degree to which a respondent personally profited from the contravention (including salary, bonuses and career enhancement);

·                    the respondents’ self‑reporting of their own offending conduct in relation to this matter;

·                    the respondents’ assistance to the Commission in relation to alleged co‑conspirators; and

·                    the remedial costs incurred by the respondents.

Object of the imposition of penalties

35                  It is well accepted that the principal object of the penalties regime is deterrence:  Trade Practices Commission v CSR Limited (supra) at 52,152.  There are two elements to deterrence: first, there is specific deterrence, where penalties are imposed in order to deter the contravening party from a further contravention of the Act and, secondly, there is general deterrence, designed to deter others in the community from contravening conduct by showing the seriousness with which the Court considers such contravention:  Australian Competition and Consumer Commission v George Weston Foods Ltd (2000) ATPR 41‑763 at 40,986; NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 at 294‑295.

36                  General deterrence is particularly relevant in price fixing cases.  In Australian Competition and Consumer Commission v J McPhee & Son (Australia) Pty Ltd (No 5) (1998) ATPR 41‑628 Heerey J stated at (40,891‑40,892):

“This form of contravention commonly occurs in secret and between parties who seek a mutual benefit. The risk of detection is often low and the potential gain to the contraveners, and damage to the community, large. Therefore the penalty needs to be correspondingly high.”

37                  It is sometimes said that punishment is not one of the purposes of the imposition of penalties under s 76:  NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (supra) at 296‑297.  However, in Australian Competition and Consumer Commission v J McPhee & Son (Australia) Pty Ltd (No 5) (supra) (at 40,891) Heerey J stated that penalties imposed pursuant to s 76 of the Act for contravention of Pt IV involve “concepts of moral responsibility long known to the criminal law”.  Heerey J’s comments acknowledge that when one speaks of punishment in this context, one is speaking of retribution:  but see Trade Practices Commission v CSR Limited (supra) at 52,152 per French J.  In Australian Competition and Consumer Commission v ABB Transmission and Distribution Limited (2001) ATPR 41‑815 (at 42,936), Finkelstein J noted that there is no unanimity of judicial opinion as to whether punishment is an element.  In that case Finkelstein J examined the statements of French J in Trade Practices Commission v CSR Limited (supra), where he set out the factors to be taken into account in determining penalty and had expressed the view that deterrence is the sole object of the imposition of penalties.  Finkelstein J pointed out that a number of those factors could not be reconciled with the deterrence principle, in particular where it is necessary to take into account the deliberateness of the contravention and the period over which it extended.  He referred to an article by K Yeung entitled “Quantifying Regulatory Penalties: Australian Competition Law Penalties in Perspective” (1999) 23(2) Melbourne University Law Review 440 in which the author made the comment that the criteria listed by French J does not amount to an outright rejection of morality and punishment as relevant to penalty.

38                  In Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 75 FCR 238 I said (at 241) that:

“I am, of course, bound by the authority of the Full Court in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commissionbut apart from Trade Practices Commission v CSR Ltd, to which I shall refer I have been unable to find any positive statement in any of the cases that the purpose of the imposition of penalties by s 76 ‘is not punishment’.  This is a significant matter because, in my view, a court in an appropriate case where there has been a flagrant and wilful contravention might take the view that a severe penalty was warranted having regard to the deliberateness and wilfulness of the contravention.

…

None of the cases which have emphasised the deterrent nature of penalties makes deterrence an exclusive consideration and excludes punishment as a relevant consideration save for Trade Practices Commission v CSR Ltd.” 

In Australian Competition and Consumer Commission v Ithaca Ice Works Pty Ltd (2002) ATPR 41‑851 at 44,543 the Full Court referred to, but did not resolve the, dispute about the role of punishment in imposing penalties.  But it did make the following comment:

“…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.”

39                  The penalty imposed must be substantial enough that the party realises the seriousness of its conduct and is not inclined to repeat such conduct.  Obviously the sum required to achieve this object will be larger where the Court is setting a penalty for a company with vast resources.  However, as specific deterrence is only one element and general deterrence must also be achieved, consideration of the party’s capacity to pay must be weighed against the need to impose a sum which members of the public will recognise as significant and proportionate to the seriousness of the contravention.

Mitigation

40                  In this case a number of factors must be taken into account in mitigation of the penalty that would otherwise be imposed upon the respondents.  The factors include the withdrawal of their respective defences and their acknowledgment of liability.  In Australian Competition and Consumer Commission v NW Frozen Foods Pty Ltd (supra) the Full Court stated (at 293‑294):

“It is well settled that, in the assessment of a penalty, a respondent withdrawing defences and acknowledging liability is entitled to special consideration of reduction of the amount that would otherwise be assessed.  Where, in addition, acceptable evidence is adduced, or the Commission agrees, that a program has been instituted the purpose of which is to ensure an understanding by executives of the requirements of the Act and of their obligations under it, and where a corporation has committed itself to future expenditure upon such a program, there is the more reason to reduce the penalty.”

41                  Co‑operation with the Commission is also relevant in this regard:  Trade Practices Commission v CSR Limited (supra) at 52,152–52,153; Australian Competition and Consumer Commission v Roche Vitamins Australia Pty Ltd (2001) ATPR 41‑809 at 42,812; Australian Competition and Consumer Commission v Tyco Australia Pty Ltd (2000) ATPR 41‑760 at 40,961.  Co‑operation would suggest that there is a resolve by the contravening party to comply with the law, and therefore the requirement of specific deterrence is reduced, and so that the appropriate penalty should be lesser.

42                  I also propose to take into account, when the facts make it appropriate to do so, the Commission’s “Policy on Cooperation and Leniency in Enforcement”.  Under that policy, leniency is considered to be appropriate for a company which, relevantly:

·                    comes forward with valuable and important evidence of a contravention of which the Commission is otherwise unaware or has insufficient evidence to initiate proceedings;

·                    upon its discovery of the breach takes prompt and effective action to terminate its part in the activity;

·                    provides the Commission with full and frank disclosure of the activity and all relevant documentary and other evidence available to it, and co‑operates fully with the Commission’s investigation and any ensuing litigation;

·                    has not compelled or induced any other corporation to take part in the anti‑competitive agreement and was not a ringleader or originator of the activity;

·                    is prepared to make restitution where appropriate;

·                    is prepared to take immediate steps to rectify the situation and ensure that it does not happen again, undertakes to do so and complies with the undertaking; and

·                    does not have a prior record of offences against the Act or offences related to such offences.

Relevant factors to consider as tending towards leniency in penalties for individuals are that the individual:

·                    comes forward with valuable and important evidence of a contravention of which the Commission is otherwise unaware or has insufficient evidence to initiate proceedings;

·                    provides the Commission with full and frank disclosure of the activity and all relevant documentary and other evidence available to them;

·                    undertakes to co‑operate throughout the Commission’s investigation and comply with that undertaking;

·                    agrees not to use the same legal representation as the firm by which they are employed; and

·                    has not compelled or induced any other person or corporation to take part in the conduct and was not a ringleader or originator of the activity.

Not all these factors have application or relevance in the circumstances under consideration.

The parity principle

43                  When dealing with several respondents whose situation and culpability are not the same, it is inevitable that different penalties will be imposed.  Nevertheless it is necessary to bear in mind what is generally referred to as the parity principle.  All other things being equal, similar conduct should be deserving of similar penalties.  Of course, as the Full Court said in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (supra) at 295, ‘other things are rarely equal where contraventions of the Trade Practices Act are concerned’.  It is also desirable to bear in mind the penalties that have been imposed in past cases.  A dramatic departure from previous practice might be seen as representing unjustifiable disparity but may also demonstrate that a level or quantum of previous penalties may, now in the present circumstances under consideration, be regarded as inadequate.

Application of the principles

44                  The arrangement involved at least five competitors who carried on business in the wider Ballarat area, and 37 out of 40 service stations in Ballarat city.  The arrangement concerned a staple commodity whose retail price had a significant impact on a large number of people.  Its effect was to deny the opportunity to consumers to purchase petrol from alternative supplies.  It artificially (that is, other than by market forces) inflated the price of petrol by increases between 4 to 12 cents per litre, a significant rise in the price.

45                  The Commission, accurately in my opinion, described the contravening conduct as “regular, repetitive, covert and clandestine and … engaged in without regard to its unlawfulness.”  The conduct “completely distorted the competitive operation of a substantial and important market”. 

46                  In J McPhee & Son (Aust) Pty Ltd v Australian Competition and Consumer Commission (2000) 172 ALR 532 at 577‑579, the Full Court said that it was necessary to take into account the ‘systematic, deliberate or covert’ nature of the conduct.  According to the Full Court (at 583):

“A salutary penalty is required for conduct that involves contraventions of the Act in reaching an arrangement or understanding and giving effect thereto, particularly when regard is given to the degree of concealment that usually attaches to such conduct and the difficulties faced by authorities charged with the duty of uncovering and prosecuting such contraventions in the public interest.”

47                  No attempt was made to quantify the loss caused by the contravening conduct.  This is understandable, because of the enormity of the task:  see Australian Competition and Consumer Commission v Roche Vitamins Australia Pty Ltd (supra) at 42,814–42,815 and Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (No 2) (2002) 190 ALR 169 at 183.  Nevertheless it is evident by its very nature that the contravening conduct would, as the Commission said have resulted in “distorted trade, created inefficiencies, wasted resources and resulted in a reduction in consumer and total welfare.  Cartel arrangements are designed to raise prices artificially thereby causing substantial damage to consumers and the economy.”

48                  Some measure of the detrimental effect of the arrangements here can be gauged from the following factors:

·                    the extent of the board price increase being in a range of 4 to 12 cents per litre.

·                    the number of times in which the increases were implemented.

·                    the widespread nature of the contravening conduct, which affected the vast majority of consumers in Ballarat.

Justco and Mr Bentley

49                  The involvement of Justco and Mr Bentley in the Ballarat arrangement was long‑standing.  During the 19 month period between June 1999 and December 2000 Justco gave effect to the Ballarat arrangement on 68 occasions.  It is that period in respect of which penalties are to be imposed.

50                  Justco and Mr Bentley were willing participants in the implementation of the arrangement.  Their object was to defeat the ordinary competitive forces that operated between petrol stations. 

51                  Mr Bentley said that he did not consider that he was doing anything wrong when he had the conversations about retail prices in relation to both market information and the further telephone calls made.  I treat with scepticism Mr Bentley’s claim that he did not believe that his conduct was unlawful.  It is likely that he was aware of the frequent allegations of price‑fixing in the petroleum industry and the media coverage relating to such allegations especially in the Ballarat area.  In any event, Mr Bentley had a responsibility to ensure that he knew the law and to see that the law was observed:  ignorantia legis (or perhaps juris) neminem excusat.

52                  Mr Bentley and Justco say that a mitigating factor is that it was rare for them to initiate board price calls.  Justco’s “usual practice” was to check competitors’ board prices before increasing its own board price and only to increase its board prices once other competitors had increased theirs.  That is Justco almost always “followed the market”.  To my mind this is a relevant factor, but it should not be given too much weight in this case.  Price‑fixing arrangements are per se illegal and are harmful because of their effect.  Mr Bentley and his company were more than willing participants, albeit not ringleaders, and should suffer the consequences of being active participants during the 19 month period referred to.

53                  As regards co‑operation, Mr Bentley and Justco did not approach the Commission of their own volition to disclose the conduct in which they had been involved.  Mr Bentley came forward after receiving a s 155 notice requesting documentation, information and evidence in relation to the alleged contraventions in August 2001.  Nevertheless Mr Bentley has made admissions, co‑operated with the Commission in its investigations and provided valuable evidence of contraventions of which the Commission may not otherwise have been aware.  Their co‑operation, including their admissions of contraventions, has saved the Commission, the Court and the community the cost of a lengthy proceeding for which Justco and Mr Bentley should be given credit accordingly.

54                  A chartered accountant, Mr Turner, has assessed the financial position of Justco and Mr Bentley.  Mr Turner said that Justco had assets worth $2,181,980 and liabilities of $1,426,633.  His view is Justco is able to raise $717,000.  However its trading position is not good.  In Mr Turner’s opinion, Justco is unlikely to earn much profit in the foreseeable future.  What Mr Turner has failed to make clear is the reason for Justco’s decline in business. It was a highly profitable operation at the time of the contraventions and has been run down since the Commission intervened.  This is not likely to be simply fortuitous.

55                  Mr Turner said Mr Bentley had assets worth approximately $924,223 and borrowings of about $535,000.  Mr Turner said that Mr Bentley has the capacity to borrow $344,800.  Mr Bentley’s taxable income for the financial years ended 30 June 1999 to 30 June 2003 ranged from $52,243 to $5,232.  However, as a significant portion of Mr Bentley’s earnings are derived from trusts, the deeds and financial statements to which Mr Turner did not have access, he was unable to predict Mr Bentley’s future income.  Mr Bentley was also unhelpful in this regard but did submit that his “modest annual income, modest net assets and substantial liabilities” should be considered.

56                  It is inevitable that the impact of an appropriate penalty on Justco will be severe.  In Schneider Electric (Australia) Pty Ltd v Australian Competition and Consumer Commission (2003) 127 FCR 170 at 173 Sackville J noted that the court should not be concerned by the effect of a penalty on the contravening party’s ability to trade where “the contravener has managed to survive largely by being party to a long‑term collusive arrangement which sheltered it from the rigours of a competitive market,” although he did note that the contravener’s capacity to pay was a relevant factor to be taken into account.  The appropriate penalty might lead to liquidation, but that is not a matter that should stop me from imposing what would otherwise be proper:  see Australian Competition and Consumer Commission v SIP Australia Pty Ltd (2003) ATPR 41‑937 at 47,077 in which I ordered the payment of penalties against a company in liquidation, on the basis that it is a measure of the seriousness of the contraventions and the Court’s disapproval of the same. 

57                  I am concerned that notwithstanding the passage of the trade practices legislation some thirty years ago, the publicity that has occurred and the public awareness, in relation to the contraventions covered by Pt IV of the Act and, in particular, the per se proscription of price‑fixing, there is still found today, and there existed back in 1999 and 2000, conduct of the type in which the respondents have participated.  I consider that it is necessary to give considerable weight to the general deterrence component of the level of a penalty in the circumstances under consideration.  I consider that it is appropriate in 2005 that the community, both commercial and general, be made aware and recognise that the courts and indeed the legal system, views horizontal price‑fixing, cartel behaviour of the type under consideration, most seriously.  It is important that the general deterrence component of the penalties imposed today be specifically emphasised and expressed.

58                  In order to satisfy the objective of specific and general deterrence, it is necessary to impose a substantial penalty on Justco and Mr Bentley whilst at the same time recognising and taking into account the extent of their co‑operation with the Commission and their admission of the contraventions.  In all the circumstances the appropriate penalty for Justco is $3 million.  Mr Bentley should be required to pay a penalty of $200,000.  I bear in mind that Justco is a one man company and its illegal conduct was to the direct benefit of Mr Bentley.

Chisholm

59                  Chisholm only implemented the Ballarat Arrangement in respect of its sites in Ballarat but not in respect of its sites outside the city.  These sites accounted for 5.5% of retail sales in Ballarat.  This is a relatively small market share.  In addition, Chisholm’s participation was with a limited number of parties to the Ballarat arrangement: it only dealt with three parties, although it was aware of the involvement of others.

60                  Chisholm sought to diminish the seriousness of its contravening conduct by asserting that the Ballarat arrangement was aimed primarily at assisting retailers to get prices off unsustainable bottoms in the price cycle and there was still heavy competition between the participants.  I do not accept that Chisholm was motivated by anything other than self‑interest.

61                  Chisholm also relied upon what it referred to as “deterrence without oppression” to support a lower penalty being imposed.  To this end, Chisholm pointed to its limited financial means to meet what might otherwise be an appropriate penalty.  I have already discussed this point and the need to consider general deterrence when dealing with Justco.

62                  Chisholm contended that there was no evidence before the Court that, absent the Ballarat arrangement, petrol prices would not have increased to the level and at the rate which they in fact did.  Accordingly, so the argument went, the Court could not assume that the effect of the Ballarat arrangement was to impose upon consumes a higher purchase price for petrol than would have occurred in a competitive situation.  I reject this argument.  If prices would have increased there was no purpose for the arrangement.  Nor would there by any need for it to be implemented; but it was implemented and on numerous occasions and deliberately so. 

63                  Chisholm sought to excuse its behaviour by asserting that, in the absence of the Ballarat arrangement, the retail petrol market would naturally operate at loss‑making levels, forcing the smaller players out of the market.  By way of explanation Chisholm said that the arrangement merely enabled retailers to raise the price of petrol from the bottom of the price cycle, where there was no profit.  Indeed, Chisholm relied on the frequency with which the arrangement was implemented to contend that the arrangement was not as pernicious as would be the implementation of an arrangement that was enduring in character.  I will take into account that Chisholm, and for the matter the other corporate respondents, did not by their price‑fixing arrangements earn excessive profits over the whole period.  On the other hand, the implementation of the price‑fixing arrangement had serious adverse consequences on consumers and calls for severe penalties so that this type of conduct can be stamped out, whatever be the motive of the contravener.

64                  On the credit side, there are the following factors. Chisholm did not initiate the Ballarat arrangement, only coming into it once it was well‑established.  Its involvement appears to have been largely driven by one employee, Mr Zala.  The arrangement did not extend to all of Chisholm’s sites, but was limited to its five sites in Ballarat. 

65                  Further, since at least August 2001 Chisholm has co‑operated with the Commission in its enquiries.  That co‑operation has saved the Commission some time and some costs.  Its co‑operation has cost Chisholm over $300,000, most of which would no doubt be costs of a legal character.

66                  It is necessary also to have regard to Chisholm’s financial position.  It has no surplus assets but while that is its present situation it has not always been so.  During the years 1995 to 2002 its net assets often exceeded $1 million, its turnover ranged from approximately $30 million per annum to $57.7 million per annum and its net profits sometimes exceeded $1.5 million.  Thus, when Chisholm says that a penalty of more than $2.5 million will “set the company at some risk of its continued existence”, I have already explained why this should be given little, if any weight. In all the circumstances I consider an appropriate penalty for Chisholm to be $2.5 million.

The Leahy Companies

67                  The Leahy companies’ involvement in the Ballarat arrangement and its implementation was long‑standing.  Between June 1999 and December 2000 they implemented the arrangement with frequency (there were at least 52 contraventions) in the wider Ballarat area.  Moreover, the participation of the Leahy companies “substantially assisted in ensuring the success and continuity of the understanding”.  The volume of petroleum products sold at their sites was so great that the contraventions, especially the implementation of the arrangement had a very significant effect upon the Ballarat petrol market.

68                  The Leahy companies were not involved in the arrangement by their directors but by senior management, Mr Palmer and Mr Carmichael.  However, as Burchett J noted in Trade Practices Commission v TNT Australia Pty Ltd (1995) ATPR 41‑375 at 40,167:

“The purpose of penalties imposed under s 76 is that the provisions of the Act shall be adhered to in commerce and industry.  It follows that a serious, deliberate, and systematic course of conduct contrary to the requirements of the Act must generally be met by really severe penalties. Especially must that be so where the senior management of a large company is involved.”  [Emphasis added]

69                  No information is available concerning the value of the trusts on whose behalf the Leahy companies conducted business at the time of the contraventions.  The accounts produced by the companies simply did not disclose the information.  Having regard to the number of sites the Leahy companies owned and operated, and the fact that over the years the net profits from their operations exceeded $1 million, they were obviously very successful operators, no doubt with substantial assets in the trusts.  One of the companies, Leahy Petroleum, seems not to be trading at all and the other, Leahy Retail, has few assets, apart from any right of indemnity against the trust funds.  It is not unusual for unlisted companies who face imposition of significant penalties for contraventions of the Act to rid themselves of their assets so that they are no longer available to meet the penalties.  It is possible that this is what has happened here in relation, at least, to the trading operations.  Whether it has or not, the Leahy companies’ current financial condition should not deter me from imposing an appropriately high penalty in the circumstances such as exist here, albeit where there has been co‑operation, which I take into account, and where the general deterrence component of the penalty should be emphasised.

70                  The Leahy companies’ co‑operation with the Commission has been inconsistent.  Once the arrangement came to light the directors, as well as Mr Palmer and Mr Carmichael, did provide some information to the Commission.  On the other hand, the companies went to great lengths, which were ultimately unsuccessful, to keep their financial records from being inspected.  They did not respond to requests to produce financial statements until the door of the Court.  This is hardly consistent with an attitude of full co‑operation.

71                  In due course, and after the institution of this proceeding, the Leahy companies agreed to withdraw their defences in which they had denied the Commission’s allegations and agreed to submit to the imposition of appropriate penalties.  It is likely that at this point they had little alternative.

72                  On the size of the penalty, parity was the main point upon which the Leahy companies made submissions.  Two points were made: first, that the conduct of Leahy Petroleum and that of Leahy Retail were not of a similar order but were distinguishable by the scale of operations of each company; and secondly, that the conduct of the two companies together was comparable to the conduct of another party to the price‑fixing arrangements, Chisholm.

73                  On the first point the Leahy companies submitted, in essence, that while the conduct of the two companies occurred simultaneously via the agency of the same employees (and thus should be treated together for the purposes of fixing an overall penalty for the Leahy companies), the agreed facts demonstrate that the scale of Leahy Petroleum’s conduct was substantially larger than that of Leahy Retail’s, and thus the effect on the market of each company’s conduct was correspondingly different. By reference to the figures in the agreed facts relating to the volume of each company’s petrol sales during the relevant period, counsel for the Leahy companies submitted that the conduct of Leahy Retail was substantially less significant than that of Leahy Petroleum, and that I should fix penalties in a proportion where Leahy Petroleum’s penalty was some three times as great as that of Leahy Retail. 

74                  The facts do suggest that the scale of Leahy Petroleum’s conduct was greater than that of Leahy Retail, and thus that it had a greater impact upon the market.  This indicates that a greater penalty should be imposed upon Leahy Petroleum.  The more difficult question is whether the Leahy companies should be treated together for the purposes of fixing a penalty.  On one view, while their conduct is for most purposes identical (other than in its scale), it is not the same contravening conduct, and it should be attributed distinctly to each company, warranting a separate and significant penalty for each.  On the other hand it would be to ignore the reality of the situation to suggest that these parties are at arms length.  In my view they are part of a group and should be treated as a group.

75                  The Leahy companies’ second submission on parity involved comparing the conduct of the Leahy companies to that of Chisholm.  The Leahy companies pointed to four factors that suggested that the Leahy companies were less culpable than Chisholm: the Leahy companies gave effect to the arrangement on 52 occasions (as admitted), while Chisholm gave effect to it on 66 occasions (as admitted); the Leahy companies communicated only with Balgee and Apco, while Chisholm communicated with Balgee, Swift and Triton; the Leahy companies were not involved in setting up the arrangement, while Chisholm (through Mr Zala) was; and, during the relevant period the number of sites controlled by Chisholm varied between 13 and 17; according to the submission of counsel for the Leahy companies, the Leahy companies controlled between six and 15 sites during that period (according to the Commission, the figure was between 18 and 25; the agreed facts suggest that this figure includes only reseller sites, but it is not clear whether this includes those of the 11 consignment sites that, during 2000, became independent resellers).

76                  Set off against these factors are two points (which counsel for the Leahy companies sought to downplay) which might suggest that the Leahy companies were no less blameworthy than Chisholm:

·                    Two members of ‘senior management’ of the Leahy companies (Mr Palmer and Mr Carmichael) participated in the contravening conduct (albeit Mr Carmichael did so to a significantly lesser extent), while only Mr Zala participated on behalf of Chisholm.

·                    Chisholm co‑operated with the Commission consistently from the time at which the parties were required to submit to investigation and examination under s 155 of the Act, while the Leahy companies (as described above) were much less forthcoming.

77                  Apart from the “single person” point, there is little that separates Chisholm and the Leahy companies in terms of culpability.  There is, however, a good deal to separate them on the question of co‑operation.  It is at this point that the parity principle breaks down.  And it is in this area which suggests that the Leahy companies should not be given the same latitude or allowance as the other corporate respondents, and in particular Chisholm.  In the imposition of an appropriate penalty, I will not, however, treat the companies as they are treated in law: separate legal persons.  The appropriate penalty to impose on the two companies is $4 million and I would split that penalty in the following way, $2.5 million to Leahy Retail and $1.5 million to Leahy Petroleum.  Had there not existed such degree of co‑operation as occurred, the penalty would have been substantially higher, probably no less than $5 million in total.  I make the same observation (excluding the figure of $5 million) in relation to the penalties imposed on the other respondents.

Mr Palmer

78                  I consider Mr Palmer’s conduct to have been deliberate, in the sense of being willingly engaged in, for a number of years.  But I would not describe his conduct as flagrant, particularly insofar as ‘flagrant’ connotes ‘conspicuous’.  Rather, I accept Mr Palmer’s submission that coordinated prices and communications between competitors in the Ballarat petrol market was ‘a fact of life’ during the entire course of his employment with the Leahy companies.  Such a ‘fact of life’ is, of course, wholly unlawful and totally unacceptable.  He was instructed to follow the market price of Ballarat petrol, and so he did.  He never participated in any meetings.

79                  Mr Palmer did not hold any equity interest in either of the Leahy companies, so did not stand to gain personally from his contravening conduct.  At the date of the penalty hearing Mr Palmer had left the petrol industry and was employed as a regional sales manager for a food manufacturing company.  His annual income was $93,000 plus the use of a motor vehicle.  Other than a mortgage repayment of approximately $1,800 per month his only other expenses were general living expenses.  He had no dependent children living with him.  He has an interest in two properties with a net individual equity of the order of $125,000 and an offset bank account of which his share at the time of the hearing was $40,000.  He has other modest assets and superannuation funds.

80                  Mr Palmer did co‑operate with the Commission, but only after the proceeding had been commenced.  Mr Palmer initially denied or did not admit the allegations against him.  However he filed an amended defence which admitted the contraventions.  This occurred within a short period and therefore does not vitiate the value of his concessions, which saved the Commission and the Court the added time and expense of trying the questions of his liability.  More importantly, Mr Palmer was available to give evidence in these proceedings at the trial of those respondents who contested their liability. 

81                  I consider that a penalty of $100,000 would be an appropriate penalty for the conduct of Mr Palmer.

Mr Gourley

82                  Mr Gourley was involved in conduct that was a serious contravention of the Act.  It involved extensive communications; it involved frequent implementations of the Ballarat agreement (Mr Gourley conceded 69 contraventions by Balgee); it involved all the major participants in the Ballarat petrol market; and the price increases it resulted in were usually in the range of 6 to 12 cents per litre, although that varied.  Balgee was a major participant in the arrangement (a fact which Mr Gourley admitted) and that its participation substantially assisted in ensuring the success and continuity of the arrangement.

83                  It is, on the other hand, true that Balgee was primarily represented by Mr Levick in its contravening conduct.  Mr Gourley never engaged in or initiated price‑fixing conduct himself and never asked or directed Mr Levick to do so.  On a number of occasions he told Mr Levick that Balgee would determine its own prices; Mr Gourley was not aware of the full extent of the price‑fixing conduct occurring within the wider Ballarat area.

84                  There is therefore some validity in the submissions by Mr Gourley that he was involved in a limited manner, that he was generally not an active participant in the price‑fixing conduct, and had occasionally demonstrated an attitude of disapproval of price‑fixing as a commercial strategy.  That is not, however, the full picture.  On a few occasions when he instructed Mr Levick to raise Balgee’s board prices or to match a board price increases, Mr Gourley was aware that the increase had been arranged by Mr Levick through communications with Balgee’s competitors.  In addition there were a few meetings attended by Mr Gourley, Mr Levick and Mr Bentley, at which one Mr Bentley said he intended to contact United (another competitor) with a view to persuading United to bring its prices into line with other participants in the market.  Mr Gourley failed to object to that proposal; although he also did not follow it up subsequently.

85                  These points indicate that Mr Gourley was lax in his attitude to Balgee’s business practices and that he was acquiescent in the contravening conduct, at least to some degree.  Mr Gourley described his conduct as failings of omission rather than commission: he failed to take appropriate steps to stop Mr Levick, his subordinate, contacting Balgee’s competitors, and so failed to prevent the company from continuing to engage in unlawful conduct once he became aware that such conduct was occurring.  That may be so.  But in my view this cannot in all cases be seen as a factor reducing the seriousness of the conduct of a person involved in their company’s contravening conduct.  If adopted as a relevant consideration, it would create the perception that senior managers are permitted to ‘turn a blind eye’ to the contravening conduct of their subordinates and thereby escape liability.  Such a perception must not be condemned. 

86                  It is a particular problem that individuals who contravene the Act may often be officers and employees with a lower level of responsibility. And if contraventions of the Act by a corporation arise from the conduct of officers and employees with lesser responsibility within the corporate structure, rather than senior management, it is accepted that the corporation should be subject to a lesser penalty than would be applicable were the conduct proved to have arisen from the acts of senior management.  At the same time, it is widely understood that anti‑competitive practices may be engaged in without explicit words or actions, but by a ‘nod and a wink’.  With these facts in mind, it may often be possible for a corporation which is alleged to have engaged in anti‑competitive activities to ensure that the best or only evidence available as to the manner in which the activities were carried out will suggest that they were carried out by the agency of lower‑level employees, while scant or no evidence is available that indicates that higher‑level management or directorship was involved.  The result is a significant opportunity for corporations to minimise their penalty, and similarly for those having strategic control of the company’s affairs to avoid their responsibility for implementing ethical business practices.  To an extent, perhaps, this is an evidential limitation which a court may often be unable to overcome.

87                  There is also an uneasy tension between applying the principle that a penalty should not be crushing or oppressive and should have regard to the financial means of the respondent on the one hand, and on the other hand imposing a penalty which will have due regard to the seriousness of the contravention and the need for such penalty to have an adequate general deterrence component.  Whilst employees at middle or lower management levels are proceeded against (and who have relatively modest incomes and assets), there will often be little room for the opportunity to impose a penalty with an adequate general deterrence component, without the penalty being potentially crushing or oppressive.  It should not be thought that because a middle or lower management level employee is proceeded against for being involved in a contravention of a Pt IV provision, that the penalty will bear a relativity to the employee’s financial resources and that a penalty appropriate having regard to the seriousness of the contravention and the need for a general deterrence component to be included will not be imposed.  If the end result is that such an employee may be compelled to seek the protection of the bankruptcy laws, that may only reflect the seriousness of the contravention and the need for a general deterrence component, rather than the conclusion that the penalty was inappropriate having regard to the financial resources of the employee. 

88                  In this case, all I need say is that I consider it to be as serious and blameworthy that Mr Gourley failed to take appropriate steps to prevent Balgee’s continued contraventions of the Act as it would have been had he positively taken steps to engage in conduct in contravention of the Act.  It is not insignificant that Mr Gourley had participated in a trade practices compliance seminar in 1998 – prior to any of the admitted contraventions taking place – and had distributed a booklet outlining trade practices issues to Mr Muller and Mr Levick among others.  This indicates that Mr Gourley had an awareness of the unlawful nature of the conduct of Mr Levick, and yet still acquiesced.  Thus there is a need to impose a penalty that will have a clear deterrent effect.  Additionally, there was a degree of deliberation involved here, in the sense that the conduct was long‑standing and ongoing, and Mr Gourley engaged in it with a clear understanding of the objectives of doing so.

89                  As with other individuals, Mr Gourley never had any interest in profiting personally from Balgee’s contravening conduct. Engaging in the contravening conduct may not even have been a necessary element of his employment duties, since he was always an employee of Mobil and merely on secondment to Balgee.  I will give this some weight.

90                  There are other mitigating factors to take into account.  Following the institution of this proceeding, Mr Gourley filed a defence that denied or did not admit the principal allegations made against him.  Thereafter Mr Gourley’s solicitors negotiated with the Commission in order to reach agreement to resolve the proceeding against him.  While these negotiations were going on, Mr Gourley decided to act on his own behalf.  He contacted the Commission seeking a meeting in order to progress settlement negotiations.  After that point Mr Gourley attended a number of interviews with officers of the Commission, and provided a witness statement in relation to the investigation.  A statement of agreed facts was signed shortly thereafter.

91                  By conceding liability, Mr Gourley saved the Commission and the Court the time and expense of litigating the matter.  Overall, the Commission accepted that Mr Gourley had satisfied most of the requirements of the Commission’s Leniency Policy, albeit not to a high level.

92                  In 2001, Mr Gourley instructed Balgee’s solicitors to implement a trade practices compliance program.  In December 2001 a training session was delivered to the key employees of Balgee, and a compliance manual was placed on Balgee’s internal computer network. Balgee’s board of directors also adopted a trade practices compliance policy.

93                  Finally I address what, in my view, were the most significant (and troublesome) submissions advanced by counsel for Mr Gourley – his slender means to pay any applicable penalty.  I referred earlier to some of the general problems involved in the factor of ‘capacity to pay’.  I put them to one side when dealing with the corporate respondents, but they do have significance for the position of individuals.

94                  Mr Gourley had been employed by Mobil for almost 30 years, until he lost his job in August 2002.  Immediately prior to termination his gross income was $86,904 per annum, in addition to which he had a car allowance of $15,000 per annum.  His employment with Mobil was terminated when his solicitors informed Mobil about the admissions he was intending to make in this proceeding.  He was unemployed until July 2003.  Then he was employed as a representative of Ray White Real Estate in their commercial property division, in which capacity he earned income on a commission basis.  However, he is unemployed at the present time.

95                  In January 2003 Mr Gourley was divorced from his wife of over 25 years.  He has two adult children.  Mr Gourley indicated that the terms of his divorce settlement involved transferring his interest in the marital house and family car to his former wife, and to pay her two sums of $25,000 (one in September 2002 and another by instalments by June 2005), together with payments for maintenance and child support.  Mr Gourley rented a two bedroom flat, which he shared with his adult daughter, the rent being $1,560 per month.  Recently Mr Gourley moved to premises where the rent was $1,343 per month.

96                  Mr Gourley has incurred legal fees of approximately $122,367.  Following the termination of his employment with Mobil, Mobil refused to indemnify Mr Gourley for his legal costs in this proceeding.

97                  Mr Gourley provided a statement of his assets and liabilities.  His superannuation (as at May 2004) totalled $185,177.  He listed ‘assorted furniture’ as his only other asset, the value of which was $5,000.  His liabilities comprised his legal costs, four credit accounts, and the remaining divorce settlement liability to his former wife.  These liabilities total $209,567.  Mr Gourley also provided a statement of income and expenditure between 1 July 2003 and 30 June 2004.  This shows that he received $26,000 income from Ray White (earned on a commission basis), set against expenditure totalling $46,072 (comprising accommodation, transport, insurance, telephone, general living expenses, and a $12,000 interest on loans and credit card payments).

98                  Mr O’Bryan, (who appeared pro bono for Mr Gourley), submitted that the Commission’s proposed penalty was excessive.  I consider that the Commission’s position gives insufficient consideration to Mr Gourley’s personal circumstances, which only emerged in the course of the hearing.

99                  I was referred to a number of authorities, including Australian Competition and Consumer Commission Midland Brick Co Pty Ltd (2004) 207 ALR 392, Australian Competition and Consumer Commission v Ithaca Ice Works Pty Ltd (2000) ATPR 41‑777, Australian Competition and Consumer Commission v Tubemakers of Australia Ltd (2000) ATPR 41‑745, and Australian Competition and Consumer Commission v SIP Australia Pty Ltd (1999) ATPR 41‑702, which are examples of cases in which penalties were considerably reduced in recognition of the contravener’s limited financial means.

100               I have taken these considerations into account, together with the nature and extent of Mr Gourley’s conduct, balanced against the key consideration of general deterrence.  In my view it is appropriate to impose a penalty of $40,000 on Mr Gourley.  Any lesser penalty would pay inadequate regard to the quantum of penalties provided by the Act and the seriousness of the contraventions admitted.  As with all personal respondents, I am prepared to give consideration to any application for time to pay or for periodic payments.

Mr Muller

101               Mr Muller was Operations Manager, and a Sales Operations Manager at Balgee.  He was aware for some time before June 1999 that representatives of Balgee had engaged in price‑fixing conduct, and had engaged in that conduct himself.  Indeed, he was instrumental in Balgee perpetuating that conduct by explaining to Mr Levick that retail price discussions with competitors had occurred in the past and would be part of Mr Levick’s role as Sales Representative, and providing Mr Levick with names and telephone numbers of representatives of other competitors in the Ballarat petrol market and informing him that these were the people to talk to regarding retail pricing.

102               Mr Muller was joined as a respondent after the commencement of this proceeding.  He filed a defence in which he did not admit the principal allegations made against him.  Later, the Commission’s solicitors wrote to Mr Muller inviting him to negotiate a settlement of the case.  Mr Muller then attended a number of interviews with officers of the Commission and in due course agreement was reached.

103               While Mr Muller did not provide the Commission with evidence of the contraventions of which the Commission was otherwise unaware, he did satisfy most of the requirements of the Commission’s policy on leniency.  He had reported details of his own contravening conduct.  Mr Muller’s concession of liability saved the Commission and the Court some of the cost and burden of litigating a lengthy and expensive case.

104               Mr Muller’s somewhat limited financial means again formed the primary focus of his submissions.  His financial position is not as bad as that of Mr Gourley, but it should nevertheless be taken into account.

105               Mr Muller is married with two adult children (aged 30 and 32).  He and his wife are in reasonable health, although his wife recently suffered a back injury.  He is presently employed (not by Balgee) as an Operations Manager and receives a net salary of $45,000 per year after payment of superannuation.  He has a small amount of savings held in a joint bank account with his wife.  He has no assets of substance other than household furniture and personal effects of no significant value.

106               Mr Muller lives in rented premises with his wife and pays rent of $715 per month.  His present liabilities include $9,800 owing on a credit card, which sum is largely attributable to his legal fees in relation to these proceedings.  He drives a company vehicle, while his wife drives a small car valued at approximately $3,500.

107               Mr Muller’s counsel pointed out that a penalty of $50,000, which was the lower end of the range the Commission submitted was appropriate, would take ten years for Mr Muller to pay if he paid it at the rate of $100 per week which was all that he could afford.  Counsel submitted that this would be excessively onerous having regard to what he suggested was the relatively small degree of blameworthiness of Mr Muller’s conduct.

108               I consider that Mr Muller’s conduct was broadly comparable to that of Mr Gourley.  Each man, in their respective management positions, was aware of and acquiescent in the conduct of their subordinate Mr Levick, and on occasion engaged in that conduct in a slightly more active manner.  They conceded their involvement in approximately the same number of contraventions by Balgee over the relevant period.

109               I have imposed a low penalty on Mr Gourley in recognition of Mr Gourley’s more limited means.  Mr Muller should suffer a slightly lower penalty because of his lower position in the Balgee hierarchy.  This should be seen not as penalising the other individual respondents simply because they were in a stronger financial position, but rather as avoiding the imposition of an overly burdensome penalty on both Mr Gourley and Mr Muller.

110               I consider that a penalty of $40,000 is appropriate for Mr Muller’s conduct.  If he seeks time to pay, an order to that effect will be made.

Mr Levick

111               Mr Levick’s introduction to the arrangement was at the direction of senior management and he characterised his involvement as that of a lower level employee taking directions regarding company practice from senior management.  Mr Levick did not receive any trade practices compliance training at Balgee until late 2000 and was not aware until much later in the sequence of events that what he was doing was actually in contravention of the Act.

112               Once proceedings were brought against him personally, Mr Levick obtained independent legal advice which he funded himself and quickly thereafter began a train of co‑operation with the Commission.  As a consequence of this co‑operation, matters came to the attention of the Commission which it had not previously known and this in part enabled the Commission to join senior personnel of Balgee to the proceeding.  He also provided further information against one of the existing respondents.  Mr Levick undertook to the Commission that he will give evidence against one of the respondents if required to do so which he submits is evidence of his remorse for engaging in the contravening conduct.

113               Mr Levick has a modest income and few assets.  He has high outgoings in respect to rental and living expenses as well as a family property.  He has a substantial credit card debt of $20,000 representing living expenses.  He supports his estranged wife and three young children.  He is funding his own defence in this case.  All in all, a penalty of $25,000 is appropriate.

Section 83

114               The Commission initially applied for orders pursuant to s 83 of the Act.  That section provides:

“In a proceeding against a person under section 82 or in an application under subsection 87(1A) for an order against a person, a finding of any fact by a court made in proceedings under section 77, 80, 81, 86C or 86D, or for an offence against a provision of Part VC, in which that person has been found to have contravened, or to have been involved in a contravention of, a provision of Part IV, IVA, IVB, V or VC is prima facie evidence of that fact and the finding may be proved by production of a document under the seal of the court from which the finding appears.”

115               In the course of the first penalty hearing before me (there being three hearings altogether) the parties no longer sought orders or findings under s 83.  It is not clear whether this position was maintained in the subsequent hearings.  If it was, then no such orders were ultimately sought.  If it was not, I am not disposed to make such orders or findings for the following reasons.

116               Where parties submit an agreed statement of facts, it may not be appropriate to regard formal admissions as findings of fact for the purposes of s 83.  In Australian Competition and Consumer Commission v ABB Transmission and Distribution Limited (No 2) (supra), Finkelstein J stated (at 183‑184):

“The general rule is that formal admissions are only binding for the purpose of the particular case in which they are made:  Dawson v Great Central Railway (1919) 88 LJKB 1177 at 1181‑2.  It is not clear whether a judge who acts on formal admissions is making findings of fact.  I rather think he is not, because the purpose of an admission, such as may be made in a pleading, is to dispense with the need to prove the admitted fact.  That is quite different from a case where the judge hears evidence and makes findings based on that evidence.”

117               In Australian Competition and Consumer Commission v Monza Imports Pty Ltd (2001) ATPR 41‑843 Carr J did not make findings of fact for the purpose of s 83 on the basis that the facts had not been established and tested before the Court.  At 43,440 he stated:

“I am inclined to the view that the Parliament intended ‘… a finding of any fact by a court …’ to mean a finding made after a hearing.  The apparent purpose of the provision is to save inconvenience and expense in requiring a matter to be proved more than once, but at the same time protecting the interests of a respondent by conferring on such a finding only the status of prima facie evidence in subsequent proceedings.”

Carr J made similar comments in a related proceeding:  Australian Competition and Consumer Commission v Apollo Optical (Aust) Pty Ltd [2001] FCA 1456.

118               Even if these statements were not correct, it would seem, as a matter of principle, that where evidence has not been tendered, but the parties rely upon statements of agreed facts which have not been the subject of critical analysis by the Court, it is inappropriate to make orders that would allow for an extended use of findings of fact, particularly use of those facts as prima facie evidence in related proceedings as envisaged by s 83.  I therefore decline to make any orders under s 83.

Injunctions and other orders

119               In addition to the penalties to be imposed there will be declarations of contraventions, and injunctions against the corporate respondents restraining future contraventions generally in the form submitted by the Commission.  Such injunctions are appropriate having regard to the principles and observations found in ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248; Australian Competition and Consumer Commission v Francis [2004] FCA 487 and BMW Australia Ltd v Australian Competition and Consumer Commission (2004) 207 ALR 452.

120               In ICI Australia Operations Pty Ltd v Trade Practices Commission (supra) Gummow J said at 267:

“Thus, the terms of the injunction will not be "appropriate" if, on its face, it operates upon a range of conduct some of which does, but some of which does not, have the relationship required by s 80 with contravention of the Act.  The injunction should not prohibit conduct falling outside the boundaries drawn by s 80: see Thomson Australian Holdings Pty Ltd v Trade Practices Commission(1981) 148 CLR 150 at 161.  The same limitation applies to mandatory injunctive relief.  It is, in my view, no support for the grant of an injunction which, from the outset, has an operation outside the boundaries of s 80, to say that it is open for the party enjoined to apply under s 80(3) to vary the injunction so as to bring its operation wholly within proper limits.  The party in question should not be placed under any such obligation in the first place.”

121               In Australian Competition and Consumer Commission v Francis (supra) Gray J said at [122]:

“The effect of granting an injunction, if there is a repetition of the conduct enjoined, is to render the person enjoined liable to punishment for contempt of court.  By this means, what would otherwise be a contravention of the Trade Practices Act can be converted to conduct rendering the person liable to a financial penalty, or, in extreme cases, to imprisonment.  The Court must therefore be satisfied that the possibility of such consequences ought to be visited upon a person, if there should be a repetition of the conduct complained of, before granting such an injunction.  The terms of the injunction must be specific, so that the person subject to it can understand clearly what conduct will amount to a breach of the injunction, and what conduct he or she can engage in legitimately.”

122               The issue of an injunction was again considered in BMW Australia Ltd v Australian Competition and Consumer Commission (supra) where the Full Court said (at 466):

“A relevant factor to consider in determining whether to grant an injunction pursuant to s 80 of the Trade Practices Act is whether the existing sanctions for the conduct to be the subject of the injunction, found in the Trade Practices Act itself, require to be supplemented by the availability of the range of sanctions applicable to contempt of court.  The purpose of granting an injunction to restrain conduct already prohibited by legislation can only be to add to whatever consequences the legislation attaches to that conduct the additional consequences of a possible finding of contempt of court by failure to comply with an injunction.  In each case, it is a question whether the conduct concerned warrants the application of those more stringent consequences.”  [Emphasis added]

123               In Australian Competition and Consumer Commission v Dermalogica Pty Ltd [2005] FCA 152 I said (at [110]):

“In determining whether to grant an injunction proscribing future conduct, the court should consider whether all the circumstances of the case – including the scale of the prior contravening conduct, any evidence as to the contravener’s future intentions and the likelihood of damage to other persons as a result of further proscribed conduct – call for the contravener being subject to the more onerous burdens, such as contempt of court, in relation to their future conduct.  This consideration is required even though the power of the Court to grant an injunction under s 80 is not limited by the requirement of a threat of future contravening conduct.” 

124               I consider injunctions are appropriate in relation to the corporate respondents having regard to the period during which and the number of occasions on which during that period (of 19 months) the contraventions occurred. 

125               There is no need to impose injunctions against any of the individuals who, in my opinion, will not offend again.

COSTS

126               The Commission should have its costs of that part of the application referrable to the respondents who have admitted contravening the Act who should pay such costs.  I will hear the parties on issue as to costs. 

Associate:

Dated:              17 March 2005